<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10520
HEARTLAND PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3606475
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification no.)
547 West Jackson Boulevard, Chicago, Illinois 60661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/294-0440
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Limited Partnership Units American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [_] No [_]
The aggregate market value of the Registrant's Class A Limited Partnership Units
held by non-affiliates of the Registrant, computed by reference to the last
reported sales price of the Registrant's units on the American Stock Exchange as
of March 27, 2000, was approximately $39,565 million. On that date there were
2,142,438 units outstanding. For the purposes of this computation, it is
assumed that non-affiliates of the Registrant are all holders other than
directors and officers of Heartland Technology, Inc., the Registrant's General
Partner.
Exhibit index appears on Page 49.
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Forward Looking Statements
We caution you that certain statements in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section, and elsewhere
in this Form 10-K, 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 Financial Condition and Results of Operations
section, and elsewhere in this Form 10-K. 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 statements. In addition, we do not have any intention or obligation to
update the forward-looking statements in this document. The Company claims the
protections of the safe harbor for forward-looking statements contained in
Section 21E of the Securities Exchange Act of 1934.
PART I
ITEM 1. Business
Organization
Heartland Partners, L.P. ("Heartland" or the "Company"), a Delaware limited
partnership, was formed on October 6, 1988. Heartland's existence will continue
until December 31, 2065, unless extended or dissolved pursuant to the provisions
of Heartland's partnership agreement.
Heartland was organized to engage in the ownership, purchasing, development,
leasing, marketing, construction and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Heartland Technology, Inc. ("HTI"), formerly known as
Milwaukee Land Company ("MLC"). HTI is the general partner of Heartland (in
such capacity, the "General Partner"). In July 1993, Heartland Development
Corporation ("HDC"), a Delaware corporation, wholly-owned by Heartland and CMC,
formed CMC Heartland Partners I, Limited Partnership ("CMCI"), a Delaware
limited partnership, to undertake a planned housing development in Rosemount,
Minnesota ("Bloomfield or Rosemount"). CMC has a 100% membership interest in
CMC Heartland Partners II ("CMCII"), CMC Heartland Partners III ("CMCIII"), CMC
Heartland Partners IV ("CMCIV"), CMC Heartland Partners V ("CMCV"), CMC
Heartland Partners VI ("CMCVI"), CMC Heartland Partners VII ("CMCVII") and CMC
Heartland Partners VIII ("CMCVIII"). CMCII was formed to participate in the
Goose Island Industrial Park joint venture in Chicago, Illinois. CMCIII was
formed in 1997 to develop a portion of the Kinzie Station property in Chicago,
IL. CMC IV was formed in 1998 and is developing approximately 177 acres in Fife,
Washington. CMCV was formed in 1996 to acquire finished lots, sell and to
construct homes in Osprey Cove ("Osprey"), a master-planned residential
community in St. Marys, GA. CMCVII was formed in 1998 to acquire and engage in
sales, marketing and construction of homes in the Longleaf Country Club,
Southern Pines, NC ("Southern Pines or Longleaf"). CMCVI and CMCVIII were formed
at various times to acquire and hold future acquisitions. CMC also owns 100% of
the common stock of Lifestyle Communities, Ltd. ("LCL") which serves as the
exclusive sales agent in the St. Marys, Southern Pines and Kinzie Station
developments. LCL is also the general contractor in the St. Marys development.
CMC owns 100% of the stock of Lifestyle Construction Company, Inc. ("LCC") which
serves as the general contractor in North Carolina. Except as otherwise noted
herein, references herein to "Heartland" or the "Company" include CMC, HDC,
CMCI, CMCII, CMCIII, CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC.
Heartland's partnership agreement provides generally that Heartland's net income
(loss) will be allocated 1% to the General Partner, 98.5% to the Class A limited
partners (the "Unitholders") and 0.5% to the Class B limited partner. In
addition, the partnership agreement provides that certain items of deduction,
loss, income and gain may be specially allocated to the Class A Unitholders or
to the holder of the Class B Interest or the General Partner. Also, the
partnership
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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 General Partner has the discretion to cause Heartland to make distributions
of Heartland's available cash in an amount equal to 98.5% to the Unitholders,
0.5% to the holder of the Class B Interest and 1% to the General Partner. There
can be no assurance as to the amount or timing of Heartland's cash distributions
or whether the General Partner will cause Heartland to make a cash distribution
if cash is available. On November 24, 1997, Heartland declared a cash
distribution in the amount of $1.6 million to Unitholders and Partners of record
on December 29, 1997, that was paid on January 7, 1998. On December 4, 1997,
Heartland's partnership agreement was amended to allow the General Partner in
its discretion to establish a record date for distributions of the last day of
any calendar month.
Real Estate Development Activities
At year end 1999, property designated for development consisted of 15 sites
comprising approximately 890 acres. The book value of this land is $10 million
or an average of $11,200 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 on the first phase of the project started on October 1, 1998.
The first closings are expected to occur in the second quarter of the year 2000.
<TABLE>
<CAPTION>
Kinzie Station
Phase I
Unit Detail
As of December 31, 1999
Total Number Sale Contracts
of Units To-Date
------------ --------------
<S> <C> <C>
Tower Building 163 108
Plaza 24 6
Townhomes 5 4
--- ---
Total 192 118
</TABLE>
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.
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% (9.5% at December 31, 1999). This loan is collateralized
by the real estate contained in the project. In conjunction with the loan, a
Construction Contract with the guaranteed maximum price of $24,710,000 which
increased to $24,972,282 due to subsequent change orders was entered into with a
general contractor. At December 31, 1999, $13,287,158 had been advanced by CB
to the Company.
3
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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 (8.5% at December 31, 1999). 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 December 31, 1999, $113,844 had been advanced by Bank One to the
Company.
Osprey Cove
Included in the aforementioned 890 acres are approximately 11 acres consisting
of 34 lots purchased for $1.3 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 model homes and homes under construction will be completed and closed during
the first six 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.
As of December 31, 1999, 35 contracts have closed in Osprey; 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
year ended December 31, 1999, CMC has sold 6 homes and 25 lots for those owners.
<TABLE>
<CAPTION>
Osprey Cove
Unit Inventory Detail
As of December 31, 1999
<S> <C>
Model Homes 1
Sold Homes under construction 4
Inventory homes under construction 4
Lots owned 25
-------
Total unit inventory 34
=======
</TABLE>
On December 30, 1999, Heartland entered into a modification agreement to its
December 30, 1996, revolving line of credit agreement in the amount of
$3,000,000 for Osprey Cove to extend the maturity date to June 30, 2000. The
line of credit with Bank of America (formerly NationsBank, N.A.) ("B of A")
bears interest at the prime rate of B of A plus 1% (9.5% at December 31, 1999).
At maturity, all outstanding advances and any accrued interest must be paid. At
December 31, 1999, $1,513,730 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% (9.5% at December 31,1999). At December 31, 1999, FNB had advanced $462,785
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 December 31, 1999, the
Company owned 19 lots purchased for approximately $613,000, an average of
$32,300 per lot. These 19 lots comprising 6 acres of land, are also included in
the aforementioned 890 acres. Also, the Company is building 1 sold home on an
individual's own lot.
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In Longleaf, the Company closed 13 homes 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 December 31, 1999, the Company has sold 27 units and 2 lots for
these owners since April 1, 1998.
<TABLE>
<CAPTION>
Longleaf
Unit Inventory Detail
As of December 31, 1999
<S> <C>
Model Homes 2
Sold Homes under construction 7
Inventory homes under construction 6
Lots owned 4
-------
Total unit inventory 19
=======
</TABLE>
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 3
closed in 1999) 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 (8.5% at December 31, 1999). At December 31,
1999, $1,441,871 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.
5
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During 1999, 4 townhomes and 2 single-family detached homes were closed.
<TABLE>
<CAPTION>
Rosemount
(Phase I)
Unit Inventory Detail
As of December 31, 1999
<S> <C>
Model Homes 3
Sold Homes under construction 2
Inventory homes under construction 9
Townhome building foundation 6
Lots owned 131
---------
Total unit inventory 151
=========
</TABLE>
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 home inventory and the townhome building foundation may
take place during the year 2000. However, the sale of the remaining lots and
acreage may take beyond the year 2001.
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 (8.5% at December 31, 1999). The outstanding
loan balance is $2,470,000 at December 31, 1999. 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 (8.5% at December 31, 1999). The loans mature on
January 31, 2001 and January 31, 2000, respectively. At December 31, 1999,
$506,033 had been advanced against the development loan and $1,175,006 against
the revolving line of credit. The Company believes no additional financing will
be needed for Phase I. The Company is currently in negotiations with Bank One to
extend the maturity date of the $4,000,000 revolving line of credit to
December 1, 2000. While the Company has no reason to believe the extension of
the credit facility will not be approved by Bank One, there can be no assurance
the contemplated extension will be given. The consolidated financial statements
do not contain any adjustments to reflect the ultimate outcome of this
uncertainty.
Other Development Activities
The Company executed a sales contract on March 24, 2000 to sell its Galewood
property located in Chicago, Illinois for $7.75 million to a group of investors.
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
contains contingencies typical of such contracts and there can be no assurance
the transaction will be completed.
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 December 31, 1999, the buildings
had been built and leases had been signed for all of the 265,000 square feet.
6
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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 14,458 acres
located throughout 12 states. The book value of this inventory is approximately
$766,000. 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.
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.
Other Activities
At December 31, 1999, the allowance for claims and liabilities established by
Heartland for environmental and other contingent liabilities totaled
approximately $2.8 million. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Given the uncertainty inherent
in litigation, resolution of these matters could require funds greater or less
than the $2.8 million allowance for claims and liabilities.
Heartland engages outside counsel to defend it in connection with most of these
claims. Significant claims are summarized in Note 8 to the Consolidated
Financial Statements (See Item 8).
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Regulation and Environmental Matters
For a discussion of regulation and environmental matters, see Notes 5 and 8 to
the Consolidated Financial Statements (See Item 8).
Employees
At December 31, 1999, Heartland employed 48 people.
Item 2. Properties
In addition to the 890 acres designated for development at December 31, 1999,
real estate holdings consisted of approximately 14,458 acres of scattered land
parcels. States in which large land holdings are located are Illinois, Iowa,
Minnesota, Montana, North Carolina, North Dakota, South Dakota, Washington, and
Wisconsin. The remaining acreage is located in Georgia, Idaho, Indiana, Michigan
and Missouri. Most of the properties are former railroad rights-of-way, located
in rural areas, comprising of long strips of land approximately 100 feet in
width. Also included are former station grounds and rail yards. The Company owns
certain air and fiber optics development rights in the Chicago, Illinois area.
Other than land classified under Real Estate Development Activities, the land is
typically unimproved. Some of the properties are improved with structures (such
as grain elevators and sheds) erected and owned by lessees. Other properties are
improved with Heartland-owned buildings that are of little or no value.
Improved properties of value to Heartland include a three-story office building
with 60,000 square feet of space in Milwaukee, Wisconsin and a two-story
warehouse/office building in northwestern Chicago used for the storage of
partnership records.
Heartland's headquarters occupy approximately 9,000 square feet of leased office
space located at 547 West Jackson Boulevard, Chicago, Illinois. The lease
provides for a base rent of $107,688 and is subject to operating expense and tax
escalations. The lease expired December 31, 1999, and was extended to May 31,
2000. At that time, the Company anticipates moving its headquarters to
commercial space it owns in the Kinzie Station development.
Item 3. Legal Proceedings
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 of Tacoma which calls for the Company to either pay the Port of Tacoma $1.1
million or transfer to the Port of Tacoma real estate to be agreed upon at a
later date. During the second quarter of 1999, the Company modified the
Settlement Agreement to provide that Heartland would (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.
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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.
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 is demanding
specific performance by conveyance to it of the vacant 5.95 acre parcel in
Minneapolis, Minnesota in consideration of $562,000.
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 attached to a frog 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 not yet determined its exposure or tendered the
defense to its insurance carriers.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Unitholders of Heartland in the fourth
quarter ended December 31, 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Units are listed and traded on the American Stock Exchange under the symbol
"HTL". The Units began trading on a "when issued" basis on June 20, 1990. The
following table sets forth the high and low sales prices per Unit by quarter for
the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 High Low
<S> <C> <C>
First quarter $16 5/8 $13 7/8
Second quarter 18 14 5/8
Third quarter 17 7/16 15 1/4
Fourth quarter 23 1/4 15 1/4
1998
First quarter $16 1/4 $15
Second quarter 17 3/4 15
Third quarter 18 3/4 15
Fourth quarter 17 12 1/8
</TABLE>
Based on records maintained by Heartland's Unit transfer agent and registrar,
there were approximately 583 record holders of Heartland's Units as of March 9,
2000.
The amount of Heartland's cash available to be distributed to Unitholders, the
holder of the Class B Interest and the General Partner ("Available Cash Flow")
will be determined by the General Partner, in its sole discretion, after taking
into account all factors deemed relevant by the General Partner, including,
without limitation, general economic conditions and Heartland's financial
condition, results of operations and cash requirements, including (i) the
servicing and repayment of indebtedness, (ii) general and administrative
charges, including fees and expenses payable to HTI under management and other
arrangements, (iii) property and operating taxes, (iv) other costs and expenses,
including legal and accounting fees, and (v) reserves for future growth,
commitments and contingencies.
Heartland's Available Cash Flow will be derived from CMC, CMCI, CMCII, CMCIII,
CMCIV, CMCV, CMCVII and LCL. When available and appropriate, the General Partner
expects to cause Heartland to make distributions of Heartland's Available Cash
Flow in an amount equal to 98.5% to the Unitholders, 0.5% to the holder of the
Class B Interest, and 1% to the General Partner, although there can be no
assurance as to the amount or timing of Heartland's cash distributions or
whether the General Partner will cause Heartland to make a cash distribution if
cash is available. Future lenders to Heartland may impose restrictions on
Heartland's ability to make distributions. In addition, distributions may not be
made to Unitholders until Heartland has paid to HTI (or its assignee) all
accrued and unpaid management fees pursuant to the Management Agreement between
Heartland and HTI. On December 4, 1997, Heartland's partnership agreement was
amended to allow the General Partner in its discretion to establish a record
date for distributions of the last day of any calendar month.
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Item 6. Selected Financial Data
Following is a summary of Heartland's selected financial data for the years
ended December 31, 1999, 1998, 1997, 1996, and 1995 (amounts in thousands except
per Unit data):
<TABLE>
<CAPTION>
Operating Statement Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net operating (loss) $ (5,010) $ (6,998) $ (3,096) $ (733) $ (5,422)
Other income and (expense) 1,253 914 933 1,125 1,375
---------- ---------- ---------- --------- ---------
Net income (loss) $ (3,757) $ (6,084) $ (2,163) $ 388 $ (4,047)
========== ========== ========== ========= =========
Net income (loss) allocated to General
Partner and Class B Interest $ (3,757) $ (182) $ (33) $ 6 $ (61)
========== ========== ========== ========= =========
Net income (loss) allocated
to Class A units $ -- $ (5,902) $ (2,130) $ 382 $ (3,986)
========== ========== ========== ========= =========
Net income (loss) per Class A Unit $ -- $ (2.76) $ (0.99) $ 0.18 $ (1.86)
========== ========== ========== ========= =========
Distribution declared per Class A limited
partnership unit $ -- $ -- $ 0.75 $ 1.25 $ --
========== ========== ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
Balance Sheet Data 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Properties $50,751 $28,052 $23,196 $21,051 $20,747
Total assets 57,256 33,231 26,838 28,040 27,841
Allowance for claims
and liabilities 2,804 2,762 2,169 2,660 2,492
Total liabilities 51,604 23,822 11,347 8,755 6,181
Partners' capital 5,652 9,409 15,491 19,285 21,660
</TABLE>
Item 7. 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 Financial Condition and Results of Operations section 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
Financial Condition and Results of Operations section. 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 statements. In addition, we do not have any intention or
obligation to update the forward-looking statements in this document. The
Company claims the protections of the safe harbor for forward-looking statements
contained in Section 21E of the Securities Exchange Act of 1934.
Liquidity and Capital Resources
Cash flow for operating activities has been derived primarily from proceeds of
property sales, rental income, interest income and proceeds from sales of
securities. Cash and marketable securities at amortized cost were $4,412,000
(including $4,182,000 of restricted cash) at December 31, 1999, $3,828,000
(including $2,564,000 of restricted cash) at December 31, 1998 and $2,757,000
(including $724,000 of restricted cash) at December 31, 1997. The increase of
$584,000 from December 31, 1998 to December 31, 1999 was primarily due to the
increase in deposits from Kinzie Station sales. The increase of $1,071,000 from
December 31, 1997 to December 31, 1998 was due primarily to the four
11
<PAGE>
parcels of land sold in December 1998 for total revenues of $2,165,000. Also,
there was a decrease of $3,235,000 from December 31, 1996 to December 31, 1997.
This is mainly attributable to the liquidation of marketable securities to make
the cash distribution of $2.7 million paid January 3, 1997 to unitholders of
record at December 31, 1996 and capital expenditures for land development and
construction costs at Osprey Cove, St. Marys, GA and Kinzie Station, Chicago,
IL. On January 7, 1998, Heartland distributed approximately $1,600,000 in cash
to unitholders of record on December 29, 1997. (see the Consolidated Statements
of Cash Flows).
Netcash used in operating activities was ($18,208,000) in 1999, compared to
($6,707,000) in 1998 and ($2,900,000) in 1997. The cash used in operating
activities for 1999 compared to 1998 increased ($11,501,000). This is primarily
due to the higher construction and selling costs paid in conjunction with
construction of the Kinzie Station Tower building and increased home building
activities of ($15.4 million). The cash used in operating activities for 1998
compared to 1997 increased ($3,807,000). This is primarily due to the higher
construction and selling costs paid in conjunction with increased home building
activities of ($3.3 million). (see the Consolidated Statements of Cash Flows).
Proceeds from property sales provided cash flow of $11,548,000 in 1999,
$6,231,000 in 1998 and $7,127,000 in 1997. Sales in 1999 consists of 20 units in
Osprey Cove for $4,975,000, 13 units in Longleaf for $2,989,000, 6 units in
Rosemount for $999,000 and a parcel of land in Milwaukee, WI for $1,100,000.
Sales in 1998 consists of 13 units in Osprey Cove for $3,141,000 and four
parcels of land; Dubuque, IA, $450,000, Minneapolis, MN, $900,000, Moses Lake,
WA $440,000 and St. Paul, MN, $375,000. These four sales totaled $2,165,000.
Significant property sales in 1997 consists of the $3,000,000 sale of the
Humboldt Yard property in Chicago, the sale of the final parcel of the Goose
Island property in Chicago for about $1,458,000 and a sale of a parcel at the
Menomonee Valley property of about $454,000. Also included in 1997 are the sales
of the first 2 units in Osprey Cove which amounted to $507,000
Portfolio income is derived principally from the investment of cash not required
for operating activities ("excess cash") in various U.S. Government and
corporate obligations. Portfolio income for 1999 was $123,000 compared to
$63,000 for 1998 and $62,000 for 1997.
Heartland has approximately 160 active leases on its real estate properties,
which generated $772,000 of revenue in 1999, $886,000 of revenue in 1998 and
$1,104,000 in 1997. The decrease in rental income between 1997 and 1998 is due
to two tenants who vacated their spaces in the Company's office building in
Milwaukee, WI. New leasing activity at the Milwaukee office building is pending
finalization of the receipt of Federal and State grants, which will be used for
the modernization and restoration of the facility.
As of December 31, 1999, Heartland had designated 15 sites, or approximately 890
acres with a book value of approximately $10,000,000, for development.
Capitalized expenditures at these sites were $32,247,000 in 1999, $9,157,000 in
1998 and $5,112,000 in 1997. At December 31, 1999, capitalized costs on
development properties including housing inventories totaled $37,024,000.
Expenditures which significantly increase the value and are directly identified
with a specific project are capitalized.
At December 31, 1999, land held for sale consists of 14,458 acres with a book
value of $766,000. It will be disposed of in an orderly fashion. It is
anticipated that it will take beyond the year 2001 to dispose of most of these
properties.
The cost of property sales for 1999 was $9,772,000 or 85% of sales proceeds,
$4,405,000 or 70% of sales proceeds for 1998 and $3,407,000 or 48% for 1997.
The increase in the cost of sale ratio from 1999 to 1998 is primarily due to the
low volume of homes closed in the home building operations. The indirect
overhead costs associated with producing the homes reduced the home building
gross profit significantly. The increase in the cost of sale ratio for 1998
compared to 1997 is due to the 13 home sales in Osprey Cove. The Osprey Cove
revenues represented 50% of total revenues.
It is not expected that future cost of sales ratios for real estate other than
development projects and home sales will change materially from ratios
experienced in 1997, as the balance of Heartland's real estate other than
development projects consists primarily of railroad properties acquired over the
past 150 years at values far lower than current fair values.
12
<PAGE>
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 $2.4 million at December 31, 1999 and 1998 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 at December 31, 1999 and 1998.
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 effected the Company's cash flow or liquidity in the
past, management is not able to reasonably anticipate whether future payments
may or may not have a significant adverse effect in the future.
Heartland's management believes it will have sufficient funds available for
operating expenses, but anticipates the necessity of utilizing outside financing
to fund development projects. On May 14, 1997, CMC signed a line of credit
agreement in the amount of $5 million with LaSalle National Bank ("LNB"),
pursuant to which CMC granted LNB a first lien on certain parcels of land in
Chicago, IL and pursuant to which CMC pledged cash in the amount of $500,000 as
an interest reserve. The agreement terminated on May 1, 1998, but was extended
through June 30, 1998. On June 30, 1998, the loan was amended extending the
maturity date to April 30, 1999, and increasing the line to $8.5 million. The
Company has subsequently pledged additional cash in the amount of $350,000
bringing the total interest reserve to $850,000. On October 23, 1998, CMC
amended the loan temporarily increasing the line to $9,500,000 and reducing net
worth requirements to $8,500,000. The $1,000,000 temporary increase was paid
back in December 1998. In April of 1999, the Company extended the maturity of
the loan to April 29, 2000, increased the amount of the credit facility from
$8,500,000 to $11,500,000, increased the interest reserve from $850,000 to
$1,150,000, reduced the net worth requirement from $8,500,000 to $5,500,000 and
granted LNB a first lien on a property in Milwaukee, Wisconsin. In
November 1999, the Company increased the amount of the credit facility to
$13,300,000 and pledged as additional collateral its interest in the Goose
Island Joint Venture. Advances against the line of credit bear interest at the
prime rate of LNB plus 1.0% (9.5% at December 31, 1999). At December 31, 1999,
$11,800,000 had been advanced to the Company by LNB against the line of credit.
(See Note 4 to the Consolidated Financial Statements). On March 20, 2000, the
Company executed documents with LNB that increased the credit facility to
$15,300,000 and extended the maturity date of the loan to December 31, 2000.
Heartland also granted LNB a first lien on 177 acres, located in Fife,
Washington.
Results of Operations
For the year ended December 31, 1999, operations resulted in a net loss of
$3,757,000 or $0 per Class A Unit. Operations for the years ended December 31,
1998 and 1997 resulted in a net loss of $6,084,000 or $2.76 per Class A Unit and
a net loss of $2,163,000 or $0.99 per Class A Unit, respectively.
The net loss in 1999 compared to the net loss in 1998 decreased $2,327,000 due
to total operating expenses decreasing $2,038,000. The expense reduction took
place primarily in the environmental and general and administrative expenses.
13
<PAGE>
The net loss in 1998 compared to the net loss in 1997 increased $3,921,000 due
to selling expenses increasing $1,380,000 related to Osprey Cove, Kinzie
Station, Longleaf and Rosemount, an increase in the environmental reserve
expense of $1,383,000 and a decrease in gross profit on property sales of
$1,894,000 offset by a decrease in real estate tax expense of $304,000.
Heartland has approximately 160 active leases on its real estate properties,
which generated $772,000 of revenue in 1999, $886,000 in 1998, and $1,104,000 in
1997. The decrease in rental income between 1997 and 1998 is due to two tenants
who vacated their spaces in the Company's office building in Milwaukee,
Wisconsin. New leasing activity in that building is pending modernization and
restoration of the facility.
Total operating expenses for 1999 were $6,786,000 compared to $8,824,000 for
1998 and $6,816,000 for 1997. The decrease of $2,038,000 in 1999 compared to
1998 is primarily due to decreased general and administrative expenses of
$460,000 and a decrease in environmental expenses of $1,083,000. The increase
of $2,008,000 in 1998 compared to 1997 is primarily due to increased selling
expense of $1,380,000 in Osprey Cove, Kinzie Station, Longleaf and Rosemount and
increases in the environmental reserve expense of $1,383,000 offset by a
decrease in property taxes of $304,000.
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, tornadoes, delays in construction schedules, cost overruns, changes
in government regulations or requirements, increases in real estate taxes and
other local government fees and availability and cost of land, materials and
labor. The occurrence of any of the foregoing could have a material adverse
effect on the financial conditions of Heartland.
Access to Financing.
The real estate business is capital intensive and requires expenditures for land
and infrastructure development, housing construction and working capital.
Accordingly, Heartland anticipates incurring additional indebtedness to fund
their real estate development activities. As of December 31, 1999, Heartland's
total consolidated indebtedness was $32,770,000. 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.
14
<PAGE>
Interest Rate Sensitivity
The Company's total consolidated indebtedness at December 31, 1999, is
$32,770,000. 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%. See Note 4 to the Consolidated Financial Statements. An adverse
change of 1.00% in the prime rate would increase the yearly interest incurred by
approximately $328,000.
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.
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 March 30, 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 7A: Quantitative and Qualitative Disclosures about Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of
Operations: Economic and Other Conditions and Interest Rate Sensitivity.
15
<PAGE>
Item 8. Financial Statement and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Partners and Unitholders of Heartland Partners, L.P.
We have audited the accompanying consolidated balance sheets of Heartland
Partners, L.P. (the "Partnership") as of December 31, 1999 and 1998 and the
related consolidated statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heartland Partners, L.P. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 17, 2000, except as to
the second paragraph of Note 12,
as to which the date is March 20, 2000
and except as to the third paragraph
of Note 12, as to which the date is
March 24, 2000.
16
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS:
- ------
<S> <C> <C>
Cash............................................................................ $ 230 $ 1,115
Restricted cash................................................................. 4,182 2,564
Marketable securities (amortized cost of $149 in 1998).......................... -0- 149
Accounts receivable (net of allowance of $416 in 1999 and 1998)................. 373 353
Due from affiliate.............................................................. 1,093 442
Prepaid and other assets........................................................ 217 278
Investment in joint venture..................................................... 410 278
------- -------
Total....................................................................... 6,505 5,179
------- -------
Property:
Land, buildings and other....................................................... 4,049 3,563
Less accumulated depreciation.................................................. 1,065 931
------- -------
Net Land, buildings and other......................................................... 2,984 2,632
Land held for sale.............................................................. 766 930
Housing inventories............................................................. 34,263 13,978
Land held for development....................................................... 5,287 5,490
Capitalized predevelopment costs................................................ 7,451 5,022
------- -------
Net Properties................................................................. 50,751 28,052
------- -------
Total Assets.................................................................... $57,256 $33,231
======= =======
LIABILITIES:
- -----------
Notes payable................................................................... $32,770 $13,492
Accounts payable and accrued expenses........................................... 10,330 2,636
Management fee due affiliate.................................................... -- 283
Accrued real estate taxes....................................................... 893 1,075
Allowance for claims and liabilities............................................ 2,804 2,762
Unearned rents and deferred income.............................................. 1,733 1,862
Other liabilities............................................................... 3,074 1,712
------- -------
Total Liabilities........................................................... $51,604 $23,822
------- -------
PARTNERS' CAPITAL:
- -----------------
General Partner................................................................. -- --
Class A Limited Partners - 2,142 units authorized, issued and outstanding....... -- --
Class B Limited Partner......................................................... 5,652 9,409
------- -------
Total Partners' Capital..................................................... 5,652 9,409
------- -------
Total Liabilities and Partners' Capital......................................... $57,256 $33,231
======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements
17
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1999, 1998, and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Unrealized
Holding Gain
Class A Class B (Loss) on
General Limited Limited Marketable
Partner Partners Partner Securities Total
------- -------- ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997.......................... $ 66 $ 9,639 $ 9,582 $ (2) $19,285
Net loss............................................. (22) (2,130) (11) -- (2,163)
Distribution......................................... (16) (1,607) (8) -- (1,631)
------- ------- ------- ----------- -------
Balances at December 31, 1997........................ 28 5,902 9,563 (2) 15,491
Net Loss............................................. (28) (5,902) (154) -- (6,084)
Marketable securities fair value adjustment.......... -- -- -- 2 2
------- ------- ------- ----------- -------
Balances at December 31, 1998........................ $ -- $ -- 9,409 -- 9,409
Net loss............................................. -- -- (3,757) -- (3,757)
------- ------- ------- ----------- -------
Balances at December 31, 1999........................ $ -- $ -- $ 5,652 $ -- $ 5,652
======= ======= ======= =========== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements
18
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
(amounts in thousands, except for per unit data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
- -------
Property sales........................................................ $ 11,548 $ 6,231 $ 7,127
Less: Cost of property sales.......................................... 9,772 4,405 3,407
---------- ---------- ----------
Gross profit on property sales........................................... 1,776 1,826 3,720
---------- ---------- ----------
Operating Expenses:
- -------------------
Selling expenses...................................................... 3,570 3,845 2,465
General and administrative expenses................................... 2,659 3,119 3,570
Real estate taxes..................................................... 179 399 703
Environmental expense................................................. 378 1,461 78
---------- ---------- ----------
Total operating expenses................................................. 6,786 8,824 6,816
---------- ---------- ----------
Net operating (loss)..................................................... (5,010) (6,998) (3,096)
Other Income and (Expense):
- ---------------------------
Portfolio income...................................................... 123 63 62
Rental income......................................................... 772 886 1,104
Other income.......................................................... 917 514 286
Depreciation.......................................................... (134) (124) (94)
Management fee........................................................ (425) (425) (425)
---------- ---------- ----------
Total other income and (expense)......................................... 1,253 914 933
---------- ---------- ----------
Net (loss)............................................................... $ (3,757) $ (6,084) $ (2,163)
========== ========== ==========
Net (loss) allocated to General Partner.................................. $ -- $ (28) $ (22)
========== ========== ==========
Net (loss) allocated to Class B limited partner.......................... $ (3,757) $ (154) $ (11)
========== ========== ==========
Net (loss) allocated to Class A limited partners......................... $ -- $ (5,902) $ (2,130)
========== ========== ==========
Net (loss) per Class A limited partnership unit.......................... $ -- $ (2.76) $ (0.99)
========== ========== ==========
Average number of Class A limited partnership units outstanding.......... 2,142 2,142 2,142
========== ========== ==========
Distributions declared per Class A limited partnership unit.............. $ -- $ -- $ 0.75
========== ========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
19
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operating Activities:
- ------------------------------------
Net (loss)................................................................... $ (3,757) $ (6,084) $ (2,163)
Adjustments reconciling net (loss) to net cash used in operating
activities:
Bad debt expense.............................................................. -- 211 98
Depreciation.................................................................. 134 124 94
Accretion of discount on securities........................................... -- -- (21)
Loss (Gain) on sale of securities............................................. -- -- 3
Net change in allowance for claims and liabilities............................ 42 593 (491)
Net change in assets and liabilities:
Decrease (increase) in accounts receivable............................... (671) (313) 181
Increase in housing inventories.......................................... (20,285) (4,852) (3,486)
Decrease in land held for sale........................................... 164 233 123
Decrease in land held for development.................................... 203 790 158
(Increase) decrease in capitalized development costs..................... (2,429) (818) 1,369
Increase (decrease) in accounts payable and accrued liabilities.......... 7,694 1,895 476
(Decrease) increase in management fee due affiliate...................... (283) (142) --
Net change in other assets and liabilities............................... 980 1,656 759
---------- ---------- ----------
Net cash used in operating activities......................................... (18,208) (6,707) (2,900)
---------- ---------- ----------
Cash Flow from Investing Activities:
- -----------------------------------
Additions to land, buildings and other........................................ (486) (333) (645)
Net (purchases) sales and maturities of marketable securities................. 149 (6) 4,636
---------- ---------- ----------
Net cash (used in) provided by investing activities........................... (337) (339) 3,991
---------- ---------- ----------
Cash Flow from Financing Activities:
- -----------------------------------
Advances on notes payable, net................................................ 19,278 9,742 3,011
Increase in restricted cash................................................... (1,618) (1,840) (424)
Distribution paid to unitholders.............................................. -- (1,631) (2,719)
---------- ---------- ----------
Net cash provided by (used in) financing activities........................... 17,660 6,271 (132)
---------- ---------- ----------
Net (decrease) increase in cash............................................... (885) (775) 959
Cash at beginning of year..................................................... 1,115 1,890 931
---------- ---------- ----------
Cash at end of year........................................................... $ 230 $ 1,115 $ 1,890
========== ========== ==========
Supplemental Disclosure of Non Cash Operating Activities:
- --------------------------------------------------------
Net land held for development and capitalized development costs transferred
to housing inventories........................................................ $ -- $ 5,034 $ --
========== ========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
20
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements
For the years ended December 31, 1999, 1998 and 1997
Organization
Heartland Partners, L.P. ("Heartland" or the "Company"), a Delaware limited
partnership, was formed on October 6, 1988. Heartland's existence will continue
until December 31, 2065, unless extended or dissolved pursuant to the provisions
of Heartland's partnership agreement.
Heartland was organized to engage in the ownership, purchasing, development,
leasing, marketing, construction and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Heartland Technology, Inc. ("HTI"), formerly known as
Milwaukee Land Company ("MLC"). HTI is the general partner of Heartland (in
such capacity, the "General Partner"). In July 1993, Heartland Development
Corporation ("HDC"), a Delaware corporation, wholly-owned by Heartland and CMC,
formed CMC Heartland Partners I, Limited Partnership ("CMCI"), a Delaware
limited partnership, to undertake a planned housing development in Rosemount,
Minnesota ("Bloomfield or Rosemount"). CMC has a 100% membership interest in
CMC Heartland Partners II ("CMCII"), CMC Heartland Partners III ("CMCIII"), CMC
Heartland Partners IV ("CMCIV"), CMC Heartland Partners V ("CMCV"), CMC
Heartland Partners VI ("CMCVI"), CMC Heartland Partners VII ("CMCVII") and CMC
Heartland Partners VIII ("CMCVIII"). CMCII was formed to participate in the
Goose Island Industrial Park joint venture in Chicago, Illinois. CMCIII was
formed in 1997 to develop a portion of the Kinzie Station property in Chicago,
IL. CMC IV was formed in 1998 and is developing approximately 177 acres in Fife,
Washington. CMCV was formed in 1996 to acquire finished lots, sell and to
construct homes in Osprey Cove ("Osprey"), a master-planned residential
community in St. Marys, GA. CMCVII was formed in 1998 to acquire and engage in
sales, marketing and construction of homes in the Longleaf Country Club,
Southern Pines, NC ("Southern Pines or Longleaf"). CMCVI and CMCVIII were formed
at various times to acquire and hold future acquisitions. CMC also owns 100% of
the common stock of Lifestyle Communities, Ltd. ("LCL") which serves as the
exclusive sales agent in the St. Marys, Southern Pines and Kinzie Station
developments. LCL is also the general contractor in the St. Marys development.
CMC owns 100% of the stock of Lifestyle Construction Company, Inc. ("LCC") which
serves as the general contractor in North Carolina. Except as otherwise noted
herein, references herein to "Heartland" or the "Company" include CMC, HDC,
CMCI, CMCII, CMCIII, CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC.
Heartland's partnership agreement provides generally that Heartland's net income
(loss) will be allocated 1% to the General Partner, 98.5% to the Class A limited
partners (the "Unitholders") and 0.5% to the Class B limited partner. In
addition, the partnership agreement provides that certain items of deduction,
loss, income and gain may be specially allocated to the Class A Unitholders or
to the holder of the Class B Interest or the General Partner. Also, 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 General Partner has the discretion to cause Heartland to make distributions
of Heartland's available cash in an amount equal to 98.5% to the Unitholders,
0.5% to the holder of the Class B Interest and 1% to the General Partner. There
can be no assurance as to the amount or timing of Heartland's cash distributions
or whether the General Partner will cause Heartland to make a cash distribution
if cash is available. On November 24, 1997, Heartland declared a cash
distribution in the amount of $1.6 million to Unitholders and Partners of record
on December 29, 1997, that was paid on January 7, 1998. On December 4, 1997,
Heartland's partnership agreement was amended to allow the General Partner in
its discretion to establish a record date for distributions of the last day of
any calendar month.
21
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
At December 31, 1999, land held for sale consisted of approximately 14,458 acres
of scattered land parcels. States in which large land holdings are located are
Illinois, Iowa, Minnesota, Montana, North Dakota, South Dakota, Washington, and
Wisconsin. The remaining acreage is located in Idaho, Indiana, Michigan and
Missouri.
Most of the properties are former railroad rights-of-way, located in rural
areas, comprised of long strips of land approximately 100 feet in width. Also
included are former station grounds and rail yards. Certain air rights and fiber
optics development rights are also owned.
The land is typically unimproved. Some of the properties are improved with
structures (such as grain elevators and sheds) erected and owned by lessees.
Other properties are improved with Heartland-owned buildings that are of little
or no value.
Improved properties of value to Heartland include a three-story office building
with 60,000 square feet of space in Milwaukee, Wisconsin and a two-story
warehouse/office building in northwestern Chicago used for the storage of
partnership records.
At December 31, 1999, property available for development, including housing
inventories, consisted of 15 sites comprising approximately 890 acres. The book
value of this land is $10 million or an average of $11,200 per acre. Heartland
reviews these properties to determine whether to hold, develop, either solely or
with a third party joint venturer, or sell them. Heartland's objective for
these properties is to maximize unitholder value over a period of years.
Heartland has a 3.88 acre site in Chicago, Illinois known as Kinzie Station
under development. Phase I consists of 163 units in a Tower Building, 24 units
in a Plaza Building and 5 Townhomes. CMC is also selling and building single
family homes in Osprey Cove located in St. Marys, Georgia, Longleaf Country Club
in Southern Pines, North Carolina and the Bloomfield community in Rosemount,
Minnesota. These sites are classified as housing inventories. Heartland has
decided to cease operations in Osprey Cove and Bloomfield. The homes and lot
inventories will be sold in the ordinary course of business.
2. 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; CMCII, CMCIII,
CMCIV, CMCV, CMCVI, CMCVII, CMCVIII, LCL and LCC, each 100% owned by CMC. All
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
- -------------------
Revenues from housing and land sales are recognized in the period in which title
passes and cash is received.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
22
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Marketable Securities
- ---------------------
Management determines the appropriate classification of debt securities at the
time of purchase and re-evaluates such classification as of each balance sheet
date. Debt securities that the Company does not have the positive intent or
ability to hold to maturity, and all marketable equity securities are classified
as available-for-sale and are carried at fair value. All of Heartland's
marketable securities held at December 31, 1998 were classified as available-
for-sale. Unrealized holding gains and losses on securities classified as
available-for-sale are reported as a separate component of partner's capital.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in net securities gains (losses). Premiums and discounts
on marketable securities are amortized on a straight-line basis using the
maturity date of the security to determine the amortization period and such
amortization is included in interest income. The cost of securities sold is
based on the specific identification method.
Properties
- ----------
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.
Depreciation is provided for financial statement purposes over the estimated
useful life of the respective assets ranging from 7 years for office equipment
and fixtures to 40 years for building and improvements primarily using the
straight-line method. Depreciation expense for the years ended December 31,
1999, 1998 and 1997 was $134,000, $124,000, $94,000, respectively.
Properties held for development, including capitalized predevelopment costs, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the particular development property may not be
recoverable. If these events or changes in circumstances are present, the
Company estimates the sum of the expected future cash flows (undiscounted) to
result from the development operations and eventual disposition of the
particular development property, and if less than the carrying amount of the
development property, the Company will recognize an impairment loss based on
discounted cash flows. Upon recognition of any impairment loss the Company would
measure that loss based on the amount by which the carrying amount of the
property exceeds the estimated fair value of the property.
For properties held for sale, an impairment loss is recognized when the fair
value of the property, less the estimated cost to sell, is less than the
carrying amount of the property.
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. Land, land development,
and indirect costs are allocated to cost of sales on the basis of units sold in
relation to the total anticipated units in the related development project; such
allocation approximates the relative sales value method. Direct construction
costs are allocated to the specific units sold for purposes of determining costs
of sales. Selling and marketing costs, not including those costs incurred
related to furnishing and developing the models and sales office, are expensed
in the period incurred. Costs incurred in the construction of the model units
and related furnishings are capitalized at cost. The Company intends to offer
these units for sale at the completion of a project and, accordingly, no
amortization of direct construction costs is provided. Housing inventories are
reviewed for impairment whenever events or circumstances indicate the fair value
is less than the cost. If these events or changes in circumstances are present,
the Company then writes down the inventory to its fair value.
As of December 31, 1999 and 1998, management is not aware of any impairment
losses in the Company's real estate assets. Accordingly, no impairment losses
were recognized during any of the years presented.
23
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
Housing inventories consisted of the following at December 31, 1999, and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land under development................................... $ 4,690 $ 4,568
Direct construction costs................................ 19,381 2,109
Capitalized project costs................................ 10,192 7,301
------- -------
$34,263 $13,978
======= =======
</TABLE>
Interest, financing fees, and real estate taxes relating to land and
construction in progress are capitalized and, accordingly, are included in the
aggregate cost of housing inventories. These costs are amortized to cost of
sales on a per unit basis in relationship to the total units of the related
development based upon the total estimated budget to be incurred for the
development. This accounting treatment approximates the relative sales value
method. Additionally, the Company provides each home purchaser with a one-year
warranty covering the major components of the unit. The costs associated with
these warranties are immaterial and therefore, expensed as incurred.
Fair Value of Financial Instruments
- -----------------------------------
Management has considered fair value information relating to its financial
instruments at December 31, 1999. For cash and marketable securities, the
carrying amounts approximate fair value. For variable rate debt that reprices
frequently, fair values approximate carrying values. For all remaining financial
instruments, carrying value approximates fair value due to the relatively short
maturity of these instruments.
Income Taxes
- ------------
A publicly-traded partnership generally is not liable for Federal income taxes,
provided that for each taxable year at least 90% of its gross income consists of
certain passive types of income. In such case, each partner includes its
proportionate share of partnership income or loss in its own tax return.
Accordingly, no provision for income taxes is reflected in Heartland's financial
statements.
Heartland's assets are carried at historical cost. At December 31, 1999, the tax
basis of the properties and improvements for Federal income tax purposes was
greater than their carrying value for financial reporting purposes.
Segment Reporting
- -----------------
During the fourth quarter of 1998, Heartland adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("Statement No. 131"). Statement No. 131 superseded FASB
Statement of Financial Accounting Standards No. 14, Financial Reporting for
Segments of a Business Enterprise ("Statement No. 14"). Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect Heartland's results of operations or financial position.
24
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
The Company has two primary reportable business segments, which consist of land
sales and property development (See Note 11 to the Consolidated Financial
Statements).
Reclassification
- ----------------
Certain reclassifications have been made to the previously reported 1998 and
1997 statements in order to provide comparability with the 1999 statements.
These reclassifications have not changed the 1998 and 1997 results.
3. Restricted Cash
On May 14, 1997, CMC established a line of credit agreement in the amount of $5
million with LaSalle National Bank ("LNB") pursuant to which CMC pledged cash in
the amount of $500,000 as an interest reserve. During 1998, LNB increased the
line of credit to $8.5 million and extended the maturity date of the loan to
April 30, 1999, pursuant to which CMC pledged additional cash in the amount of
$350,000 as an interest reserve. In April 1999, LNB increased the credit
facility to $11,500,000 and extended the maturity date of the loan to April 29,
2000. At that time, CMC pledged an additional $300,000 as an interest reserve.
On November 30, 1998, CMCI executed an agreement for a $2,500,000 loan with Bank
One relating to the Bloomfield project pursuant to which CMCI has pledged
$500,000 in cash as an interest reserve. Restricted cash also includes
purchasers' earnest money escrow deposits of $2,522,000 and $1,204,000 at
December 31, 1999, and 1998, respectively and a $10,000 construction improvement
bond held by the Osprey Cove Homeowners Association. The total restricted cash
at December 31, 1999 and 1998 was $4,182,000 and $2,564,000, respectively.
4. Notes Payable
On May 14, 1997, CMC signed a line of credit agreement in the amount of $5
million with LaSalle National Bank ("LNB"), pursuant to which CMC granted LNB a
first lien on certain parcels of land in Chicago, IL which had a carrying value
of $6,065,000 and $5,278,000 as of December 31, 1999, and 1998, respectively.
Also, pursuant to the line of credit agreement, CMC pledged cash in the amount
of $500,000 as an interest reserve. The agreement terminated on May 1, 1998, but
was extended through June 30, 1998. On June 30, 1998, the loan was amended
extending the maturity date to April 30, 1999, and increasing the line to $8.5
million. The Company has subsequently pledged additional cash in the amount of
$350,000 bringing the total interest reserve to $850,000. On October 23, 1998,
CMC amended the loan temporarily increasing the line to $9,500,000 and reducing
net worth requirements to $8,500,000. The $1,000,000 temporary increase was
paid back in December 1998. In April of 1999, the Company extended the maturity
of the loan to April 29, 2000, increased the amount of the credit facility from
$8,500,000 to $11,500,000, reduced the net worth requirement form $8,500,000 to
$5,500,000 and granted LNB a first lien on a property in Milwaukee, Wisconsin
which had a carrying value of $3,035,000 at December 31, 1999.The Company has
subsequently pledged additional cash in the amount of $300,000 bringing the
total interest reserve to $1,150,000. In November 1999, the Company increased
the amount of the credit facility to $13,300,000 and pledged as additional
collateral its interest in the Goose Island Joint Venture which had a carrying
value of $410,000 as of December 31, 1999. Advances against the line of credit
bear interest at the prime rate of LNB plus 1.0% (9.5% at December 31, 1999). At
December 31, 1999, and 1998, $11,800,000 and $8,321,000 respectively, had been
advanced to the Company by LNB against the line of credit. On March 20, 2000 the
Company executed documents with LNB that increased the credit facility to
$15,300,000 and extended the maturity date of the loan to December 31, 2000.
Heartland also granted LNB a first lien on 177 acres, located in Fife,
Washington which had a carrying value of $3,891,000 at December 31, 1999.
On December 30, 1996, CMCV signed a revolving line of credit agreement in the
amount of $3 million with Bank of America ("B of A"), formerly NationsBank,
N.A., to acquire lots and construct houses 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
25
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
a carrying value of $1,803,000 and $5,138,000 at December 31, 1999, and 1998,
respectively. On December 30, 1999, Heartland entered into a modification
agreement to its December 30, 1996, revolving line of credit agreement in the
amount of $3 million for Osprey Cove to extend the maturity date to June 30,
2000. The line of credit with B of A bears interest at the prime rate of B of A
plus 1% (9.5% at December 31, 1999). At maturity, all outstanding advances and
any accrued interest must be paid. B of A had advanced against the revolving
line of credit at December 31, 1999, and 1998, $1,514,000 and $2,288,000,
respectively. Under the terms of the agreement, CMCV is required to maintain a
minimum net worth of $500,000 and a minimum leverage ratio not to exceed 4:1.
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 $557,000 at December 31, 1999.
The loan terms are for one year and bear interest at the prime rate plus 1%
(9.5% at December 31, 1999). At December 31, 1999, FNB had advanced $463,000 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 3 closed in 1999) 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
December 31, 1999 is $1,815,000. The revolving credit line is for a term of 1
year and bears interest at the prime rate (8.5% at December 31, 1999). At
December 31, 1999, $1,441,000 had been advanced by Bank One to the Company. At
December 31, 1998, $383,000 had been advanced by B of A 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 (8.5% at December 31, 1999). The outstanding
loan balance is $2,470,000 at December 31, 1999. 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 (8.5% at December 31, 1999). The loans mature on
January 31, 2001 and January 31, 2000, respectively. At December 31, 1999,
$506,000 had been advanced against the development loan and $1,175,000 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
$4,302,000 at December 31, 1999. The Company is currently in negotiations with
Bank One to extend the maturity date of the $4,000,000 revolving line of credit
to December 1, 2000. While the Company has no reason to believe the extension
of the credit facility will not be approved by Bank One, there can be no
assurance the contemplated extension will be given. The consolidated financial
statements do not contain any adjustments to reflect the ultimate outcome of
this uncertainty.
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% (9.5% at December 31, 1999). This loan is collateralized
by the real estate contained in the project. In conjunction with the loan, a
Construction Contract with the guaranteed maximum price of $24,710,000 which
increased to $24,972,282 due to subsequent change orders was entered into with a
general contractor. At December 31, 1999 $13,287,000 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 (8.5% at December 31,
1999). The loan is collateralized by real estate contained in the project. On
September 7, 1999, a construction
26
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
contract with the guaranteed maximum price of $4,864,022 was entered into with a
general contractor. At December 31, 1999, $114,000 had been advanced by Bank One
to the Company.
During the years ended December 31, 1999, 1998, and 1997, the Company incurred
and paid interest on loans in the amount of $2,062,000, $802,000 and $189,000,
respectively, of which $2,062,000, $802,000 and $189,000 was capitalized.
5. Recognition and Measurement of Environmental Liabilities
It is Heartland's practice to evaluate environmental liabilities associated with
its properties on a regular basis. An allowance is provided with regard to
potential environmental liabilities, including remediation, legal and consulting
fees, 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
evaluated 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 an allowance
in the minimum amount of the range is established. Environmental costs which are
incurred in connection with Heartland's development activities are expensed or
capitalized as appropriate. (See Note 8.)
Estimates which are used as the basis for allowances for the remediation of a
particular site are taken from evaluations of the range of potential costs for
that site made by independent consultants. These evaluations are estimates based
on professional experience but necessarily rely on certain significant
assumptions including the specific remediation standards and technologies which
may be required by an environmental agency as well as the availability and cost
of subcontractors and disposal alternatives.
There is not sufficient information to reasonably estimate all the environmental
liabilities of which management is aware. Accordingly, management is unable to
determine whether environmental liabilities which management is unable to
reasonably estimate will or will not have a material effect on Heartland's
results of operations or financial condition.
6. Related Party Transactions
CMC has a management agreement with HTI, pursuant to which CMC is required to
pay HTI an annual management fee in the amount of $425,000 until the year ended
December 31, 1999. In February 1998, CMC paid HTI the $425,000 1997 deferred
management fee. $142,000 of the 1998 management was paid in 1998. In 1999, the
balance of the 1998 fee of $283,000 was paid as well as 100% of the 1999 fee.
Under a management services agreement, HTI reimburses Heartland for reasonable
and necessary costs and expenses for services totaling $368,000 for the year
ended December 31, 1999, $300,000 for the year ended December 31, 1998 and
$228,000 for the year ended December 31, 1997. HTI owes CMC $1,093,000 as of
December 31, 1999, related to these expenses. Included in this amount owed CMC
is $56,000 of interest accrued on past due amounts owed during the year 1999.
Interest was computed using the prime rate plus 2 1/4% (10.75% at December 31,
1999).
7. Leases
Heartland is a lessor under numerous property lease arrangements with varying
lease terms. The majority of the leases are cancelable by either party upon
thirty to sixty days notice and 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. Heartland has several major leases on buildings and land in
Chicago, Illinois and Milwaukee, Wisconsin which account for over half of
Heartland's annual rental income. The land,
27
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
buildings and other improvements had a net carrying value of $2,984,000 and
$2,632,000 at December 31, 1999 and 1998, respectively. These amounts are net of
depreciation and include corporate furniture and fixtures as well as other
buildings and improvements.
Heartland has one non-cancellable operating lease for $114,401 per year that
will continue as long as the lessee operates its railroad line.
Heartland leases its office premises as well as offices at certain development
sites and certain equipment under various operating leases. Future minimum lease
commitments under non-cancellable operating leases are as follows:
<TABLE>
<S> <C>
2000............................................................................... $194,000
2001............................................................................... 90,000
2002............................................................................... 50,000
2003............................................................................... 24,000
--------
Total............................................................................ $358,000
========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998, and 1997 was $213,000,
$294,000, and $133,000, respectively.
8. Legal Proceedings and Contingencies
At December 31, 1999, and 1998, Heartland's allowance for claims and liabilities
was approximately $2.8 million in each year. During the years ended December 31,
1999, 1998, and 1997, $378,000, $1,461,000 and $78,000, respectively, was
recorded in respect to environmental matters. Significant legal matters are
discussed below.
Soo Line Matters
- ----------------
The Soo Line Railroad Company (the "Soo") has asserted that the Company is
liable for certain occupational injury claims filed after the consummation of an
Asset Purchase Agreement and related agreements ("APA") by former employees now
employed by the Soo. The Company has denied liability for each of these claims
based on a prior settlement with the Soo. The Soo has also asserted that the
Company is liable for the remediation of releases of petroleum or other
regulated materials at six different sites acquired from the Company located in
Iowa, Minnesota and Wisconsin. The Company has denied liability based on the
APA.
The occupational and environmental claims are all currently being handled by the
Soo, and the Company understands the Soo has paid settlements on many of these
claims. As a result of Soo's exclusive handling of these matters, the Company
has made no determination as to the merits of the claims and is unable to
determine the materiality of these claims.
Tacoma, Washington
- ------------------
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United States
District Court for the Western District of Washington alleging that the Company
was liable under Washington state law for the cost of the Port's remediation of
a railyard sold in 1980 by the bankruptcy trustee for the Company's predecessor
to the Port's predecessor in interest.
On October 1, 1998, the Company entered into a Settlement Agreement with the
Port, 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
28
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
a later date. At December 31, 1999, and 1998, Heartland's allowance for claims
and liabilities for this site was $1,100,000 for each year.
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 an environmental claim with respect to the
Wheeler Pit site near Janesville, Wisconsin. The settlement calls for the
Company to pay General Motors $800,000 at $200,000 annually for four years, 32%
of the monitoring costs for twenty-five years beginning in 1997 and 32% of
governmental oversight costs; the oversight costs not to exceed $50,000.
Payments of $200,000 were made in 1995, 1996, 1997 and 1998. A payment of
$50,000 for past government oversight costs was made in October 1998. At
December 31, 1999, and 1998, Heartland's allowance for claims and liabilities
for this site was $189,000 and $184,000, respectively.
Miscellaneous Environmental Matters
- -----------------------------------
Under environmental laws, liability for hazardous substance contamination is
imposed on the current owners and operators of the contaminated site, as well as
the owner or the operator of the site at the time the hazardous substance were
disposed or otherwise released. In most cases, this liability is imposed
without regard to fault. Currently, the Company has known environmental
liabilities associated with certain of its properties arising out of the
activities of its predecessor or certain of its predecessor's lessees and may
have further material environmental liabilities as yet unknown. The majority of
the Company's known environmental liabilities stem from the use of petroleum
products, such as motor oil and diesel fuel, in the operation of a railroad or
in operations conducted by its predecessor's lessees. The following is a summary
of material known environmental matters, in addition to those described above.
The Montana Department of Environmental Quality ("DEQ") has asserted that the
Company is liable for some or all of the investigation and remediation of
certain properties in Montana sold by its predecessor's reorganization trustee
prior to the consummation of its predecessor's reorganization. The Company has
denied liability at certain of these sites based on the reorganization bar of
the Company's predecessors. The Company's potential liability for the
investigation and remediation of these sites was discussed in detail at a
meeting with DEQ in April 1997. While DEQ has not formally changed its position,
DEQ has not elected to file suit. Management is not able to express an opinion
at this time whether the cost of the defense of this liability or the
environmental exposure in the event of the Company's liability will or will not
be material.
At twelve separate sites, the Company has been notified that releases arising
out of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
The Company has petroleum groundwater remediation projects or long term
monitoring programs at Austin, Minnesota, Farmington, Minnesota, and Miles City,
Montana. At December 31, 1999, and 1998, Heartland's aggregate allowance for
claims and liabilities for these sites were $32,000 and $41,000, respectively.
In December 1989, the Minnesota Pollution Control Agency ("MPCA") added a site
which includes the Company's Pig's Eye Yard site in St. Paul, Minnesota to its
Permanent List of Priorities based on historical records and an initial
investigation of soil and groundwater conditions adjacent to Pig's Eye Yard.
Portions of this site had been leased to the City of St. Paul for a landfill and
to the Metropolitan Waste Control Commission for disposal of incinerator ash.
The
29
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
site, which includes portions of the adjacent municipal wastewater treatment
plant, was placed on the Superfund Accelerated Clean Up Model list in 1993. No
potentially responsible parties ("PRPs") have been formally named at this site.
The Company sold its interest in this property to the City of St. Paul on April
30, 1999, with the City agreeing to indemnify the Company against certain
environmental liabilities.
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 30, 1999. The plaintiff in the suit is demanding
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. 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. At December 31, 1999 and 1998, Heartland's
aggregate allowance for claims and liabilities for the Moses Lake, Washington
and the 5.95 acre parcel in Minneapolis, Minnesota sites were $653,000 and
$524,000, respectively.
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.
9. Compensation and Benefits
Heartland sponsors a Group Savings Plan, which is a salary reduction plan
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
All full-time permanent employees of Heartland are eligible to participate in
the plan. A participating employee can authorize contributions to the plan in
the form of salary reductions of up to the maximum allowed by the Internal
Revenue Code in any plan year. In 1999 Heartland made matching contributions of
25% of each participant's contribution to the plan. Participating 1998
employees were fully vested with respect to salary reduction and Heartland's
contributions. For all future participants, they are fully vested with respect
to salary reduction immediately but the matching contribution vests at 20% per
year. Benefits are normally distributed upon retirement (on or after age 65),
death or termination of employment, but may be distributed prior to termination
of employment upon showing of financial hardship. Heartland contributed to the
plan approximately $58,000 in 1999, $80,000 in 1998, and $60,000 in 1997 on
behalf of all employees.
30
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
10. Marketable Securities
At December 31, 1998 and 1997 all marketable securities were classified as
available-for-sale. Proceeds from sale and maturities of debt securities during
1999, 1998, and 1997, were $149,000, $297,000, and $9,015,000, respectively.
Purchases of debt securities during 1998 and 1997 were $303,000 and $4,379,000,
respectively. The gain on sale of securities in 1997 was approximately $3,000.
Proceeds from sales in 1999 and 1998 approximated cost for all securities at the
date of sale.
31
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
11. Reportable Segments
The following tables set forth the reconciliation of net income and total assets
for Heartland's reportable segments for the years ended December 31, 1999, 1998
and 1997 (See Note 2 to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
Property
1999 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
- --------
Property sales $ 1,485 $ 10,063 $ 0 $ 11,548
Less: cost of property sales.......... 261 9,511 0 9,772
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,224 552 0 1,776
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 806 2,764 0 3,570
General and administrative expenses... 0 480 2,179 2,659
Real estate taxes..................... 164 15 0 179
Environmental Expense................. 94 284 0 378
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 1,064 3,543 2,179 6,786
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 160 (2,991) (2,179) (5,010)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 123 123
Rental income......................... 772 0 0 772
Other income.......................... 0 917 0 917
Depreciation.......................... 0 (89) (45) (134)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 772 828 (347) 1,253
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 932 $ (2,163) $ (2,526) $ (3,757)
================= ================= ================= =================
Properties, net of accumulated
Depreciation........................ $ 783 $ 49,171 $ 797 $ 50,751
================= ================= ================= =================
Total assets........................ $ 1,156 $ 52,650 $ 3,450 $ 57,256
================= ================= ================= =================
</TABLE>
32
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Property
1998 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
- --------
Property sales $ 1,814 $ 4,417 $ 0 $ 6,231
Less: cost of property sales.......... 215 4,190 0 4,405
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,599 227 0 1,826
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 969 2,876 0 3,845
General and administrative expenses 0 327 2,792 3,119
Real estate taxes..................... 209 190 0 399
Environmental Expense................. 248 25 1,188 1,461
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 1,426 3,418 3,980 8,824
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 173 (3,191) (3,980) (6,998)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 63 63
Rental income......................... 886 0 0 886
Other income.......................... 0 514 0 514
Depreciation.......................... 0 (84) (40) (124)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 886 430 (402) 914
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 1,059 $ (2,761) $ (4,382) $ (6,084)
================= ================= ================= =================
Properties, net of accumulated
depreciation........................ $ 937 $ 26,296 $ 819 $ 28,052
================= ================= ================= =================
Total assets........................ $ 1,290 $ 29,403 $ 2,538 $ 33,231
================= ================= ================= =================
</TABLE>
33
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Property
1997 (amounts in thousands) Land Sales (1) Development (2) Corporate (3) Consolidated
- -------------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
- --------
Property sales $ 1,708 $ 5,419 $ 0 $ 7,127
Less: cost of property sales.......... 125 3,282 0 3,407
----------------- ----------------- ----------------- -----------------
Gross profit on property sales...... 1,583 2,137 0 3,720
----------------- ----------------- ----------------- -----------------
Operating Expenses:
- ------------------
Selling expenses...................... 562 1,903 0 2,465
General and administrative expenses... 0 50 3,520 3,570
Real estate taxes..................... 182 521 0 703
Environmental Expense................. 0 78 0 78
----------------- ----------------- ----------------- -----------------
Total Operating Expenses 744 2,552 3,520 6,816
----------------- ----------------- ----------------- -----------------
Net Operating Income (loss) 839 (415) (3,520) (3,096)
Other Income and (Expenses):
- ---------------------------
Portfolio income...................... 0 0 62 62
Rental income......................... 1,104 0 0 1,104
Other income.......................... 0 286 0 286
Depreciation.......................... 0 (67) (27) (94)
Management fee........................ 0 0 (425) (425)
----------------- ----------------- ----------------- -----------------
Total Other Income and (Expense).... 1,104 219 (390) 933
----------------- ----------------- ----------------- -----------------
Net Income (Loss)..................... $ 1,943 $ (196) $ (3,910) $ (2,163)
================= ================= ================= =================
</TABLE>
(1) The Land Sales business segment consists of approximately 14,458 acres of
land located throughout 12 states for sale as of December 31, 1999, and
related sales and marketing and general and administrative expenses.
(2) The Property Development business segment consists of approximately 890
acres representing 15 sites that Heartland is in the process of developing
or homebuilding communities in which the Company 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 consist of portfolio income from investments, salaries
and general and administrative expenses for the employees and occupied
office space in Chicago, Illinois.
34
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements (Continued)
12. Subsequent Events
In January 2000, the Company executed a sales contract on 103 acres located in
Rosemount, Minnesota for $4,000,000. This parcel of land is located adjacent to
the Company's 226 acre Bloomfield development. The sale is projected to close by
September 29, 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 March 20, 2000, the Company executed documents with LNB that increased the
credit facility to $15,300,000 and extended the maturity date of the loan to
December 31, 2000. Heartland also granted LNB a first lien on 177 acres located
in Fife, Washington which had a carrying value of $3,891,000 at December 31,
1999.
On March 24, 2000, a sales contract was executed by the Company to sell its
Galewood property located in Chicago, Illinois for $7,750,000. The 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 contract contains contingencies
typical of such contracts and there can be no assurance the transaction will be
completed.
35
<PAGE>
SCHEDULE II
HEARTLAND PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1999, 1998 AND 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
Beginning costs and at end
Description Of year expenses Payments of year
----------- ------- -------- -------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
Allowance for claims and liabilities............... $2,762 $ 378 $(336) $2,804
====== ====== ===== ======
Year Ended December 31, 1998:
Allowance for claims and liabilities............... $2,169 $1,461 $(868) $2,762
====== ====== ===== ======
Year Ended December 31, 1997:
Allowance for claims and liabilities............... $2,660 $ 78 $(569) $2,169
====== ====== ===== ======
</TABLE>
36
<PAGE>
SCHEDULE III
HEARTLAND PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Description Cost Capitalized Gross Amount at Which
- ----------- Initial Cost to Subsequent Carried
Land, Buildings and Other Heartland to Acquisition (1) at Close of Period (1)
--------- ------------------ ----------------------
Building,
Buildings & Carrying Improvement and
Land Improvements Improvements (3) Costs(4) Land Carrying Costs Total
---- ------------ ---------------- -------- ---- ---------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Chicago, IL............... (6) $661 $ -- $ 142 $ 269 $661 $ 411 $1,072
Milwaukee, WI............. 61 816 177 149 61 1,142 1,203
Corporate and other....... (5) -- -- 1,774 -- -- 1,774 1,774
---- ------------ ---------- -------- ---- ------- ------
TOTAL $722 $ 816 $ 2,093 $ 418 $722 $ 3,327 $4,049
==== ============ ========== ======== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Life on
Which
Depreciation
In Latest
Description Date of Income
- ----------- Accumulated Completion of Date Statement
Land, Buildings and Other Depreciation Construction Acquired Is Computed
------------ -------------- --------- -----------
<S> <C> <C> <C> <C>
Chicago, IL (6) $ -- Various Various (2)
Milwaukee, WI 509 Various Various (2)
Corporate and other 556 Various Various (2)
------------
TOTAL $ 1,065
============
</TABLE>
(1) See Attachment A to Schedule III for reconciliation of beginning of period
total to total at end of period.
(2) Reference is made to Note 2 to the Consolidated Financial Statements for
information related to depreciation.
(3) Improvements include all costs which increase the net realizable value of
the property except carrying costs.
(4) Carrying costs consists primarily of legal fees, real estate taxes and
interest.
(5) This amount includes furniture, equipment and other fixed assets that are
included in Land, buildings and other on the Consolidated Balance Sheet.
(6) Includes a parcel of land encumbered by a $11,800,000 short-term loan (See
Note 4 to the Consolidated Financial Statements).
37
<PAGE>
HEARTLAND PARTNERS, L.P.
ATTACHMENT A TO SCHEDULE III
RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING
OF YEAR WITH TOTAL AT END OF YEAR
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................. $ 3,563 $ 3,230 $ 2,585
------------- ------------- -------------
Additions during year:
Other acquisitions.................................. 357 229 370
Improvements......................................... 129 104 415
------------- ------------- -------------
Total Additions..................................... 486 333 785
------------- ------------- -------------
Deductions during year:
Cost of real estate sold............................ -- -- 140
------------- ------------- -------------
Total deductions.................................. -- -- 140
------------- ------------- -------------
Balance at December 31............................... $ 4,049 $ 3,563 $ 3,230
============= ============= =============
</TABLE>
Reconciliation Of Real Estate Accumulated Depreciation
At Beginning of Year with Total At End of Year
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................. $ 931 $ 807 $ 853
------------- ------------- -------------
Additions during year:
Charged to Expense................................. 134 124 94
------------- ------------- -------------
Total Additions.................................. 134 124 94
------------- ------------- -------------
Deductions during year:
Cost of real estate sold........................... --- --- 140
------------- ------------- -------------
Total deductions................................. --- --- 140
------------- ------------- -------------
Balance at December 31............................... $ 1,065 $ 931 $ 807
============= ============= =============
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
38
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers.
Heartland does not have a Board of Directors.
Set forth below is information for each director of HTI, the general partner of
Heartland, and each executive officer of HTI and Heartland. Directors of HTI are
not compensated by Heartland.
<TABLE>
<CAPTION>
Name and Age Principal Occupation, Business
Experience and Directorships
<S> <C>
Lawrence S. Adelson, 50........... Vice President and General Counsel of the Company since
June 1990; Vice President and General Counsel of HTI since
October 1988.
Richard P. Brandstatter, 44....... Vice President - Finance, Treasurer and Secretary of the
Company since August 1995; Vice President - Finance,
Treasurer and Secretary of HTI since February 1999.
Robert S. Davis, 85............... Director of HTI (Class I) (since October 1988); Member of
the compensation committee and chairman of the audit
committee of HTI; self-employed consultant (for more than
the past five years); Senior Vice President (1978-79), St.
Paul Companies (insurance), St. Paul, Minnesota.
Edwin Jacobson, 70................ President and Chief Executive Officer of the Company (since
September 1990); Director of HTI (Class III) (since
November 1985); Chairman of the executive committee and
member of the investment committee of HTI. Formerly
President (from February 1994-February 1997) and Chief
Executive Officer (from February 1994-July 1997) of Avatar
Holdings, Inc. (Real estate, water and wastewater utilities
operations).
Gordon H. Newman, 67.............. Director of HTI (Class I)(since February 1999). Senior
Vice President, General Counsel and Secretary of Sara Lee
Corporation; member of the Management Committee; Chief
Ethics Officer; responsible for recruitment of members of
board of directors and corporate governance policy (1975 -
1995).
John Torell III, 60............... Director of HTI (Class III) (since September 1997); Member
of the executive committee of HTI; Chairman (since 1990),
Torell Management, Inc. (financial advisory), New York, New
York; Chairman and Chief Executive Officer (1990-1994),
Fortune Bancorp (banking), Tampa, Florida; Chairman,
President and Chief Executive Officer (1998-1989), Calfed,
Inc. (banking), Los Angeles, California; President
(1982-1988), Manufacturers Hanover Corporation (banking),
New York, New York. Mr. Torell also serves as a director
of American Home Products Corporation, Paine Webber Group,
Inc., and
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
USWEB/Cks.
Ezra K. Zilkha, 74................ Director of HTI (Class II) (since October 1988); Chairman
of the Board of the Company; Member of the executive
committee and chairman of the compensation committee of
HTI; President and Director (since 1956), Zilkha & Sons,
Inc. (private investments), New York, New York. Mr. Zilkha
also serves as a director of the Newhall Land and Farming
Company.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires certain officers
and directors of the Company's General Partner, Heartland Technology, Inc., and
any persons who own more than ten-percent of the Units to file forms reporting
their initial beneficial ownership of Units and subsequent changes in that
ownership with the Securities and Exchange Commission and the American Stock
Exchange. Officers and directors of Heartland Technology, Inc. and greater than
ten-percent beneficial owners are also required to furnish the Company with
copies of all such Section 16(a) forms they file. Based solely on a review of
the copies of the forms furnished to the Company, or written representations
from certain reporting persons that no Forms 5 were required, the Company
believes that during the 1999 fiscal year all section 16(a) filing requirements
were complied with.
Item 11. Executive Compensation
The following information is furnished as to all compensation awarded to, earned
by or paid to the Chief Executive Officer of CMC and the three other executive
officers with 1999 compensation greater than $100,000.
<TABLE>
<CAPTION>
Name And Annual Compensation All Other
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Edwin Jacobson 1999 $275,000 $ --- $ 2,500
President and Chief 1998 275,000 --- 5,000
Executive Officer 1997 275,000 --- 4,750
Lawrence S. Adelson 1999 $ 82,500 $ --- $ 1,250
Vice President and 1998 65,300 --- 3,330
General Counsel 1997 84,400 18,750 3,560
Richard P. Brandstatter 1999 $ 90,000 $ --- $ 1,875
Vice President-Finance, 1998 110,500 --- 5,000
Treasurer and Secretary 1997 112,000 --- 4,750
Susan Tjarksen Roussos 1999 $190,400 $ --- $ 1,500
Vice President-Sales 1998 153,400 --- 1,575
and Marketing 1997 75,000 --- ---
</TABLE>
"All other compensation" is comprised of CMC's contribution on behalf of the
officers to a salary reduction plan qualified under Sections 401(a) and (k) of
the Internal Revenue Code of 1986. Columns for "Other Annual
40
<PAGE>
Compensation", "Restricted Stock Awards", "Options/SARS" and "Payout-LTIP
Payout" are omitted since there was no compensation awarded to, earned by or
paid to any of the above named executives required to be reported in such
columns in any fiscal year covered by the table.
Under a deferred salary arrangement available to all employees, Mr. Adelson
deferred $28,363 of his 1997 salary into 1998, $26,107 of his 1998 salary into
1999 and $16,665 of his 1999 salary into 2000.
A new employment agreement signed on December 20, 1999 with the President and
Chief Executive Officer of CMC provides for a base salary of $275,000 from
August 16, 1995 through May 30, 2002, all or a portion of which may be deferred
at the officer's election. The contract provides incentive compensation equal
to 10% of the value of all amounts distributed to the Unitholders and the holder
of the Class B Interest in excess of the "Capital Amount" as defined. The
Capital Amount approximates the average market value of the Units for the first
30 trading days after the distribution Date, subject to adjustment as set forth
in the contract. During or after the term of employment, incentive payments
will be made with respect to distributions by Heartland during Heartland's term
of existence, and if distributions are made subsequent to such Officer's death,
payments will be made to his designee or estate. The contract also provides
that in the event of a "change of control of Heartland" during or after the term
of employment, the officer shall receive a lump sum payment of $1,250,000.
Heartland does not maintain any pension, profit-sharing, bonus or similar plan
for its employees. Insurance benefit programs are non-discriminatory. CMC
sponsors a Group Savings Plan, which is a salary reduction plan qualified under
Sections 401(a) and (k) of the Internal Revenue Code of 1986. All full-time
permanent employees of CMC are eligible to participate in the plan. In 1997, a
participating employee could authorize contributions to the plan in the form of
salary reductions of up to $9,500. In 1998 and 1999, a participating employee
could authorize contributions to the plan in the form of salary reduction of up
to $10,000. In 1998, CMC made matching contributions of 50% of each
participant's contribution to the plan. In 1999, CMC made matching
contributions of 25% of each participant's contribution to the plan.
Participating 1998 employees were fully vested with respect to salary reduction
and CMC's contributions. For all future participants, they are fully vested
with respect to salary reduction immediately, but the matching contribution
vests at 20% per year. Benefits are normally distributed upon retirement (on or
after age 65), death or termination of employment, but may be distributed prior
to termination of employment upon a showing of financial hardship.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known by
Heartland to be beneficial owners of more than 5% of Heartland's outstanding
Units at March 9, 2000:
<TABLE>
<CAPTION>
Number of
Name and Address of Beneficial Owner (i) Units Owned Percent
- ---------------------------------------- ----------- -------
<S> <C> <C>
Lehman Brothers Holdings, Inc. (ii)
American Express Tower
3 World Financial Center
New York, New York 10285..................................... 187,400 8.7%
Waveland Partners, L.P. (v)
333 West Wacker Drive, Suite 1600
Chicago, IL 60606............................................ 306,089 14.3%
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
Cowen & Company (iii)
Financial Square
New York, New York 10285..................................... 183,100 8.5%
Edwin Jacobson (iv)
547 W. Jackson
Chicago, Illinois 60661...................................... 138,000 6.4%
GEM Value Fund, L.P. (vi)
900 North Michigan Avenue, Suite 1900
Chicago, IL 60611............................................ 150,596 7.0%
</TABLE>
(i) Nature of ownership is direct, except as otherwise indicated herein.
(ii) Based on a statement filed on Schedule 13G/A, filed on February 3, 1995,
Lehman Brothers Holdings Inc., through its subsidiary, Lehman Brothers
Inc., a registered broker/dealer, has sole voting and dispositive power
with respect to such Units.
(iii) Based on a statement filed on Schedule 13G/A, filed on February 12, 1998,
Cowen & Company, a registered broker/dealer and investment adviser, Cowen
Incorporated and Joseph Cohen have shared voting power of 132,900 Units,
and shared dispositive power of 183,100 Units.
(iv) Included in the table are 8,000 units held by Mr. Jacobson's wife as to
which Mr. Jacobson shares voting and dispositive power.
(v) Based on a statement filed on Form 13D Amended, as dated through December
17, 1999, Waveland Partners, L.P., Waveland Capital Management, L.P.,
Clincher Capital Corporation, Waveland Capital Management, L.L.C.,
Waveland Partners, Ltd. and Waveland International, Ltd. share voting and
dispositive power with respect to such Units.
(vi) Based on a statement filed on Form 13D Amended, as dated through December
17, 1999, GEM Value Fund, L.P. a private investment partnership, and GEM
Value Partners LLC, its General Partner, have shared voting and
dispositive power with respect to such units
Security Ownership of Management
Set forth below is certain information concerning the beneficial ownership of
Units by each current director of HTI, the General Partner of Heartland, by each
named executive officer of CMC and by all directors and executive officers of
HTI and all executive officers of CMC as a group, as of March 9, 2000:
<TABLE>
<CAPTION>
Name of Beneficial
Owner and Number of Number of
Persons in Group (i) Units Owned Percent
- ------------------------------------------ ----------- -------
<S> <C> <C>
Lawrence S. Adelson --- ---%
Richard P. Brandstatter --- ---%
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
Robert S. Davis --- ---%
Edwin Jacobson (ii) 138,000 6.4%
Gordon H. Newman --- ---%
Susan Tjarksen Roussos --- ---%
John R. Torell III --- ---%
Ezra K. Zilkha (iii) 97,000 4.5%
All directors and executive officers
as a group (7 persons) 235,650 11.0%
</TABLE>
(i) Nature of ownership is direct, except as otherwise indicated herein.
Unless shown, ownership is less than 1% of class.
(ii) Included in the table are 8,000 units held by Mr. Jacobson's wife as to
which Mr. Jacobson shares voting and dispositive power.
(iii) Included in the table are 1,500 Units held by Mr. Zilkha's wife as to
which Mr. Zilkha shares voting and dispositive power. Also included are
24,500 Units owned by Zilkha & Sons, Inc., with respect to which Mr.
Zilkha may be deemed to be the beneficial owner.
Item 13. Certain Relationships and Related Transactions
CMC has a management agreement with HTI, pursuant to which CMC is required to
pay HTI an annual management fee in the amount of $425,000 until the year ended
December 31, 1999. In February 1998, CMC paid HTI the $425,000 1997 deferred
management fee. $142,000 of the 1998 management was paid in 1998. In 1999, the
balance of the 1998 fee of $283,000 fee was paid as well as 100% of the 1999
fee.
Under a management services agreement, HTI reimburses Heartland for reasonable
and necessary costs and expenses for services totaling $368,000 for the year
ended December 31, 1999, $300,000 for the year ended December 31, 1998 and
$228,000 for the year ended December 31, 1997. HTI owes CMC $1,093,000 as of
December 31, 1999, related to these expenses. Included in this amount owed CMC
is $56,000 of interest accurred on past due amounts owed during the year 1999.
Interest was computed using the prime rate plus 2 1/4% (10.75% at December 31,
1999).
The officers of HTI and Heartland, including Edwin Jacobson, President and Chief
Executive Officer of HTI and Heartland, will not devote their entire business
time to the affairs of Heartland. The Heartland Partnership Agreement provides
that (i) whenever a conflict of interest exists or arises between the General
Partner or any of its affiliates, on the one hand, and Heartland, or any
Unitholder on the other hand, or (ii) whenever the Heartland Partnership
Agreement or any other agreement contemplated therein provides that the General
Partner shall act in a manner which is, or provide terms which are, fair and
reasonable to Heartland, or any Unitholder, the General Partner shall resolve
such conflict of interest, take such action or provide such terms, considering
in each case the relative interests of each party (including its own interest)
to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting practices or
principles. Thus, unlike the strict duty of a fiduciary who must act solely in
the best interests of his beneficiary, the Heartland Partnership Agreement
permits the General Partner to consider the interests of all parties to a
conflict of interest, including the General Partner (although it is not clear
under Delaware law that such provisions would be enforceable). The Heartland
Partnership Agreement also provides that, in certain circumstances, the General
Partner will act in its sole discretion, in good faith or pursuant to other
appropriate standards.
43
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed or incorporated by reference as part of
this report:
1. Financial statements
--------------------
The financial statements of Heartland Partners, L.P. are included in Part II,
Item 8:
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS....................................................... 16
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998......................................................... 17
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1999, 1998, and 1997.............................. 18
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997............................... 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997.............................. 20
Notes to Consolidated Financial Statements........................................... 21
2. Financial statement schedules
-----------------------------
VALUATION AND QUALIFYING ACCOUNTS.................................................... 36
REAL ESTATE AND ACCUMULATED DEPRECIATION............................................. 37
Attachment A to Schedule III......................................................... 38
</TABLE>
The financial statement schedules are not included in the Annual Report provided
to Unitholders. Other schedules are omitted because they are not required or not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
44
<PAGE>
3. Exhibits
--------
3.1 Certificate of Limited Partnership, dated as of October 4, 1988,
incorporated by reference to Exhibit 3.1 to Heartland's Current
Report on Form 8-K dated January 5, 1998.
3.2 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference
to Exhibit 3.2 to Heartland's Current Report on Form 8-K dated
January 5, 1998.
3.3 Amendment, dated as of December 4, 1997, to the Amended and Restated
Agreement of Limited Partnership of Heartland Partners, L.P.,
incorporated by reference to Exhibit 3.3 to Heartland's Current
report on Form 8-K dated January 5, 1998.
4. Unit of Limited Partnership Interest in Heartland Partners, L.P.,
incorporated by reference to Exhibit 4 to Heartland's Annual Report
on Form 10-K for the year ended December 31, 1990.
10.1 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners
and Heartland Partners, L.P., incorporated by reference to Exhibit
10.1 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.2 Management Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Heartland Partners, L.P. and CMC Heartland
Partners, incorporated by reference to Exhibit 10.2 to Heartland's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.3 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners, L.P. and
Milwaukee Land Company, incorporated by reference to Exhibit 10.3 to
Heartland's Annual Report on Form 10-K for the year ended December
31, 1990.
10.4 Employment Agreement, dated July 1, 1990, by and between Edwin
Jacobson and CMC Heartland Partners, incorporated by reference to
Exhibit 10.4 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1990.*
10.5 First Amendment to Employment Agreement, dated July 1, 1993, by and
between Edwin Jacobson and CMC Heartland Partners incorporated by
reference to Exhibit 10.5 to Heartland's Annual Report on Form 10-K
for the year ended December 31, 1994.*
10.6 Second Amendment to Employment Agreement, dated as of July 1, 1995,
between CMC Heartland Partners and Edwin Jacobson, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995.*
10.7 Employment Agreement, dated July 2, 1995, between CMC Heartland
Partners and Edwin Jacobson, incorporated by reference to Exhibit
10.7 to Heartland's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.*
10.8 First Amendment to Employment Agreement, dated as of January 2, 1998,
between CMC
45
<PAGE>
Heartland Partners and Edwin Jacobson, incorporated by reference to
Exhibit 10.8 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1997.*
10.9 Loan and Security Agreement dated March 15, 1996, between CMC
Heartland Partners and LaSalle National Bank, incorporated by
reference to Exhibit 10.1 to Heartland's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998.
10.10 Amendment to Loan and Security Agreement dated May 14, 1997, by and
between CMC Heartland Partners and LaSalle National Bank,
incorporated by reference to Exhibit 10.2 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.11 Amended and Restated Loan Security Agreement dated June 30, 1998
among CMC Heartland Partners, L.P. and LaSalle National Bank,
incorporated by reference to Exhibit 10.3 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.12 Option, Management and Marketing Agreement dated September 9, 1998
between CMC Heartland Partners VII, LLC and Longleaf Associates
Limited Partnership, incorporated by reference to Exhibit 10.4 to
Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.13 Settlement Agreement by and between the Port of Tacoma, CMC Real
Estate Corporation, Chicago Milwaukee Corporation, CMC Heartland
Partners, and Heartland Partners L.P. effective October 1, 1998,
incorporated by reference to Exhibit 10.5 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.14 Amendment to Amended and Restated Loan and Security Agreement dated
October 23, 1998 among CMC Heartland Partners and LaSalle National
Bank, incorporated by reference to Exhibit 10.6 to Heartland's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
10.15 Loan Agreement, between CMC Heartland Partners I, Limited
Partnership, a Delaware limited partnership, as Borrower and Bank
One, Illinois, NA, a national banking association, as Lender dated
November 30, 1998, incorporated by reference to Exhibit 10.15 to
Heartland's Annual Report Form 10-K for the year ended December 31,
1998.
10.16 Construction Loan Agreement dated January 6, 1999 between CMC
Heartland Partners III, LLC and Corus Bank, N.A., incorporated by
reference to Exhibit 10.16 to Heartland's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
10.17 The First Amendment of Mortgage and Other Loan documents dated
February 1, 1999 between CMC Heartland Partners I, Limited
Partnership and Bank One, Illinois, N.A., incorporated by reference
to Exhibit 10.17 to Heartland's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
46
<PAGE>
10.18 Second Amendment to Amended and Restated Loan and Security Agreement
dated April 29, 1999 among CMC Heartland Partners, and Heartland
Partners, L.P. and LaSalle National Bank, incorporated by reference
to Exhibit 10.18 to Heartland's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1999.
10.19 Employment Agreement, dated December 20, 1999, between CMC Heartland
Partners and Edwin Jacobson (filed herewith).*
10.20 Construction Loan Agreement dated October 20, 1999 between CMC
Heartland Partners III, LLC, a Delaware limited liability company and
Bank One, Illinois, N.A., a national banking association (filed
herewith).
10.21 Third amendment to Amended and Restated Loan and Security Agreement
dated November 18, 1999 among CMC Heartland Partners, and Heartland
Partners, L.P. and LaSalle National Association, a national banking
association (filed herewith).
10.22 Construction Loan Agreement dated December 9, 1999 between CMC
Heartland Partners VII, LLC, a Delaware limited liability company and
Bank One, Illinois, N.A., a national banking association (filed
herewith).
21 Subsidiaries of Heartland Partners, L.P (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 reports were filed by Heartland with the Securities and Exchange Commission
during the last quarter of 1999
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HEARTLAND PARTNERS, L.P.
------------------------
(Registrant)
By /s/ Edwin Jacobson
---------------------
Edwin Jacobson
President and Chief Executive Officer of
Heartland Technology, Inc., General
Partner (Principal Executive Officer)
By /s/Richard P. Brandstatter
-----------------------------
Richard P. Brandstatter
Vice President-Finance, Treasurer and
Secretary of Heartland Technology,
Inc., General Partner (Principal
Financial and Accounting Officer)
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated.
<TABLE>
<S> <C>
/s/ Robert S. Davis /s/ Edwin Jacobson
------------------- ------------------
Robert S. Davis Edwin Jacobson
(Director of Heartland Technology, Inc.) (Director of Heartland Technology, Inc.)
March 30, 2000 March 30, 2000
/s/ Gordon H. Newman /s/ Ezra K. Zilkha
--------------------- ------------------
Gordon H. Newman Ezra K. Zilkha
(Director of Heartland Technology, Inc.) (Director of Heartland Technology, Inc.)
March 30, 2000 March 30, 2000
/s/ John R. Torell III
----------------------
John R. Torell III
(Director of Heartland Technology, Inc.)
March 30, 2000
</TABLE>
48
<PAGE>
HEARTLAND PARTNERS, L.P.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
3.1 Certificate of Limited Partnership, dated as of October 4, 1988,
Incorporated by reference to Exhibit 3.1 to Heartland's Current Report
On Form 8-K dated January 5, 1998.
3.2 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference
to Exhibit 3.2 to Heartland's Current Report on Form 10-K for the year
ended December 31, 1990.
3.3 Amendment, dated as of December 4, 1997, to the Amended and Restated
Agreement of Limited Partnership of Heartland Partners, L.P.,
Incorporated by reference to Exhibit 3.3 to Heartland's Current report
On Form 8-K dated January 5, 1998.
4 Unit of Limited Partnership Interest in Heartland Partners, L.P.,
incorporated by reference to Exhibit 4 to Heartland's Annual Report on
Form 10-K for the year ended December 31, 1990.
10.1 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners
and Heartland Partners, L.P., incorporated by reference to Exhibit
10.1 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.2 Management Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Heartland Partners, L. P. and CMC Heartland
Partners, incorporated by reference to Exhibit 10.2 to Heartland's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.3 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners, L.P. and
Milwaukee Land Company, incorporated by reference to Exhibit 10.3 to
Heartland's Annual Report on Form 10-K for the year ended December 31,
1990.
10.4 Employment Agreement, dated July 1, 1990, by and between Edwin
Jacobson and CMC Heartland Partners, incorporated by reference to
Exhibit 10.4 to Heartland's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.5 First Amendment to Employment Agreement, dated July 1, 1993, by and
between Edwin Jacobson and CMC Heartland Partners incorporated by
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
reference to Exhibit 10.5 to Heartland's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.6 Second Amendment to Employment Agreement, dated as of July 1, 1995
between CMC Heartland Partners and Edwin Jacobson, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
10.7 Employment Agreement, dated July 2, 1995, between CMC Heartland
Partners and Edwin Jacobson, incorporated by reference to Exhibit 10.7
to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.8 First Amendment to Employment Agreement, dated as of January 2, 1998
between CMC Heartland Partners and Edwin Jacobson, incorporated by reference to
Exhibit 10.8 to Heartland's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.9 Loan and Security Agreement dated March 15, 1996, between CMC Heartland
Partners and LaSalle National Bank, incorporated by reference to Exhibit 10.1
to Heartland's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998.
10.10 Amendment to Loan and Security Agreement dated May 14, 1997, by and between CMC
Heartland Partners and LaSalle National Bank, incorporated by reference to
Exhibit 10.2 to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.11 Amended and Restated Loan Security Agreement dated June 30, 1998 among CMC
Heartland Partners, L.P. and LaSalle National Bank, incorporated by reference
to Exhibit 10.3 to Heartland's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.12 Option, Management and Marketing Agreement dated September 9, 1998 between CMC
Heartland Partners VII, LLC and Longleaf Associates Limited Partnership,
incorporated by reference to Exhibit 10.4 to Heartland's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.
10.13 Settlement Agreement by and between the Port of Tacoma, CMC Real Estate
Corporation, Chicago Milwaukee Corporation, CMC Heartland Partners, and
Heartland Partners L.P. effective October 1, 1998, incorporated by reference to
Exhibit 10.5 to Heartland's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.14 Amendment to Amended and Restated Loan and Security Agreement dated October 23,
1998 among CMC Heartland Partners and LaSalle National Bank, incorporated by
reference to Exhibit 10.6 to Heartland's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
10.15 Loan Agreement, between CMC Heartland Partners I, Limited Partnership, a
Delaware limited partnership, as Borrower and Bank One, Illinois, NA, a
national banking association, as Lender dated November 30, 1998, incorporated
by reference to Exhibit 10.15 to Heartland's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.16 Construction Loan Agreement dated January 6, 1999 between CMC Heartland
Partners III, LLC and Corus Bank, N.A, incorporated by reference to Exhibit
10.16 to Heartland's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
10.17 The First Amendment of Mortgage and Other Loan documents dated February 1, 1999
between CMC Heartland Partners I, Limited Partnership and Bank One, Illinois,
N.A., incorporated by reference to Exhibit 10.17 to Heartland's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
10.18 Second Amendment to Amended and Restated Loan and Security Agreement dated
April 29, 1999 among CMC Heartland Partners, and Heartland Partners, L.P. and
LaSalle National Bank, incorporated by reference to Exhibit 10.18 to
Heartland's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999.
10.19 Employment Agreement, dated December 20, 1999, between CMC Heartland Partners
and Edwin Jacobson (filed herewith).
10.20 Construction Loan Agreement dated October 20, 1999 between CMC Heartland
Partners III, LLC, a Delaware limited liability company and Bank One, Illinois,
N.A., a national banking association (filed herewith).
10.21 Third amendment to Amended and Restated Loan and Security Agreement dated
November 18, 1999 among CMC Heartland Partners, and Heartland Partners, L.P.
and LaSalle National Association, a national banking association (filed
herewith).
10.22 Construction Loan Agreement dated December 9, 1999 between CMC Heartland
Partners VII, LLC, a Delaware limited liability company and Bank One, Illinois,
N.A., a national banking association (filed herewith).
21 Subsidiaries of Heartland Partners, L.P. (filed herewith).
27 Financial Data Schedule (filed herewith).
</TABLE>
51
<PAGE>
Exhibit 10.19
CMC Heartland Partners
547 West Jackson Boulevard
Chicago, Illinois 60661
December 20, 1999
Mr. Edwin Jacobson
161 East Chicago Avenue
Apartment 43H
Chicago, Illinois 60611
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. The Company acknowledges and recognizes the value of your experience
and abilities to the Company throughout the term of your employment with the
Company pursuant to an Employment Agreement, dated July 2, 1995, as amended by a
First Amendment to Employment Agreement, dated January 2, 1998 (the employment
agreement, as so amended, being hereinafter referred to as the "Original
Employment Agreement"), the term of which expires by its own terms on the date
hereof. For its own benefit and for the benefit of Heartland Partners, L.P.
("Heartland"), a Delaware limited partnership organized under the Amended and
Restated Agreement of Limited Partnership of Heartland Partners, L.P., dated as
of June 27, 1990, as amended by the Amendment to the Amended and Restated
Agreement of Limited Partnership of Heartland Partners, L.P., dated December 4,
1997 (the "Partnership Agreement"), the Company desires to continue to retain
and make secure for itself such experience and abilities on the terms
hereinafter provided. If the following is satisfactory, would you please so
indicate by signing and returning to the Company the enclosed copy of this
letter whereupon this will constitute our agreement (the "Agreement") on the
subject.
1. Employment. The Company agrees to employ you and you agree to
be employed by the Company commencing on the date hereof and ending on May 30,
2002 (unless sooner terminated as hereinafter provided in this Agreement), on
the terms and conditions set forth in this Agreement.
2. Duties.
(a) You shall be employed as President and Chief Executive Officer of
the Company with general supervision over and responsibility for the
general management and operation of the Company. In the performance of
your duties, you shall be subject to the supervision and direction of
the Board of Directors of the Managing General Partner (as that term is
defined in the Partnership Agreement) of the Company and the Executive
Committee (as that term is defined in the Partnership Agreement) of the
Board of Directors of the Managing General Partner.
(b) During the term of your employment hereunder, you shall not be
required to devote your full business time to such employment. You
shall devote an amount of time to such employment determined by the
Board of Directors of the Managing General Partner or the Executive
Committee to be required of you to accomplish the business objectives
of the
1
<PAGE>
Company. During the term of your employment hereunder, you shall have
the right to continue your employment as President and Chief Executive
Officer of Heartland Technology, Inc., formerly known as Milwaukee Land
Company ("Technology") and, subject to the preceding sentence, you
shall have the right to pursue other employment or business activities
not in competition with the activities of the Company, provided that
any such activity does not interfere with the performance of your
duties hereunder and does not otherwise violate any provision of this
Agreement. Prior to your engaging in any such other employment or
business activity, you shall provide notice in reasonable detail to,
and consult with, the Chairman of the Executive Committee with respect
to your intention to engage in any such activity.
3. Compensation.
------------
(a) Base Salary. The Company shall pay you, and you shall accept from
the Company for your services, the following salary payable in
accordance with the Company's policy with respect to the compensation
of executives ("Base Salary"), commencing with the date hereof and
continuing through the term of your employment hereunder, a salary at
the rate of not less than $275,000 per year. During the term hereof,
the Board of Directors of the Managing General Partner may adjust the
Base Salary upwards (but not downwards). The Company shall be entitled
to withhold such amounts on account of payroll taxes and similar
matters as are required by applicable law, rule or regulation of
appropriate governmental authorities. Nothing contained herein shall
preclude you from participating in the present or future employee
benefit plans of the Company if you meet the eligibility requirements
therefor. You shall also have the right to defer receipt of some or all
of the Base Salary which you are entitled to receive hereunder by
written notice to the Company, which notice shall set forth the date to
which you wish to defer receipt of such compensation. If you elect to
defer receipt of all or any portion of the Base Salary ("Deferred
Compensation"), the amount due you shall be adjusted periodically to
reflect any interest that would be realized with respect to the
Deferred Compensation had it been invested at the rate of interest
announced publicly by Citibank, N.A. in New York, New York, from time
to time, as Citibank's base rate. No specific assets of the Company
shall be allocated or segregated with respect to the Deferred
Compensation and the foregoing shall not be construed to create a trust
of any kind or a fiduciary relationship between the Company and you,
the executor or administrator of your estate or any other person. Your
right, or the right of your estate, to receive the Deferred
Compensation, as adjusted in accordance with this Section 3(a), shall
be no greater than the right of an unsecured general creditor of the
Company.
(b) Incentive Compensation.
----------------------
(i) You will receive incentive payments equal to 10%
of the aggregate of (x) the value of all amounts distributed
to holders of a Class A limited partnership interest
(hereinafter defined as "Units") in Heartland and (y) the
value of all amounts distributed to the holder of the Class B
limited partnership interest in Heartland (holders of Units
and the holders of the Class B limited partnership interest
are collectively referred to herein as "Unitholders") after
distributions in excess of the Capital Amount (as hereinafter
defined) have been made by Heartland to Unitholders (i.e.,
after distributions in excess of the Capital Amounts have been
made to
2
<PAGE>
Unitholders, for every $1,000 available for distribution by
the Company, $899.91 will distributed to Heartland for
distribution to Unitholders and its general partner, $.09 will
be distributed to the Managing General Partner and you will be
paid $100 as incentive compensation). Incentive payments will
be made with respect to distributions by Heartland and the
Company during their respective entire terms, and, if
distributions are made subsequent to your death, payments will
be made to such person as you shall designate in a notice
filed with the Company, or, if no such person shall be
designated, to your estate. Payments will be made to you (or
your designee or estate) simultaneously with the making by
Heartland of distributions to Unitholders, subject to your
right to defer receipt of all or a portion of such payments as
described above in respect of your Base Salary. The Company
shall be entitled to withhold from such payments such amounts
on account of payroll taxes and similar matters as are
required by applicable law, rule or regulation of appropriate
governmental authorities.
(ii) (1) The Capital Amount initially will be 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
fair market value of such Unit as determined by the
Board of Directors of the Managing General Partner in
good faith.
(2) (x) The Capital Amount will be adjusted
downward by (i) the amount of cash and aggregate fair
market value of all other property distributed by
Heartland to Unitholders from the Distribution Date
to the end of its term and (ii) amounts paid by
Heartland or the Company to repurchase Units during
such time period and (y) upward by the net proceeds
received by Heartland upon the issuance for value of
additional Units from and after the Distribution
Date.
(3) In addition to the adjustments specified
in Section 3(b)(ii)(2) above, the Capital Amount will
be adjusted upward during each year by applying to a
portion of the Capital Amount a compounding interest
factor equal to the average annual yield on five-year
U.S. treasury notes for the preceding year as
reported by any nationally recognized securities
dealer which makes a market therein selected by the
Company. The interest factor
3
<PAGE>
will be applied to that portion of the Capital Amount
(the "Development Portion") which is represented by
the properties transferred to the Company which were
being held for development purposes (as contrasted
with properties being held for sale or lease). The
Development Portion will be determined by multiplying
the initial Capital Amount (as determined as
described above) by a fraction, the numerator of
which will be the appraised value of the properties
transferred to the Company which were being held for
development by CMC and Technology and the denominator
of which will be the aggregate appraised value of all
of the real estate properties transferred to the
Company by CMC and Technology (including the
development properties). For this purpose, appraised
values will be as shown in the July 30, 1986
appraisals in the possession of CMC. The Development
Portion will be deemed to accrue interest at the
applicable interest rate from and after the
Distribution Date and, at the end of each year, the
resulting interest component will be added to the
principal amount of the Development Portion and the
increased amount thereafter will be deemed to accrue
interest at the rate described above. Solely for the
purposes of determining the amount of interest deemed
to accrue on the Development Portion, cash proceeds
actually received by the Company in respect of sales
or other dispositions for value of the development
properties will be deemed applied at the time of
receipt first to reduce the imputed interest amount
and then to reduce the principal amount of the
Development Portion. The Company will deliver to you
on or before the last business day in February of
each year its calculation of the Capital Amount as of
the end of the preceding year. Any disagreement that
you may have with such calculation will be
communicated in writing to the Chairman of the
Executive Committee as promptly thereafter as
practicable.
(c) Reimbursement of Expenses. During your employment, you will be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by you in performing your services hereunder, provided that
you properly account therefor in accordance with Company policy.
(d) Change of Control.
-----------------
(i) Upon the first occurrence of a Change of Control
of Heartland (as hereinafter defined) occurring during or
after the term of your employment with the Company, the
Company will pay you (or if you die, such person as you shall
designate in a notice filed with the Company or, if no such
person shall be designated, your estate) either a single lump
sum of $1,250,000 or incentive compensation pursuant to
Section 3(b) hereof, to be determined by you in writing within
90 days from the Change of Control of Heartland. Payment will
begin within 30 days after receipt of such written election.
Further, notwithstanding anything to the contrary herein, in
the event you elect to receive payment in a single lump sum of
$1,250,000, the obligations, if any, of the Company to pay
incentive compensation pursuant to Section 3(b) hereof shall
terminate.
4
<PAGE>
(ii) For purposes of this Agreement, a "Change of
Control of Heartland" shall be deemed to have occurred if:
(1) a person or group of related persons is
or becomes the beneficial owner (within the meaning
of Rule 13d-3, as amended ("Rule 13d-3"), under the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")), directly or indirectly, of
outstanding Units or securities of Technology
representing 20% or more of the combined voting power
of Technology's then outstanding securities;
provided, however, that the beneficial ownership of
Units or securities of Technology by (a) Ezra K.
Zilkha, Zilkha & Sons, Inc., The Zilkha Foundation,
Inc., any of their respective affiliates or any
future members of one or more of the foregoing
persons, Schedule 13D group and (b) one or more
investors eligible to file Schedule 13G under the
Exchange Act in respect of such beneficial ownership
but which has not filed a Schedule 13D thereunder in
respect thereof, in each case shall not be included
in the calculation to determine a Change of Control
of Heartland for purposes of this Agreement;
(2) a person or group of related persons is
or becomes the beneficial owner (within the meaning
of Rule 13d-3), directly or indirectly, of
outstanding Units or securities of Technology
representing 10% or more of the combined voting power
of Technology's then outstanding securities and
individuals who at the time of acquisition of such
beneficial ownership were members of the Board of
Directors of Technology cease for any reason to
constitute a majority thereof at any time within the
24 months following such acquisition; provided,
however, that the beneficial ownership of Units or
securities of Technology by the persons set forth in
the proviso to clause (1) above shall similarly not
be included in the calculation to determine a Change
of Control of Heartland for purposes of this
Agreement;
(3) all or substantially all of the assets
of the Company are sold in one or a series of related
transactions;
(4) all or substantially all of Technology's
general partner interest in the Company is sold;
(5) The Company or Technology enters into an
agreement with an unaffiliated third party, the
consummation of which would result in the occurrence
of any one or more of the foregoing; or
(6) Heartland shall fail to make a
distribution to its Class A Limited Partners (as that
term is defined in Article I of the Partnership
Agreement) and assignees in an amount equal to the
excess of the distribution from the Company over the
sum of (i) the cash requirements of Heartland (which
shall be an amount necessary for debt services and
working capital sufficient to fund operating expenses
of Heartland for a period of one year)
5
<PAGE>
and (ii) any distributions required to be made to its
Class B Limited Partners (as that term is defined in
Article I of the Partnership Agreement) pursuant to
the Partnership Agreement;
provided, however, that an event or transaction that
would otherwise constitute a Change of Control of
Heartland shall not be deemed to constitute a Change
of Control of Heartland for purposes of this
Agreement if the buyer or buying group is a person in
which you have an interest or with whom you are
affiliated or such event or transaction is one of
which you otherwise approve in writing.
further, provided, however, that a Change of Control
of Heartland for purposes of this Agreement shall not
be deemed to have occurred by reason of (i) a private
offering of securities issued by Technology pursuant
to a resolution of the Board of Directors of
Technology approved December 20, 1999, or (ii) the
transfer of Technology's interest as General Partner
to a limited liability corporation in which you are a
member or otherwise participate directly or
indirectly.
4. Vacations. During your employment, you shall be entitled to
reasonable vacations from time to time in accordance with the regular procedures
of the Company governing senior executives. You shall also be entitled to all
paid holidays given by the Company to its senior executives.
5. Participation in Benefit Plans. You shall be entitled to participate
in and to receive benefits under all of the Company's employee benefit plans and
programs, including but not limited to any pension or retirement plan, savings
plan, or health-and-accident plan made available by the Company in the present
or future to its senior executives and other key management employees, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and programs.
6. Termination.
(a) Death. Your employment hereunder shall terminate upon your death.
(b) Disability. In the event of your permanent disability (as
hereinafter defined) during the term of your employment hereunder, the
Company shall have the right, upon written notice to you, to terminate
your employment hereunder, effective upon the giving of such notice.
For purposes of this Section, "permanent disability" shall mean any
physical or mental disability or incapacity which renders you incapable
of fully performing the services required of you in accordance with
your obligations hereunder for a period of 90 consecutive days.
(c) Cause. The Company may terminate your employment hereunder for
Cause. For the purposes of this Agreement, termination for Cause shall
mean termination after:
(i) your commission of a material act of fraud
against the Company or
6
<PAGE>
its affiliates;
(ii) your conviction of any crime which constitutes a
felony in the jurisdiction involved; or
(iii) the willful, repeated and demonstrable failure
by you to substantially perform your duties over a period of
not less than 30 days, other than any such failure resulting
from your incapacity due to physical or mental illness, or
material breach of any of your obligations under this
Agreement, and your failure to cure such failure or breach
within 30 days after receipt of written notice from the Board
of Directors of the Managing General Partner. No act or
failure to act on your part will be considered "willful"
unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was
in the best interests of the Company and its affiliates.
(d) Termination by You. You may terminate your employment hereunder (i)
for Good Reason, or (ii) if your health should become impaired to an
extent that makes the continued performance of your duties hereunder
hazardous to your physical or mental health or your life. For purposes
of this Agreement, "Good Reason" shall mean (A) any assignment to you
of any duties other than those contemplated by, or any limitation of
your powers in any respect not contemplated by, Section 2 hereof,
provided that you first deliver written notice thereof to the Executive
Committee and the Company shall have failed to cure such non-permitted
assignment or limitation within thirty (30) days after receipt of such
written notice, or (B) a reduction in your rate of compensation, or a
material reduction in your fringe benefits or any other material
failure by the Company to comply with Sections 3 through 5 hereof,
provided that you first deliver written notice thereof to the Executive
Committee and the Company shall have failed to cure such reduction or
failure within thirty (30) days after receipt of such written notice.
(e) Any termination by the Company pursuant to subsection (b) or (c)
above or by you pursuant to subsection (d) above shall be communicated
by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
your employment under the provision so indicated.
(f) "Date of Termination" shall mean (i) if your employment is
terminated by your death, the date of your death, and (ii) if your
employment is terminated for any other reason, the date on which a
Notice of Termination is given.
(g) If within fifteen (15) days after a Notice of Termination is given
to you by the Company in connection with the termination of your
employment hereunder pursuant to subsections (b) and (c) above you
notify the Company in writing that you believe that your employment was
wrongfully terminated, and you shall have delivered such notification
in good faith with a reasonable belief that your employment was
wrongfully terminated, then you shall be entitled to continue to
receive the Base Salary provided for in Section 3(a) hereof for a
period of time ending on the date six months after the Date of
Termination. In
7
<PAGE>
the event a court of competent jurisdiction finally decides that your
employment was rightfully terminated in accordance with the provisions
of this Agreement, you shall return, within thirty (30) days after the
date of such final decision to the Company the amounts paid to you
pursuant to this subsection (g).
7. Compensation Upon Death, During Disability or Termination.
(a) If your employment shall be terminated by reason of your death, the
Company shall pay, to such person as you shall designate in a notice
filed with the Company or, if no such person shall be designated, to
your estate, as a lump sum death benefit, an amount equal to the
amount, if any, by which $150,000 exceeds the proceeds payable to your
designated beneficiary or estate pursuant to any life insurance policy
covering your life maintained by the Company. This amount shall be
exclusive of and in addition to any payments your widow, beneficiaries
or estate may be entitled to receive pursuant to any employee benefit
plan or program maintained by the Company. Your designated beneficiary
or the executor of your estate, as the case may be, shall accept the
payment provided for in this Section 7 in full discharge and release of
the Company of and from any further obligations under this Agreement,
other than the obligations, if any, of the Company to pay incentive
compensation pursuant to Section 3(b) and such amount as set forth in
Section 3(d)(i) hereof.
(b) During any period that you fail to perform your duties hereunder as
a result of incapacity due to physical or mental illness, you shall
continue to receive your full Base Salary until your employment is
terminated pursuant to Section 6(b) hereof, or until you terminate your
employment pursuant to Section 6(d)(ii) hereof, whichever first occurs.
If your employment is terminated by the Company pursuant to Section
6(b) or you terminate your employment pursuant to Section 6(d)(ii), the
Company shall be discharged and released of and from any further
obligations under this Agreement, other than the obligations, if any,
of the Company to pay incentive compensation pursuant to Section 3(b)
and such amount as set forth in Section 3(d)(i) hereof. During any such
period and thereafter you shall continue to bear the obligations
provided for in Section 8 below.
(c) If your employment shall be terminated for Cause, or you shall
terminate your employment other than for Good Reason, the Company shall
pay you your full Base Salary through the Date of Termination or the
date on which you terminate your employment at the rate in effect at
the time the Notice of Termination is given or the date on which you
terminate your employment. The Company shall be discharged and released
of and from any further obligations under this Agreement, other than
the obligations, if any, of the Company to pay incentive compensation
pursuant to Section 3(b) and such amount as set forth in Section
3(d)(i) hereof. Thereafter you shall continue to have the obligations
provided for in Section 8 below in accordance with the terms of such
Section 8. Nothing contained herein shall be deemed to be a waiver by
the Company of any rights that it may have against you in respect of
your actions which gave rise to the termination of your employment.
(d) If the Company shall terminate your employment other than pursuant
to Sections 6(b) or 6(c) hereof or if you shall terminate your
employment for Good Reason, then:
(i) The Company shall continue to pay you your full
Base Salary through
8
<PAGE>
May 30, 2002 at the rate in effect at the time Notice of
Termination is given in accordance with Section 3(a) hereof;
(ii) The Company shall continue to pay you the
incentive compensation provided in Section 3(b) hereof;
(iii) The Company shall continue to have the
obligation, if any, to pay the amount set forth in Section
3(d)(i) hereof;
(iv) The Company shall pay all other pecuniary
damages (but not including punitive or exemplary damages) to
which you may be entitled as a result of the Company's
termination of your employment under this Agreement, including
damages for any and all loss of benefits to you under the
Company's employee benefit plans and programs which you would
have received if the Company had not breached this Agreement
and had your employment continued for the full term provided
in Section 1 hereof, and including all reasonable legal fees
and expenses incurred by you as a result of such termination;
and
(v) The Company shall maintain in full force and
effect, for your continued benefit for the full term of this
Agreement, all employee benefit plans and programs in which
you were entitled to participate immediately prior to the Date
of Termination provided that your continued participation is
possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such
plan or program is barred, you shall be entitled to receive an
amount equal to the annual contributions, payments, credits or
allocations made by the Company to you, to your account or on
your behalf under such plans and programs from which your
continued participation is barred.
8. Restrictive Covenants and Confidentiality: Injunctive Relief.
------------------------------------------------------------
(a) You agree, as a condition to the performance by the Company of its
obligations hereunder, particularly its obligations under Section 3
hereof, that during the term of your employment hereunder and during
the further period of one (1) year after the termination of such
employment, you shall not, without the prior written approval of the
Board of Directors of the Managing General Partner, directly or
indirectly through any other person, firm or corporation:
(i) Solicit, raid, entice or induce any person, firm
or corporation that presently is or at any time during the
term of your employment hereunder shall have a material
business relationship with the Company, or any of its
affiliated companies, to engage in any material business
transaction with any other person, firm or corporation, and
you shall not approach any such person, firm or corporation
for such purpose or authorize or knowingly approve the taking
of such actions by any other person; or
(ii) Solicit, raid, entice or induce any person that
presently is or at any time during the term of your employment
hereunder shall be an employee of the
9
<PAGE>
Company, or any of its affiliated companies, to become
employed by any person, firm or corporation, and you shall not
approach any such employee for such purpose or authorize or
knowingly approve the taking of such actions by any other
person.
(b) Recognizing that the knowledge, information and relationship with
customers, suppliers, and agents, and the knowledge of the Company's
and its affiliated companies, business methods, systems, plans and
policies which you shall hereafter establish, receive or obtain as an
employee of the Company or its affiliated companies, are valuable and
unique assets of the respective businesses of the Company and its
affiliated companies, you agree that, during and after the term of your
employment hereunder, you shall not (otherwise than pursuant to your
duties hereunder) disclose, without the prior written approval of the
Board of Directors of the Managing General Partner, any such knowledge
or information pertaining to the Company or any of its affiliated
companies, their business, personnel or policies, to any person, firm,
corporation or other entity, for any reason or purpose whatsoever. The
provisions of this Section 8 shall not apply to information which is or
shall become generally known to the public or the trade (except by
reason of your breach of your obligations hereunder), information which
is or shall become available in trade or other publications,
information known to you prior to entering the employ of the Company,
and information which you are required to disclose by order of a court
of competent jurisdiction.
(c) The provisions of this Section 8 shall survive the termination of
your employment hereunder, irrespective of the reason therefor.
(d) You acknowledge that the services to be rendered by you are of a
special, unique and extraordinary character and, in connection with
such services, you will have access to confidential information vital
to the Company's and its affiliated companies' businesses. By reason of
this, you consent and agree that if you violate any of the provisions
of this Agreement with respect to diversion of the Company's or its
affiliated companies, business relationships or employees, or
confidentiality, the Company and its affiliated companies would sustain
irreparable harm and, therefore, in addition to any other remedies
which the Company may have under this Agreement or otherwise, the
Company shall be entitled to an injunction restraining you from
committing or continuing any such violation of this Agreement.
(e) The failure of the Company or any affiliated companies to exercise
any rights under this Agreement upon any breach or threatened breach by
you shall not constitute a waiver of any rights arising by reason of
other or similar breaches.
9. Gross-Up Payment. If any portion of the payments described herein,
and/or any other payments no matter the source of such payments, shall be
subject to the tax imposed by Section 4999 of the Internal Revenue Code (the
"Excise Tax") (the portion of such payments which are subject to the Excise Tax
being referred to herein as "Payments"), the Company shall pay to you no later
than the 30th day following the date you become subject to the Excise Tax an
additional amount (the "Gross-Up Payment"), such that the net amount you retain
after deduction of the Excise Tax on such Payments, and all federal, state and
local income and employment tax (assuming you are in the highest marginal tax
bracket), interest and penalties and Excise Tax on the Gross-Up Payment, shall
be equal to the amount you would have retained had the Payments not been subject
to the Excise
10
<PAGE>
Tax.
10. Successors: Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to you, to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation
from the Company in the same amount and on the same terms as you would
be entitled to hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination. As used in this Agreement, "Company" shall include
any successor to the Company's business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section
10 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation by law.
(b) This Agreement and all your rights hereunder shall inure to the
benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributes, devisees and legatees. If you should die while any amounts
would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee,
or other designee or, if there be no such designee, to your estate.
Your obligations hereunder may not be delegated and except as otherwise
provided herein relating to the designation of a devisee, legatee or
other designee, you may not assign, transfer, pledge, encumber,
hypothecate or otherwise dispose of this Agreement or any of your
rights hereunder, and any such attempted delegation or disposition
shall be null and void and without effect.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to you:
Mr. Edwin Jacobson
161 East Chicago Avenue
Apartment 43H
Chicago, Illinois 60611
If to the Company:
547 West Jackson Boulevard
Chicago, Illinois 60661
11
<PAGE>
Attn: Chairman of the Executive Committee
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and by such officer as may be specifically designated
by the Board of Directors of the Managing General Partner. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the complete understanding between the parties with respect to your
employment and no agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Illinois.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
CMC HEARTLAND PARTNERS
By: Heartland Technology, Inc.
as Managing General Partner
By: _______________________________
Name: _________________________
Title: _________________________
ACCEPTED AND AGREED TO:
12
<PAGE>
- -----------------------------------
Edwin Jacobson
<PAGE>
Exhibit 10.20
CONSTRUCTION LOAN AGREEMENT
BETWEEN
CMC HEARTLAND PARTNERS III, LLC,
a Delaware limited liability company, as Borrower
AND
BANK ONE, ILLINOIS, NA,
a national banking association, as Lender
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page No.
1. RECITALS.............................................................1
2. DEFINITIONS..........................................................1
3. COMMITMENT TO LEND; COMMITMENT FEE...................................8
3.1 Maximum Construction Loan Amount............................8
3.2 Loan Advances Evidenced by Mortgage Note....................8
3.3 Payment of Interest and Principal...........................8
3.4 Default Rate................................................9
3.5 Late Charge.................................................9
3.6 Fees........................................................9
3.7 Letter of Credit; Letter of Credit Fees and Cash Collateral.9
4. LOAN DOCUMENTS......................................................10
5. DISBURSEMENT OF THE LOAN............................................15
5.1 Conditions Precedent.......................................15
5.2 Use of Construction Loan Proceeds; Inspections of the Work.15
5.3 Disbursement Requests......................................16
5.4 Certifications, Representations and Warranties.............17
5.5 Amount of Disbursements; Retainage.........................18
5.6 Costs......................................................18
5.7 Reserves...................................................18
5.8 Loan In Balance............................................19
5.9 Escrow; Application of Disbursements.......................20
5.10 Release of Retainage.......................................20
6. REPRESENTATIONS AND WARRANTIES......................................22
6.1 Borrower...................................................22
6.2 Member.....................................................22
6.3 Heartland..................................................22
6.4 Title......................................................23
6.5 Improvements...............................................23
6.6 Validity and Enforceability of Documents...................23
6.7 Litigation.................................................23
6.8 Utilities; Authorities.....................................23
6.9 Solvency...................................................24
6.10 Financial Statements.......................................24
6.11 Compliance with Laws.......................................24
6.12 Construction Contract......................................24
6.13 Subcontracts...............................................25
6.14 Architectural Contract.....................................25
<PAGE>
6.15 Plans and Specifications...................................25
6.16 Budget.....................................................25
6.17 Financing Statements.......................................25
6.18 Event of Default...........................................25
6.19 Responsible Property Transfer Act..........................25
6.20 Federal Interstate Land Sales Full Disclosure Act;
Illinois Land Sales Registration Act of 1989...............25
6.21 Additional Agreements......................................25
7. BORROWER'S COVENANTS................................................26
7.1 Manner of Construction.....................................26
7.2 Certificate of Completion..................................26
7.3 Change Orders..............................................26
7.4 Compliance with Laws.......................................27
7.5 Inspection.................................................27
7.6 Mechanics' Liens...........................................27
7.7 Release by Lender..........................................28
7.8 Financial Statements; Reports..............................28
7.9 Affirmation of Representations and Warranties..............29
7.10 Title......................................................29
7.11 Proceedings Affecting Property.............................29
7.12 Disposal and Encumbrance of Property.......................29
7.13 Insurance..................................................30
7.14 Performance of Obligations; Notice of Default..............30
7.15 Subcontracts...............................................30
7.16 Restrictions Affecting Borrower............................30
7.17 Use of Receipts............................................30
7.18 Budget.....................................................31
7.19 Management and Leasing Agreements; Subordination...........31
7.20 Additional Documents.......................................31
7.21 Sale to Investors..........................................31
7.23 Survey.....................................................32
7.24 Borrower's Accounts........................................32
7.25 Ineligible Securities......................................32
8. LOAN EXPENSES.......................................................32
9. LENDER'S REPRESENTATIVES............................................33
10. EVENTS OF DEFAULT...................................................33
11. REMEDIES...........................................................35
12. SALES OF UNIT INTERESTS; PARTIAL RELEASES...........................36
12.1 Right to Sell..............................................36
12.2 Release of Liens...........................................36
ii
<PAGE>
13. MISCELLANEOUS.......................................................37
13.1 Additional Indebtedness....................................37
13.2 Additional Acts............................................37
13.3 Loan Agreement Governs.....................................37
13.4 Additional Advances........................................37
13.5 Amendment; Waiver; Approval................................37
13.6 Notice.....................................................38
13.7 Benefit; Assignment........................................38
13.8 Governing Law..............................................39
13.9 Indemnity..................................................39
13.10 Headings...................................................39
13.11 No Partnership or Joint Venture............................39
13.12 Time is of the Essence.....................................39
13.13 Invalid Provisions.........................................39
13.14 Offset.....................................................40
13.15 Acts by Lender.............................................40
13.16 Binding Provisions.........................................40
13.17 Counterparts...............................................40
13.18 No Third Party Beneficiary.................................40
13.19 Publicity..................................................40
13.20 JURISDICTION AND VENUE.....................................40
13.21 JURY WAIVER................................................41
iii
<PAGE>
CONSTRUCTION LOAN AGREEMENT
This Construction Loan Agreement ("Agreement") is dated as of October
20, 1999, by and between CMC HEARTLAND PARTNERS III, LLC, a Delaware limited
liability company ("Borrower"), and BANK ONE, ILLINOIS, NA, a national banking
association ("Lender").
1. RECITALS.
--------
1.1 Borrower is the fee owner of the Land (this and all other
capitalized terms used in this Article 1 and not otherwise defined
shall have the meanings ascribed thereto in Article 2 below).
1.2 Borrower has requested that Lender make a construction
loan (the "Construction Loan") to Borrower in the maximum principal
amount of $5,250,000 to pay a portion of the amounts needed to finance
the Project Costs associated with the construction of a midrise
building containing 24 residential condominium units and underground
parking on the Land. Lender has agreed to make the Construction Loan
subject to the terms and conditions set forth herein.
1.3 In consideration of the mutual agreements set forth herein
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree
as follows:
2. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
2.1 "Acceptable Unit Sale Contract" shall mean a binding,
unconditional sale contract for a Unit Interest (with any financing and
other contingencies having been satisfied or expired) (i) with a third
party unrelated to and unaffiliated with Borrower, (ii) with earnest
money paid in cash in an amount not less than 10% of the purchase price
of the Unit Interest, (iii) on a form of contract approved in writing
by Lender (with only such changes thereto as may be requested by the
purchaser and agreed to by Borrower exercising commercially reasonable
judgment), and (iv) for a gross sales price of not less than the
minimum sales price therefor contained in Exhibit E attached hereto.
2.2 "Applicable Laws" shall mean all laws, statutes,
ordinances, rules, regulations, judgments, decrees or orders of any
state, federal or local government or agency which are applicable to
the Obligors and/or the Project.
2.3 "Architect" shall mean Pappageorge/Haymes, Ltd.
2.4 "Architectural Contract" shall mean that certain contract
dated December 9, 1997, between Borrower and the Architect regarding
the architectural services to be performed by the Architect in
connection with the construction of the Improvements.
<PAGE>
2.5 "Assignment of Developer Rights" shall mean the assignment
from Borrower to Lender to secure the Loans of all of Borrower's rights
as the developer/declarant under the Condominium Documents.
2.6 "Assignment of Plans" shall mean the collateral assignment
of all licenses, permits, plans, specifications and contracts relating
to the construction, use or operation of the Project to be made by
Borrower to Lender to secure the Loans.
2.7 "Assignment of Rents and Leases" shall mean the collateral
assignment of the rents and leases of the Project, or any part thereof,
to be made by Borrower to Lender to secure the Loans.
2.8 "Assignment of Sales Contracts" shall mean the assignment
of all sales contracts with respect to any Unit Interests to be made by
Borrower to Lender to secure the Loans.
2.9 "Budget" shall mean the detailed budget of all costs to be
incurred in connection with the Work, including both hard costs and
soft costs, as set forth in Exhibit A attached hereto and made a part
hereof.
2.10 "Building" shall mean the midrise building with 24
residential condominium units and 32 underground parking stalls to be
constructed on the Land.
2.11 "Business Day" shall mean each day excluding Saturdays,
Sundays and any other day on which Lender is closed for business to the
public.
2.12 "Closing Date" shall mean the date of this Agreement.
2.13 "Condominium Laws" shall mean, collectively, the Illinois
Condominium Property Act, the City of Chicago Condominium Ordinance and
all other laws, rules, regulations and governmental actions governing
the development, conversion, ownership or operation of condominium
projects such as the Project, as amended from time to time.
2.14 "Condominium Documents" shall mean the condominium
declarations, the plats of condominium, the association articles of
incorporation, by-laws and rules and regulations, the City of Chicago
property report and all other documents and instruments governing the
ownership, operation or administration of the Project as an integrated
condominium project.
2.15 "Construction Contract" shall mean that certain contract
dated September 7, 1999, between Borrower and the Contractor regarding
the general contracting and construction management services to be
performed in connection with the construction of the Improvements.
2
<PAGE>
2.16 "Consultant" shall mean an independent architect or
engineer selected by Lender.
2.17 "Contractor" shall mean Linn-Mathes, Inc.
2.18 "Demand Note" shall mean that certain Demand Note of even
date herewith made by Borrower in the amount of $3,000,000 evidencing
all draws hereafter made on the Letter of Credit.
2.19 "Default Rate" shall mean the Loan Rate plus three
percent (3.0%) per annum.
2.20 "Event of Default" shall have the meaning ascribed to it
in Section 10 of this Agreement.
2.21 "Hazardous Materials" shall mean and include any and all
hazardous, toxic or dangerous substances, wastes and materials and
other pollutants and contaminants as defined or described in any or all
applicable federal, state or local statutes, laws, ordinances, codes,
rules, regulations, orders or decrees now or hereafter regulating,
relating to or imposing liability or standards of conduct with respect
to environmental matters, including, without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986 (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act
of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984
(42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977 and the Water Quality
Act of 1987 (33 U.S.C. Section 1251 et seq.), the Toxic Substances
Control Act of 1976 (15 U.S.C. Section 2601 et seq.), the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section
11001 et seq.), the Clear Air Act of 1966, as amended (42 U.S.C.
Section 7401 et seq.), the National Environmental Policy Act of 1970
(42 U.S.C. Section 4321 et seq.), the Rivers and Harbours Act of 1899
(33 U.S.C. Section 401 et seq.), the Endangered Species Act of 1973, as
amended (16 U.S.C. Section 1531 et seq.), the Safe Drinking Water Act
of 1974, as amended (42 U.S.C. Section 300(f) et seq.), the
Occupational Safety and Health Act of 1970, as amended (29 U.S.C.
Section 651 et seq.) and the Illinois Environmental Protection Act of
1970, as amended (Ill.Rev.Stat. ch.111-1/2, Paragraph 1001 et seq.) and
all rules, regulations and guidance documents promulgated or published
thereunder, all as amended or hereinafter amended. Without intending
to limit the scope or breadth of the foregoing definition, the term
Hazardous Materials shall include asbestos, urea formaldehyde,
polychlorinated biphenyls, crude oil, radioactive materials and
underground storage tanks.
2.22 "Heartland" shall mean Heartland Technology, Inc., a
Delaware corporation.
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2.23 "Improvements" shall mean the Building and all other
structures, all paving, lighting, landscaping, utility lines and
equipment and all other site improvements and all other improvements to
be constructed on the Land in accordance with the Plans and
Specifications.
2.24 "Indemnity Agreement" shall mean the environmental
indemnity agreement to be made by Borrower in favor of Lender.
2.25 "Initial Advance" shall mean the first draw or
disbursement made from the proceeds of the Construction Loan.
2.26 "Land" shall mean the tract of land located in Chicago,
Cook County, Illinois and legally described in Exhibit B attached
hereto.
2.27 "Letter of Credit" shall mean that certain irrevocable
standby letter of credit (no. StI14057) established by Lender at the
request of Borrower with Corus Bank as the beneficiary in the amount of
$3,000,000, pursuant to the terms of the Letter of Credit Agreement.
2.28 "Letter of Credit Agreement" shall mean that certain Bank
One Application and Agreement for Irrevocable Standby Letter of Credit
dated as of July 31, 1999.
2.29 "Letter of Credit Liability" means, at any time, the sum
of (i) the aggregate amount then available to be drawn or that may
thereafter be drawn under the Letter of Credit, and (ii) all amounts
that have theretofore been drawn on the Letter of Credit and that have
not been reimbursed or repaid to Lender.
2.30 "Loans" shall mean (i) the Construction Loan, and (ii)
any amounts that have been drawn on the Letter of Credit and that have
not been reimbursed or repaid to Lender.
2.31 "Loan Advance" shall mean a disbursement of all or any
portion of the Construction Loan.
2.32 "Loan Documents" shall mean this Agreement, the Mortgage,
the Notes, the Assignment of Leases and Rents, the Assignment of Plans,
the Assignment of Sales Contracts, Assignment of Developer Rights, the
Security Agreement, the Indemnity Agreement, the Letter of Credit
Agreement, and every other document now or hereafter evidencing,
securing or otherwise executed in conjunction with the Loans, together
with all amendments and modifications thereof.
2.33 "Loan Expenses" shall mean the expenses, charges, costs
(including both hard costs and soft costs) and fees relating to the
making, administration, negotiation, documentation or any other aspect
of the Loans or relating to the performance of the
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Work, including, without limitation, Lender's reasonable attorneys'
fees and costs in connection with the negotiation, documentation and
enforcement of the Loans, the fees of the Consultant, all recording
fees and charges, title insurance charges and premiums, escrow fees,
fees of insurance consultants, costs of surveys and of other bonds
required by the Title Company in connection with clearing title to the
Real Property or the issuance of title reports, binders, policies and
the like, and all other costs, expenses, charges and fees referred to
in or necessitated by the terms of this Agreement or any of the other
Loan Documents.
2.34 "Loan Rate" shall mean the Prime Rate.
2.35 "Maturity Date" shall mean October 20, 2002.
2.36 "Member" shall mean CMC Heartland Partners, a Delaware
general partnership, Borrower's sole member.
2.37 "Mortgage" shall mean the construction mortgage
encumbering the Real Property to be made by Borrower to Lender to
secure the Loans.
2.38 "Mortgage Note" shall mean the Mortgage Note evidencing
the Construction Loan to be made by Borrower payable to the order of
Lender in the original principal amount of $5,250,000.
2.39 "Net Sales Proceeds" shall mean, with respect to the sale
of any Unit Interest, the gross sales proceeds payable by the purchaser
thereof, minus all customary and reasonable title insurance charges,
escrow fees, legal fees, real estate taxes and other prorations
approved by Lender, transfer taxes and market rate real estate brokers'
commissions, all to the extent payable as a result of the sale of such
Unit Interest, provided, however, if there is a holdback escrow as a
result of the sale of such Unit Interest, then the Net Sales Proceeds
shall not include the amount of such escrow until such amount is
delivered to Borrower, further provided, that any such holdback escrow
shall not be greater than $1,500.
2.40 "Notes" shall mean the Demand Note and the Mortgage Note.
2.41 "Obligors" shall mean Borrower and Member.
2.42 "Permitted Exceptions" shall mean the exceptions to the
title of the Real Property listed on Exhibit C attached hereto.
2.43 "Person" shall mean any individual, firm, corporation,
business enterprise, trust, association, joint venture, partnership,
limited liability company, governmental body or other entity, whether
acting in an individual, fiduciary or other capacity.
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2.44 "Personal Property" shall mean and include any and all
furniture, furnishings, appliances, equipment and all fixtures (to the
extent such fixtures are attached in a manner so as not to be deemed to
be part of the Real Property) to be located in the Units or otherwise
at the Land which will be used or usable in connection with the
ownership, development, construction or operation of the Project and
which will be owned, leased or otherwise possessed by Borrower or any
of its affiliates, including all of such personal property contemplated
under the Plans and Specifications.
2.45 "Plans and Specifications" shall mean, collectively, the
architectural and engineering plans and specifications relating to the
Work or any portion thereof, all of which must be acceptable to Lender
in its sole and absolute discretion.
2.46 "Prime Rate" shall mean an annual rate of interest equal
to the prime rate as publicly announced by Lender to be in effect from
time to time, adjusted and changing when and as said prime rate
changes.
2.47 "Principal Balance" shall mean the unpaid principal
balance of the Loans outstanding from time to time.
2.48 "Project" shall mean the residential condominium complex
more fully described in Section 1.2 above.
2.49 "Project Cost" shall mean each of the following items,
but only to the extent specifically set forth in the Budget and only to
the extent specifically required to complete the Project:
(a) The actual hard costs of completing
construction of the Improvements, including demolition and
environmental remediation costs;
(b) The actual costs of acquiring the Land and
acquiring and installing the Personal Property;
(c) Premiums for title, casualty, liability and
other insurance required by Lender;
(d) The cost of recording and filing the Loan
Documents;
(e) Real estate taxes and other assessments
which Borrower is obligated to pay during the term of the
Loans;
(f) Interest, fees and similar charges payable
by Borrower to Lender hereunder or under the Notes;
(g) Legal and other closing costs;
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(h) Architectural, engineering and consulting
fees;
(i) Such other soft costs as may be set forth in
the Budget or as may be hereafter approved in writing by
Lender; and
(j) All other Loan Expenses.
2.50 "Property" shall mean the Real Property, the Building and
the Personal Property (whether before or after completion of the Work)
and all other tangible and intangible assets benefiting or otherwise
appertaining to the Project, including, without limitation, all of the
collateral for the Loans described in the Loan Documents.
2.51 "Real Property" shall mean the Land, the Improvements and
all easements and appurtenants thereto.
2.52 "Reserves" shall mean the reserves described in Section
5.7 below.
2.53 "Retainage" shall mean the portion of each Loan Advance
retained by Lender in accordance with Section 5.5 below.
2.54 "Security Agreement" shall mean the security agreement
encumbering the Personal Property to be made by Borrower to Lender to
secure the Loans.
2.55 "Subcontracts" shall mean all subcontracts now or
hereafter entered into by the Contractor for the construction of any of
the Improvements or the installation of any of the Personal Property or
the performance of any other aspect of the Work, together with all
sub-subcontracts, material or equipment purchase orders, equipment
leases and other agreements entered into by the Contractor, any
subcontractor or any other party supplying labor or materials in
connection with the Work.
2.56 "Survey" shall mean the plat of survey of the Real
Property as described in Section 4.3 below.
2.57 "Title Company" shall mean Near North National Title
Corporation, as issuing agent for First American Title Insurance
Company.
2.58 "Title Policy" shall mean the title insurance policy
described in Section 4.5 below.
2.59 "Unit" shall mean a residential condominium unit dwelling
located within the Building that is to be sold to purchasers in a fully
finished (but unfurnished) condition, as more fully described in the
plans to be delivered to Lender (which plans are subject to Lender's
approval).
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2.60 "Unit Interest" shall mean an ownership interest in a
Unit, together with the undivided ownership interest in the common
elements, easements and other rights appurtenant to such Unit, as more
fully provided in the Condominium Documents to be approved by Lender.
2.61 "Unmatured Default" shall mean an event or circumstance
that with the giving of notice, the passage of time, or both, would
constitute an Event of Default.
2.62 "Work" shall mean the performance of all work to be
performed and the supplying of all materials to be supplied in
connection with the building, furnishing, fixturing and equipping of
the Project, all in accordance with the provisions of this Agreement
and with the Plans and Specifications, the Budget and other
documentation approved by Lender.
3. COMMITMENT TO LEND; COMMITMENT FEE.
----------------------------------
3.1 Maximum Construction Loan Amount. Lender agrees to lend to
Borrower, and Borrower agrees to borrow from Lender, an amount not to
exceed $5,250,000 for the purposes, upon the terms and subject to the
conditions contained in this Agreement. Notwithstanding anything
contained in this Article to the contrary, Loan Advances shall be
limited to such amounts as Borrower is eligible to receive pursuant to,
and upon compliance with, the conditions of Article 5 hereof. Borrower
may prepay all or any part of the Construction Loan at any time and
from time to time upon five days prior written notice to Lender without
cost or penalty. Borrower shall not be entitled to reborrow portions of
the Construction Loan that are repaid or prepaid pursuant to, and upon
compliance with, the conditions of Article 4 hereof.
3.2 Loan Advances Evidenced by Mortgage Note. All Loan
Advances hereunder shall be evidenced by the Mortgage Note, which shall
be executed and delivered by Borrower simultaneously with the execution
of this Agreement.
3.3 Payment of Interest and Principal. Payments of principal
and interest due under the Notes, if not sooner declared to be due in
accordance with the provisions of the Notes or this Agreement, shall be
made as follows:
(a) Commencing on the first Business Day of the
calendar month following the Initial Advance and on the first
Business Day of each calendar month thereafter through and
including the calendar month in which the Maturity Date
occurs, accrued and unpaid interest only on the Principal
Balance shall be due and payable;
(b) Upon the consummation of each sale of a
Unit, a payment equal to 100% of the Net Sales Proceeds with
respect to such Unit;
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(c) The principal balance of the Mortgage Note, if
not sooner declared to be due in accordance with the terms of
the Mortgage Note or this Agreement, together with all accrued
and unpaid interest thereon, shall be due and payable in full
on the Maturity Date.
Borrower hereby authorizes Lender on the first day of each month during
the term of the Construction Loan (and on any other date on which
interest is due under the Mortgage Note) to disburse to itself from the
undisbursed proceeds of the Construction Loan all then accrued and
unpaid interest on the Construction Loan, and Lender agrees to disburse
Construction Loan proceeds to itself to pay such interest, provided all
conditions precedent to such disbursement as set forth in this
Agreement are satisfied; provided, however, that neither such
authorization nor agreement shall be deemed to limit, reduce or
otherwise affect Borrower's obligation to pay interest if (a) there are
no remaining amounts in the Budget allocated for the payment of
interest (including Reserves specifically allocated to pay interest),
or (b) Lender is entitled to withhold disbursement of the Construction
Loan for any reason. Any amounts disbursed from the interest reserve
shall become part of the outstanding principal balance and interest
thereon shall accrue and be payable as provided in the Mortgage Note.
3.4 Default Rate. At any time, after the Maturity Date or
otherwise, when an Event of Default exists under this Agreement or any
of the other Loan Documents, the Principal Balance and any other
amounts then owing by Borrower to Lender shall bear interest at the
Default Rate.
3.5 Late Charge. If any payment of interest or principal due
under the Notes is not made within ten days after such payment is due,
then, in addition to the payment of the amount so due, Borrower shall
pay to Lender a "late charge" equal to five percent (5.0%) of the
amount of that payment or $25.00, whichever is greater, to compensate
Lender for the cost of collecting and handling such late payment.
3.6 Fees. Lender has fully earned a non-refundable loan and
administration fee in the amount of $52,500.00, and, concurrently with
the execution of this Agreement, the unpaid balance of such fee shall
be due and payable by Borrower.
3.7 Letter of Credit; Letter of Credit Fees and Cash
Collateral.
------------------------------------------------
(a) Concurrently with the Initial Advance, Lender
shall issue the Letter of Credit on Lender's standard form and
otherwise in form and substance acceptable to Lender in an
aggregate amount of $3,000,000; provided, however, that prior
to and as a condition to Lender being obligated to issue the
Letter of Credit, Borrower shall pay to Lender an issuance fee
equal to $30,000 and such issuance fee shall be deemed to be
fully earned upon the payment thereof. Provided that the
Letter of Credit is then outstanding, on October 20, 2000,
January 20, 2001, April 20, 2001 and July 20, 2001, Borrower
shall pay to Lender
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a quarterly fee equal to $7,500, which such fee shall be
deemed to be fully earned upon the payment thereof.
(b) Any amounts disbursed by Lender under the Letter
of Credit at any time and from time to time shall be deemed
disbursements of proceeds of the Loans and shall be due and
payable by Borrower to Lender at the times and in the manner
set forth in the Demand Note.
(c) If the Letter of Credit is outstanding prior to
Maturity Date, but subsequent to the repayment in full of the
Construction Loan, then upon the consummation of each sale of
a Unit Interest, Borrower shall deliver cash collateral equal
to 50% of the Net Sales Proceeds with respect to such Unit
Interest shall be delivered to Lender. If the Letter of Credit
is outstanding on the Business Day immediately preceding the
Maturity Date (or if an amount has then been drawn on the
Letter of Credit which has not been reimbursed or repaid),
Lender may demand delivery of cash collateral in an amount
equal to the then outstanding Letter of Credit Liability, and
such cash collateral may be retained by Lender until such time
as the Letter of Credit Liability is reduced to $0. Lender may
apply any such cash collateral to the payment of any amounts
thereafter drawn on the Letters of Credit which have not been
reimbursed or repaid to Lender by Borrower. The failure to
deliver any such cash collateral upon demand shall constitute
an immediate Event of Default under the Loan Documents. The
repayment of any draws on the Letters of Credit shall be
secured by the Loan Documents, and so long as any Letter of
Credit is outstanding, Lender shall not be required to issue a
full release of the Loan Documents.
4. LOAN DOCUMENTS. Prior to the Initial Advance, Borrower shall execute
and/or deliver to Lender those of the following documents and other items
required to be executed and/or delivered by Borrower, and shall cause to be
executed and/or delivered to Lender those of the following documents and other
items required to be executed and/or delivered by others, all of which documents
and other items shall contain such provisions as shall be required to conform to
this Agreement and otherwise shall be satisfactory in form and substance to
Lender:
4.1 The Loan Documents.
4.2 UCC financing statements perfecting the security interests
created by the Security Agreement.
4.3 Three copies of a plat of survey (the "Survey") prepared
and certified by a registered or certified surveyor in compliance with
the 1992 Minimum Standard Detail Requirements for ALTA/ACSM Land Title
Surveys, including Table A items 1, 2, 3, 4, 6, 7, 8, 9, 10, 11 and 13.
The Survey shall be as of a current date and shall bear a
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statement of the surveyor stating that the Survey and the ALTA
certification run to the benefit of Lender and the Title Company.
4.4 Such insurance policies and certificates (with premiums
prepaid) evidencing builder's risk insurance, all-risk, fire and
extended coverage, hazard and comprehensive liability insurance,
including contractual liability, workmen's compensation insurance, and
such other insurance as Lender reasonably requires covering the
Project, in such form, with such endorsements, in such amounts, with
deductibles and with such carriers as shall be acceptable to Lender,
and naming Lender as an additional insured party on all liability
policies and as mortgagee/additional loss payee on the builder's risk
and other property damage policies and containing a prohibition against
cancellation for nonpayment of premiums or any other reason or
modification without thirty days prior written notice to Lender. Any
provision of this Section to the contrary notwithstanding, all
insurance policies required to be carried under this Agreement shall
provide expressly that they shall not be rendered invalid by a waiver
of the right of subrogation by any insured and that the insurer shall
have no right to be subrogated to Lender. Borrower shall deliver (or
cause to be delivered) to Lender either (i) an original of each such
insurance policy, or (ii) a copy of each such policy certified by the
issuing agent as being a true, correct and complete copy of the
original.
4.5 An ALTA Construction Loan Policy of Title Insurance (the
"Title Policy") issued by the Title Company in the full amount of the
Notes insuring that the Mortgage will be a first priority lien upon the
fee simple title to the Real Property to the extent of advances made by
Lender from time to time under this Agreement, subject to no liens,
claims, exceptions or encumbrances except the Permitted Exceptions and
containing the following endorsements:
(a) Endorsements for Interim Certification;
(b) ALTA Broad Form 3.1 Zoning Endorsement,
including coverage for parking and for loading docks and bays
and deleting the marketability limitation, based upon the
completion of the Project in accordance with the Plans and
Specifications;
(c) Comprehensive Endorsement No. 1 (in form
modified for construction loans);
(d) Access Endorsement;
(e) Survey Endorsement;
(f) Contiguity Endorsement;
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(g) Variable Rate Endorsement;
(h) Endorsement deleting the creditors' rights
exception;
(i) Condominium Endorsement No. 4;
(j) Letter of Credit Endorsement;
(k) Usury Endorsement; and
(l) Such additional endorsements as may be
reasonably required by Lender based upon its review of the
Title Policy and Survey.
4.6 Copies of such documents, if any, as Borrower has provided
the Title Company in connection with the issuance and underwriting of
the Title Policy.
4.7 Copies of all recorded documents described in the Title
Policy.
4.8 Current Uniform Commercial Code, federal and state tax
lien and judgment searches, pending suit and litigation searches and
bankruptcy court filings searches covering each Obligor and disclosing
no matters objectionable to Lender.
4.9 A Certificate executed by the Architect containing the
following: (a) a detailed list of the final Plans and Specifications of
the Work; (b) a statement that such Plans and Specifications are
complete in all respects and show all work and material required for
construction of the Project, which when completed in accordance
therewith, shall render the Project ready for use and occupancy for its
intended purposes in compliance with all Applicable Laws; (c) a
statement that the Plans and Specifications were prepared in a manner
consistent with accepted architectural or engineering practices, as the
case may be, and in full compliance with all Applicable Laws relating
to the construction of the Project; (d) a list of all certificates,
permits, licenses, consents and authorizations of governmental
authorities which will be required for the performance of the Work, and
a statement that either (i) all such certificates, permits, licenses
and other authorizations of governmental authorities which are
necessary to construct the Project have been obtained and are in full
force and effect, or (ii) there are no impediments to obtaining such
certificates, permits, licenses and other authorizations; and (e) a
statement that adequate sewer, water, electrical power and other public
and private utilities are available to the site in such capacities as
to adequately service the Project upon completion thereof.
4.10 The consent of the Contractor and the Architect to the
collateral assignment of the Construction Contract and the
Architectural Contract, respectively, pursuant to the Assignment of
Plans.
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4.11 The Plans and Specifications, which have been approved by
Borrower and the Contractor and approved and stamped by the appropriate
governmental authorities, including detailed descriptions (with
drawings and specifications).
4.12 Certified copies of the Construction Contract and the
Architectural Contract, all licenses, permits and governmental
approvals necessary for the construction, use or operation of the
Project and all other documents and instruments relating to performance
of the Work.
4.13 Opinion letter from Jenner & Block, legal counsel for
Borrower opining to the authority of said parties to execute, deliver
and perform their respective obligations under the Loan Documents, to
the validity and binding effect of the Loan Documents and to such other
matters as Lender and its counsel shall require.
4.14 A soil test report prepared by a licensed soil engineer
approved by Lender and otherwise satisfactory in all respects to Lender
containing, among other things, boring logs and the locations of all
borings and confirming that no condition exists with respect to the
Land which would cause subsidence of any portion of the Land and
showing that no state of facts exists which would adversely affect the
completion of the Work in accordance with the Plans and Specifications
or would require any costs with respect thereto not otherwise provided
for in the Budget.
4.15 Evidence that (i) no portion of the Real Property is
located in an area designated by the Secretary of Housing and Urban
Development as having special flood hazards, or if any portion of the
Real Property is so located, evidence that flood insurance is in
effect; and (ii) no portion of the Real Property is located in a
federally, state or locally designated wetland or other type of
government protected area.
4.16 Certified copies of the Operating Agreement and Articles
of Organization of Borrower, together with all amendments thereto, and
such resolutions and other documents as Lender deems appropriate
evidencing the authority of Borrower to execute and deliver the Loan
Documents to which such Persons are a party and to perform the
obligations contemplated hereby and thereby.
4.17 Certified copies of the general partnership agreement of
Member, and certified copies of the articles of incorporation creating
the Heartland, together with all amendments thereto, and such
resolutions and other documents as Lender deems appropriate evidencing
the authority of Borrower and Member to execute and deliver the Loan
Documents to which such Persons are a party and to perform the
obligations contemplated hereby and thereby.
4.18 Certified copies of all service contracts, development
agreements and other agreements affecting the use, development or
operation of the Project, if any.
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4.19 Evidence that the environmental condition of the Property
is, and the environmental condition of the Project upon completion will
be, satisfactory to Lender, including, without limitation, evidence
that there are no conditions at or with respect to the Property that
require disclosure upon a mortgage, conveyance or other transfer of the
Property pursuant to the Illinois Responsible Property Transfer Act.
Such evidence shall include, but shall not be limited to, a "Phase I
Environmental Audit" (as defined in the Illinois Environmental
Protection Act) certified to Borrower and Lender and setting forth an
asbestos evaluation and other environmental investigations of the
Property and the areas surrounding the Property. Such testing and
investigation shall be performed by an "environmental professional" (as
defined in the Illinois Environmental Protection Act) acceptable to
Lender in a manner satisfactory to Lender.
4.20 Evidence that, as of the date of the initial Loan
Advance, there has been no material adverse change in the financial or
other projections for the Project, the physical condition of the
Property or the financial condition of Borrower since the date of the
most recent financial statements or projections delivered to Lender or
the most recent inspections of the condition of the Property made by
the Consultant, as the case may be.
4.21 Form of proposed sales contracts and other documents to
be used in connection with the sale of the Unit Interests, together
with a schedule of minimum sales prices therefor.
4.22 An MAI appraisal satisfactory to Lender indicating the
aggregate fair market value of the Project is acceptable to Lender.
4.23 Certified copies of any sale contracts, letters of intent
and other agreements relating to the sale of the Unit Interests that
have been executed as of the date of the initial Loan Advance.
4.24 A detailed marketing and sales projection, including a
projection of the amount of time required to close sales of the Unit
Interests.
4.25 Copies of the forms of all of the Condominium Documents.
4.26 Evidence that the Property is, and upon completion the
Project will be, in compliance with all Applicable Laws.
4.27 A reasonably detailed Project development and
construction schedule specifying all of the projected start and
completion dates (or delivery dates) for each component of development
of the Project, including each separate component of performance of the
Work and each required license, permit or other public or private
approval.
4.28 Such other assignments, certificates, opinions and other
documents, instruments and information affecting or relating to
Lender's interest in the Project or the
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use, operation, development or construction of the Project as Lender
may reasonably require.
5. DISBURSEMENT OF THE LOAN.
------------------------
5.1 Conditions Precedent. In addition to the other conditions
set forth herein, the obligation of Lender to make the initial and each
subsequent disbursement of the Construction Loan under this Agreement
shall be conditioned upon and subject to the payment to Lender of all
loan fees then owing from Borrower to Lender and to satisfaction of all
of the following conditions:
(a) All representations and warranties contained in
this Agreement and in the other Loan Documents shall be true
in all material respects on and as of the date of such
disbursement.
(b) Borrower shall have performed all of its
obligations under all Loan Documents which are required to be
performed on or prior to the date of such disbursement.
(c) The Construction Loan shall not be "out of
balance" as determined under Section 5.8 below, and the
disbursement shall not cause the Construction Loan to be "out
of balance."
(d) There shall be no material adverse change in the
financial condition of Borrower as reasonably determined by
Lender.
(e) No Event of Default shall have occurred that has
not been waived in writing by Lender, and no Unmatured Default
shall then exist.
5.2 Use of Construction Loan Proceeds; Inspections of the
Work. The proceeds of the Construction Loan disbursed to Borrower shall
be used by Borrower solely for the purpose of paying (or reimbursement
to others for payment of) items of Project Cost actually incurred by
Borrower, and, in connection therewith, no Project Cost shall include
expenses relating to any development, construction, operating or other
cost attributable to any project other than the Project specifically
described in this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, all inspections of the Work made by Lender,
the Consultant or their respective agents, employees and designees
shall be solely for Lender's own information and shall not be deemed to
have been made for or on account of Borrower or any other party.
Borrower hereby specifically relieves Lender of any and all liability
or responsibility relating in any way whatsoever to the construction of
the Project, including but not limited to, the work thereat, the
material or labor supplied in connection therewith, and any errors,
inconsistencies or other defects in the Project or the Plans and
Specifications.
5.3 Disbursement Requests.
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(a) Borrower shall request and Lender shall be
required to make disbursement of the Construction Loan not
more frequently than once each calendar month. Lender may at
any time take such action as it deems appropriate to verify
that the conditions precedent to each disbursement have been
satisfied, including, without limitation, verification of any
amounts due under the Construction Contract or any
Subcontract. Borrower agrees to cooperate with Lender in any
such action. If in the course of any such verification, any
amount shown on any contract or subcontract entered into for
the performance of any portion of the Work, or any application
for payment, sworn statement or waiver of lien is subject to a
possible discrepancy, such discrepancy shall be eliminated by
Borrower to Lender's satisfaction. Each request for
disbursement shall be made by a letter from the chief
financial officer of the Borrower, addressed to Lender,
specifying in detail the amount and mode of each disbursement
and accompanied by the following, all in form and substance
satisfactory to Lender:
(i) An Owner's Sworn Statement and
disbursement request;
(ii) A Contractor's Application for Payment
and Sworn Contractor's Statement from Contractor, and
a statement of a duly authorized officer of
Contractor that all items of construction cost have
been incorporated into the Project in accordance with
the Plans and Specifications, together with waivers
of lien with respect to the current disbursement and
all previous disbursements from Contractor and all
subcontractors and materialmen to whom payment is to
be made, as are required by the Title Company as a
condition to issuing the date-down endorsement
described in subparagraph 5.3(b) below;
(iii) A certificate of the Architect
certifying (based on its diligent investigation of
the Project and the Work then performed) (A) that all
construction to the date of the request for
disbursement has been completed in accordance with
the Plans and Specifications; (B) the percentage of
completion of each component of the Work; (C) its
approval of the request for disbursement; (D) that
there has been no material deviation from the
contract amount under the Construction Contract or
any Subcontract or from the projected time of
completion of any component of the Work; and (E) the
total construction cost to complete the construction
of the Project and that after giving effect to all
amounts previously certified for payment, plus the
amount then requested, the remaining uncertified and
undisbursed funds shall be sufficient to pay all
costs required to complete the construction of the
Project in accordance with the Plans and
Specifications; and
(iv) An inspection report of the Consultant
certifying the percentages of completion of the
components of the Work and setting forth the amount
authorized for disbursement and such other matters as
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Lender may require (including compliance with the
Plans and Specifications). (It is understood and
agreed by Borrower that any and all inspections of
the Work made by Lender, the Consultant or their
respective agents, employees and/or designees shall
be solely for Lender's own information and shall not
be deemed to have been made for or on account of
Borrower or any other party, and that Lender shall
have no liability or responsibility relating in any
way whatsoever to the construction of the Project,
including, but not limited to, the work thereon, the
material or labor supplied in connection therewith,
and any errors, inconsistencies or other defects in
the Plans and Specifications.)
(v) Such other documents, assignments,
certificates and opinions as are required by the
Title Company, or as may be reasonably required by
Lender.
(b) Notwithstanding anything contained in this
Agreement to the contrary, Lender shall not be required to
make any disbursement of the Construction Loan pursuant to
this Agreement until the Title Company is prepared to issue an
endorsement to the Title Policy, updating the same to the date
of such disbursement and increasing the amount of coverage
(including mechanic lien coverage) thereunder to the Principal
Balance (taking into account the then current disbursement),
and insuring the lien of the Mortgage to be superior to all
defects in title other than the Permitted Exceptions and other
exceptions hereafter approved by Lender in writing.
(c) No disbursement of any amount shown in the Budget
as a contingency reserve shall by made without Lender's
approval with respect to the type and amount of the requested
expenditure, which approval shall not be unreasonably
withheld.
5.4 Certifications, Representations and Warranties. Each
request for disbursement by Borrower shall constitute (a) Borrower's
certification that the representations and warranties contained in
Article 6 below are true and correct in all material respects as of the
date of such request, (b) Borrower's certification that Borrower is in
compliance with the conditions contained in this Article 5, and (c)
Borrower's representation and warranty to Lender, with respect to the
Work, materials and other items for which payment is requested that (i)
such Work and materials have been incorporated into the Project, free
and clear of liens and encumbrances, (ii) the value thereof is as
estimated therein, (iii) such Work and materials substantially conform
to the Plans and Specifications, this Agreement and all Applicable
Laws, and (iv) the requisitioned value of such Work and materials and
the amounts of all other items of cost for which payment is requested
by Borrower have theretofore been in fact paid for in cash by Borrower
or the same are then due and owing by Borrower and (unless Lender
disburses funds directly to the parties performing the Work or to the
Title Company) will in fact be paid in cash by Borrower within five
days after Borrower's receipt of the
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requested disbursement. Neither review nor approval by Lender of
requests for disbursement or any information contained therein or any
other information provided to Lender in accordance with the other
provisions of this Article 5 shall constitute the acceptance or
approval by Lender of any portion of the Work.
5.5 Amount of Disbursements; Retainage. Subject to the other
conditions and limitations set forth herein, the amount of each
disbursement shall be the amount requested by Borrower; provided,
however, that (a) Lender shall have the right to retain 10% of each
"hard cost" item of Project Cost (other than amounts requested for
payment to suppliers of materials only who have either fully delivered
all materials or delivered such portion thereof whereby it is
reasonable and necessary to fully pay for such materials)(the
"Retainage"), which Retainage shall be disbursed in accordance with the
provisions of Section 5.10 below, and (b) in no event shall Lender be
obligated to disburse for any item an amount in excess of the amount
allocated for such item pursuant to the Budget, including any Reserve
set aside specifically for such item as provided in Section 5.7 below.
5.6 Costs. For purposes of this Agreement, including without
limitation, Section 5.2 hereof, (a) the cost of labor and material
furnished for the Work shall be deemed to be incurred by Borrower when
the labor and material have been incorporated into the Project and the
payment therefor is due and payable, (b) the cost of services (other
than labor included in the Work) shall be deemed to be incurred by
Borrower when the services are actually rendered and the payment
therefor is due and payable, (c) real estate taxes, interest and
insurance premiums shall be deemed to be incurred by Borrower when such
items become due and payable, and (d) any other costs shall be deemed
to be incurred by Borrower when the payment therefor is due and
payable, but not before the value to be received in return for such
cost has been received by Borrower.
5.7 Reserves. In addition to any reserves for specific line
items that are already established in the Budget, Lender may establish
and set aside out of the undisbursed proceeds of the Construction Loan,
reserves (collectively, the "Reserves") in such amounts as may be
reasonably estimated by Lender from time to time to provide for payment
of the items of Project Cost as the same may accrue or become payable
prior to the repayment in full of the Construction Loan. Amounts set
aside as Reserves shall not be available for disbursement to Borrower
for any purpose other than payment of the item or group or items for
which the Reserve was established. Based upon the facts then available
to Lender, Lender may adjust and reallocate the amount of any Reserve
from time to time. Items for which Reserves may be established shall
include (i) Loan Expenses, (ii) interest on the Loans, (iii) real
estate taxes and assessments, (iv) premiums on insurance policies and
bonds (if any) required to be furnished by Borrower hereunder (v)
professional fees and (vi) promotion and sale costs.
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5.8 Loan In Balance. At all times prior to repayment of the
Loans in full, (a) the sum of the undisbursed Construction Loan
proceeds allocated to each line item in the Budget (including any
Reserve specifically set aside for such line item) must be sufficient,
in Lender's reasonable determination, to pay the unpaid costs and
expenses that will be incurred to complete such item, and (b) the
aggregate undisbursed Construction Loan proceeds, as set forth in the
Budget, must be sufficient, in Lender's reasonable determination, to
pay all unpaid Project Costs and all operating, management and other
expenses of the Property through the projected date on which all of the
Unit Interests will be sold (or such earlier date by which the Loans
will be fully repaid from the proceeds of sales of Unit Interests), as
such dates are reasonably determined by Lender from time to time.
Lender and Borrower mutually acknowledge that the Budget includes an
amount necessary to complete all of the Units. If Lender reasonably
determines that (i) the costs and expenses to complete any line item in
the Budget exceeds the remaining undisbursed Construction Loan proceeds
allocated therefor, or (ii) the remaining Project Costs and all
estimated operating, management and other expenses of the Project
through the projected date on which all of the Unit Interests will be
sold (or such earlier date by which the Loans will be fully repaid from
the proceeds of sales of Unit Interests), as such dates are reasonably
determined by Lender from time to time, exceeds the sum of the
aggregate undisbursed Construction Loan proceeds, as set forth in the
Budget, then the Construction Loan shall be deemed "out of balance" to
the extent of such excess. The Construction Loan shall also be deemed
to be "out of balance" if Lender reasonably determines that the
aggregate prices at which the Unit Interests can be sold are less than
the aggregate Minimum Sales Prices for the Unit Interests, and/or the
pace of the sales of the Unit Interests is slower than that projected
by Borrower when establishing the Budget, and, as a result of either of
such circumstances, there will not be sufficient revenue generated from
the Project to pay all of Borrower's obligations under the Loan
Documents as and when required. In the event that Lender determines
that the Construction Loan is out of balance, Borrower shall, within
five (5) days after written request by Lender, deposit with Lender the
amount reasonably required by Lender to eliminate the out-of-balance
deficiency, whereupon the sums thus deposited by Borrower with Lender
will be disbursed by Lender to complete the Work prior to any further
disbursement of Construction Loan proceeds (or, if the Work has been
completed, to the repayment of the outstanding principal balance of the
Loans and other amounts payable under the Loan Documents). No interest
shall be payable to Borrower on the amounts so deposited, nor to Lender
on such amounts when disbursed to pay the cost of any Work. Borrower
agrees to furnish to Lender, upon request, all information required by
Lender to make the determinations described in this Section.
5.9 Escrow; Application of Disbursements.
------------------------------------
(a) Lender shall make each requested disbursement of the
Construction Loan through a construction escrow with the Title Company
within ten days after all of the conditions precedent to such
disbursement set forth in this Article have been satisfied (including
delivery of all documentation required under Section 5.3 above), except
that Lender, in its discretion, may make payments of Project Cost
directly to Borrower or to
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the person or entity Lender determines is entitled to such payment or
jointly to Borrower and such person or entity. The escrow agreement
governing such construction escrow shall be in form and substance
acceptable to Lender.
(b) Notwithstanding the foregoing, Lender shall not be
responsible, liable or obligated to the contractors, subcontractors,
suppliers, materialmen, laborers, architects, engineers, or any other
parties, for services or work performed, or for goods delivered by them
or any of them, in and upon the Land or employed directly or indirectly
in the performance of the Work, or for any debts or claims whatsoever
accruing in favor of any such parties and against Borrower or others,
or against the Project. It is expressly understood and agreed that
Borrower is not and shall not be an agent of Lender for any purpose
whatsoever. Without limiting the generality of the foregoing, advances
made at Lender's option, directly to any contractor, subcontractor or
supplier of labor or materials, or any other party, shall not be deemed
a recognition by Lender of any third party beneficiary status of any
such person or entity.
(c) Borrower covenants and agrees that it shall receive all
advances of Construction Loan proceeds to be made hereunder by Lender
as a trust fund and that Borrower shall withdraw and use said funds
solely for the payment of the bills for the labor and materials used in
the performance of the Work for which such Construction Loan funds were
requested by Borrower, and for the payment of the other items of
Project Cost for which such Construction Loan proceeds were requested
by Borrower, and for no other purpose whatsoever; however, nothing
herein shall impose upon Lender any obligation whatsoever to see to the
proper application of any such monies by Borrower.
(d) Whenever so requested by Lender, Borrower shall promptly
furnish Lender written evidence reasonably satisfactory to Lender that
all monies theretofore advanced by Lender pursuant to this Agreement
have actually been paid or applied in payment of the cost of
performance of the Work and in payment of the other items of Project
Cost for which such funds were advanced by Lender, and until such
evidence is produced, at the option of Lender, no future or additional
payments or advances of Construction Loan funds need be made hereunder.
5.10 Release of Retainage. Retainage(s) shall be released as
follows:
(a) Retainage on any Subcontract shall be released within
thirty days after such Subcontract has been fully performed and the
following conditions have been satisfied:
(i) Borrower has delivered final and unconditional
waivers of lien from the subcontractor whose individual
Subcontract has been fully performed to the Title Company with
copies to Lender;
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(ii) All conditions precedent to disbursement of
proceeds of the Construction Loan as set forth in this
Agreement have been fully satisfied; and
(iii) Lender has received a certificate in writing
signed by a duly authorized officer of Contractor and
Architect certifying that the Work provided for in the
Subcontract has been fully and satisfactorily completed in
accordance with the Plans and Specifications, and in
compliance with all Applicable Laws, and the Consultant has
approved all such Work.
(b) Final disbursement of construction retainages to the
Contractor for the Work not previously released shall be made upon
satisfaction of the following conditions in addition to satisfaction of
the other conditions precedent for disbursement of proceeds of the
Construction Loan by Lender:
(i) Borrower has delivered to Lender (A) a
certificate in writing signed by a duly authorized officer of
the Contractor certifying that all obligations of the
Contractor under the Construction Contract and all obligations
of the subcontractors under the Subcontracts have been fully
performed, and (B) a certificate signed by the Architect,
certifying that the construction of the Work has been
completed in all respects in accordance with the Plans and
Specifications and the use and occupancy of the Project is
permitted under all Applicable Laws;
(ii) If requested by Lender, Lender shall have
received a certificate in writing signed by the Consultant
certifying that the construction of the Work has been
completed in all respects in accordance with the Plans and
Specifications and the use and occupancy of the Project is
permitted under all Applicable Laws;
(iii) Borrower has delivered to Lender all applicable
licenses or permits necessary for the use of the Project,
including without limitation, a final, unconditional
certificate of occupancy the Project;
(iv) Borrower has delivered to Lender original
policies of fire and extended coverage insurance as herein
required, with Lender named as mortgagee and as an additional
insured party and loss payee;
(v) The Title Company is unconditionally prepared to
issue its final updated ALTA loan policy of title insurance
covering the Principal Balance, subject only to the Permitted
Exceptions and other exceptions approved by Lender in writing,
and containing its final forms of Comprehensive Endorsement 1
and ALTA 3.1 Zoning Endorsement (without exception and based
on as-built conditions), full coverage against all mechanics'
liens and such other endorsements as are required under
Section 4.5 above;
(vi) Borrower has delivered to the Title Company and
Lender final and unconditional waivers of lien from the
Contractor and all subcontractors and
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materialmen who have supplied labor or material in connection
with the Work and who have not previously submitted such final
waivers.
6. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to
execute this Agreement and to make the Loans, Borrower represents and warrants
to Lender as follows:
6.1 Borrower. Borrower is a duly formed limited liability
company, validly existing and in good standing in the State of Illinois
and has full power and authority to execute and deliver the Loan
Documents and to perform its obligations hereunder and thereunder.
Member is the sole member of Borrower and Borrower is managed solely by
Member. The Amended and Restated Limited Liability Company Agreement
dated as of May 9, 1997, creating Borrower and the Articles of
Organization of Borrower, copies of which have been furnished to
Lender, are in effect, unamended and is the true, correct and complete
documents relating to Borrower's creation and governance. Borrower,
Member and their affiliates have fully complied with all applicable
securities and other laws and regulations in connection with the
formation of Borrower and the sale and offer for sale of interests
therein.
6.2 Member. Member is a duly formed general partnership
validly existing and in good standing in the State of Illinois and has
full power and authority to execute and deliver the Loan Documents and
to perform its obligations hereunder and thereunder. Heartland
Partners, L.P., a Delaware limited partnership and Heartland are the
sole general partners of Member. The Amended and Restated Partnership
Agreement dated as of June 27, 1990 creating Member, a copy of which
has been furnished to Lender, is in effect, unamended and is the true,
correct and complete documents relating to Member's creation and
governance. Member has fully complied with all applicable securities
and other laws and regulations in connection with the formation of
Member and the sale and offer for sale of interests therein.
6.3 Heartland. Heartland is a duly formed corporation under
the laws of the State of Delaware, validly existing, in good standing
and fully qualified to do business in the State of Illinois. The
articles of incorporation and by-laws of Heartland, copies of which
have been furnished to Lender, are in effect, unamended, and are the
true, correct and complete documents relating to Heartland's creation
and governance.
6.4 Title. Borrower owns good and marketable fee simple title
to the Real Property and the Personal Property. The Real Property and
the Personal Property are owned free and clear of all liens, claims and
encumbrances, except the Permitted Exceptions.
6.5 Improvements. Subject to the terms and conditions
contained in this Agreement, Borrower intends to improve the Land with
the Improvements. The Work will be performed in accordance with the
provisions of the Plans and Specifications and the Budget and all of
the other requirements of this Agreement.
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6.6 Validity and Enforceability of Documents. Upon the
execution and delivery of the Loan Documents, the Loan Documents shall
be valid and binding upon the parties that have executed the same in
accordance with the respective provisions thereof, and enforceable in
accordance with the respective provisions thereof, subject only to
applicable bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditor's rights. Execution,
delivery and performance of the Loan Documents do not and will not
contravene, conflict with, violate or constitute a default under the
Operating Agreement creating Borrower, the certificate of formation of
Borrower, or any Applicable Law or any agreement, indenture or
instrument to which Borrower, Member or Heartland is a party or is
bound or which is binding upon or applicable to the Project or any
portion thereof.
6.7 Litigation. There is not any condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claims or demand
pending or, to the best of Borrower's knowledge after due inquiry,
threatened affecting Borrower, Member or Heartland or the Project, or
involving the validity or enforceability of the Loan Documents or
involving any risk of a judgment or liability which, if satisfied,
would have an adverse effect on the financial condition, business or
properties of Borrower, Member or Heartland or the priority of the lien
of the Mortgage, or which would prevent Borrower or Member from
complying with or performing its obligations under this Agreement, the
Notes, or any of the other Loan Documents within the time limits set
forth therein for such compliance or performance and no basis for any
such matter exists.
6.8 Utilities; Authorities. All utilities necessary for use,
operation and occupancy of the Project (including, without limitation,
water, storm sewer, sanitary sewer and drainage, electric, gas and
telephone facilities) are available at the boundaries of the Land (or
in the streets adjoining the Land), and all requirements for the use of
such utilities have been fulfilled. All building, zoning, safety,
disabled persons, health, fire, water district, sewerage and
environmental protection agency permits and other licenses and permits
which are required by any governmental authority for construction of
the Improvements, and the use, occupancy and operation of the Project
in accordance with the Plans and Specifications have been obtained by
or furnished to Borrower and are in full force and effect or will be
obtained by and maintained in full force and effect by Borrower when
and as required by any governmental authority.
6.9 Solvency. Each Obligor is solvent and able to pay such
Obligor's debts as such debts become due, and has capital sufficient to
carry on such Obligor's present business transactions. The value of
each Obligor's property, at a fair valuation, is greater than the sum
of such Obligor's debts. No Obligor is bankrupt or insolvent, nor has
any Obligor made an assignment for the benefit of such Obligor's
creditors, nor has there been a trustee or receiver appointed for the
benefit of such Obligor's creditors, nor has there been any bankruptcy,
reorganization or insolvency proceedings instituted by or against any
Obligor, nor will any Obligor be rendered insolvent by such Obligor's
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execution, delivery or performance of the Loan Documents or by the
transactions contemplated thereunder.
6.10 Financial Statements. All financial statements submitted
to Lender relating to Borrower, Heartland and the Project are true,
complete and correct, and have been prepared in accordance with sound
accounting principles consistently applied and fairly present the
financial condition of the Person to which they pertain and the other
information therein described and do not contain any untrue statement
of a material fact or omit to state a fact material to the financial
statement submitted or this Agreement. No material adverse change has
occurred in the financial condition of Borrower, Heartland, any
Guarantor or the Project since the dates of each such financial
statements.
6.11 Compliance with Laws. Upon completion of the Work in
accordance with the Plans and Specifications, the Project and the use,
occupancy and operation thereof for their intended purposes will not,
violate any Applicable Laws, any contractual arrangements with third
parties or any covenants, conditions, easements, rights of way or
restrictions of record. Neither Borrower nor any agent thereof has
received any notice, written or otherwise, alleging any such violation,
which violation has not previously been cured. Upon completion of the
Work in accordance with the Plans and Specifications, the Project will
be in full compliance and conformity with all zoning requirements,
including without limitation, those relating to setbacks, height,
parking, floor area ratio, fire lanes and percentage of land coverage,
and will not be a non-conforming or special use.
6.12 Construction Contract. Pursuant to the Construction
Contract, the Contractor has agreed to construct the Improvements. The
Construction Contract is in full force and effect, unamended, and no
default exists thereunder by either party thereto. In the event of any
conflict between the terms of the Construction Contract, other
Subcontracts and this Agreement or any other Loan Document, Borrower
shall abide by and shall cause the Contractor to act in accordance with
the provisions of the Loan Documents.
6.13 Subcontracts. Borrower has delivered to Lender true,
complete and correct copies of all Subcontracts that have been entered
into prior to the date hereof. The Subcontracts that have been entered
into prior to the date hereof are in full force and effect, unamended,
and no default exists thereunder by any party thereto.
6.14 Architectural Contract. Pursuant to the Architectural
Contract, the Architect has agreed to perform architectural services in
connection with the design and construction of the Improvements. The
Architectural Contract is in full force and effect, unamended, and no
default exists thereunder by either party thereto.
6.15 Plans and Specifications. Borrower has delivered to
Lender true, complete and correct copies of all of the plans and
specifications listed in Exhibit D attached hereto and the plans and
specifications listed in Exhibit D are the Plans and Specifications
which have been approved by Lender.
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6.16 Budget. The Budget is a true, complete and correct budget
with respect to the costs of the Work (including both hard costs and
soft costs associated therewith). The total of all Project Costs as
specified in the Budget will not exceed $5,250,000.
6.17 Financing Statements. There are no UCC financing
statements in effect other than those to be filed and/or recorded by
Lender which name Borrower as debtor and pertaining to any rights in
any of the Personal Property.
6.18 Event of Default. No Event of Default has occurred, and
no Unmatured Default shall then exist.
6.19 Responsible Property Transfer Act. To Borrower's
knowledge, there are no facilities on the Real Estate that are subject
to reporting under Section 312 of the federal Emergency Planning and
Community Right-To-Know Act of 1986, 43 U.S.C. Section 11022, and
federal regulations promulgated thereunder. To Borrower's knowledge,
the Real Estate does not contain any underground storage tanks. The
Real Estate is not "real property" as the term is defined under Section
3 of the Responsible Property Transfer Act of 1988 (765 ILCS 90/1, et
seq.), as now or hereafter amended ("RPTA"). Neither the making of the
Loans by Lender nor the granting of a lien or security interest in the
Project to Lender by Borrower is subject to RPTA.
6.20 Federal Interstate Land Sales Full Disclosure Act;
Illinois Land Sales Registration Act of 1989. The Sale of the Units is
exempt from the registration and disclosure requirements of the Federal
Interstate Land Sales Disclosure Act, 15 U.S.C. Section 1701 et seq.,
and the Illinois Land Sales Registration Act of 1989, 765 ILCS 85/1 et
seq.
6.21 Additional Agreements. There are no management, leasing,
development or other agreements in existence that affect the Project,
other than those described in the schedule of Permitted Exceptions or
as described in Exhibit B of the Assignment of Plans.
All representations and warranties which have been made by Borrower in
this Agreement or the other Loan Documents shall be true in all
respects at the time of each disbursement of the Construction Loan, and
in the event of any material breach, misrepresentation or omission,
Lender shall have the absolute right to terminate its obligations under
this Agreement (without any obligation to refund any loan or other fees
previously paid), and upon demand by Lender, Borrower shall reimburse
Lender for the Loan Expenses, and Lender shall be entitled to recover
from Borrower all losses and damages resulting therefrom.
7. BORROWER'S COVENANTS.
--------------------
7.1 Manner of Construction. Borrower shall, at its sole cost
and expense, cause the construction of the Project to be diligently and
expeditiously carried out, in a
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good and workmanlike manner, in accordance with the Plans and
Specifications and all Applicable Laws. All materials, fixtures,
equipment or articles used in the renovation, construction or equipping
of the Project shall comply with the Plans and Specifications. Without
limiting the generality of the foregoing, Borrower will cause
construction to continue without interruption until completion, and to
be completed in accordance with the Plans and Specifications and
Applicable Laws prior to July 31, 2000. Construction of the each Unit
shall not be deemed to be complete until the Architect and the
Consultant have certified that each Unit can be used and occupied in
accordance with all Applicable Laws and a final, unconditional
certificate of occupancy has been issued by the city of Chicago
therefor.
7.2 Certificate of Completion. Within fifteen days after each
Unit is completed, Borrower shall deliver to Lender a certificate of
the Architect stating that the Unit has been completed in accordance
with the Plans and Specifications and all Applicable Laws.
7.3 Change Orders. Borrower shall not, without the prior
written approval of Lender, make or permit any modification of the
Plans and Specifications, or amend or modify the Construction Contract,
the Architectural Contract or enter into any change orders or
additional contracts for the performance of any portion of the Work;
provided, however, Borrower shall have the right to enter into one or
more change orders without Lender's consent, so long as (a) no Event of
Default or Unmatured Default exists under this Agreement or any of the
other Loan Documents, (b) the change order does not individually result
in a change in the cost of constructing the Project of more than
$50,000, (c) the change order does not, together with all other change
orders, result in a change in the cost of constructing the Project of
more than $200,000, (d) the change order does not affect any structural
portion of the Project, the overall appearance of the Project or the
use or operation of the Project in any material respect, and (e) any
increased cost resulting from the change order is paid for from the
contingency line item in the Budget. In any event, Borrower shall
deliver to Lender copies of all such change orders not requiring
Lender's prior approval, together with all related documentation, no
later than ten days after the execution thereof. Except to the extent
expressly permitted in this Section, Borrower shall not, without the
prior written approval of Lender, the Consultant and the Architect,
make or permit any change in the Plans and Specifications.
7.4 Compliance with Laws. Borrower shall comply or cause
compliance with all Applicable Laws governing the construction,
development, use and operation of the Project and the development,
operation and sale of the Units. Evidence of such compliance shall be
submitted to Lender on request.
7.5 Inspection. Upon reasonable prior written or oral notice
(which shall not be required in the event of an emergency), Borrower
shall permit inspection of the Property by Lender, the Consultant and
any other agent or designee of Lender. In addition, upon reasonable
prior written or oral notice (which shall not be required in the event
of an emergency), Borrower shall permit Lender and/or its agents and
designees
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access to and the right to inspect, audit and copy all books, records,
contracts and other documents and information relating to Borrower or
the Property. Lender shall use reasonable efforts to keep confidential
all information and documentation obtained by Lender in connection with
such audits and inspections, except to the extent that Lender
determines, in its reasonable discretion, a need to disclose same;
provided, however, under no circumstances shall Lender have any
liability to Borrower in the event of an unintentional disclosure or
disclosure deemed necessary by Lender. All such books, records and
accounts of operations relating to the Property shall be kept in
accordance with sound accounting practices consistently applied.
Borrower shall promptly respond to any inquiry from Lender for
information with respect to the Property, which information may be
verified by Lender at Borrower's expense; provided, however, that
Lender shall at all times be entitled to rely upon any statements or
representations made by Borrower or any agent thereof.
7.6 Mechanics' Liens. Borrower shall not permit any mechanics'
lien claims to be filed or otherwise asserted against the Project or
against any funds due any contractor or subcontractor, and Borrower
shall promptly (and in any event within fifteen days after Borrower has
received notice of such filing) discharge or cause to be discharged the
same in case of the filing of any claims for lien or proceedings for
the enforcement thereof; provided that in connection with any such lien
or claim which Borrower may in good faith desire to contest, Borrower
may contest the same by appropriate legal proceedings diligently
prosecuted, but only if Borrower shall furnish to the Title Company
such security or indemnity as the Title Company requires to induce the
Title Company to issue an endorsement to the Title Policy insuring over
the exception created by such lien, and provided further, that Lender
shall not be required to make any further disbursements of the
Construction Loan until any mechanics' lien claims have been so insured
against by the Title Company.
7.7 Release by Lender. With respect to the matters set forth
in Section 7.6 above, if Borrower shall (a) fail promptly to discharge
any asserted liens or claims, or (b) fail promptly to contest asserted
liens or claims or to give security or indemnity in the manner provided
in Section 7.6 above, or (c) having commenced to contest the same, and
having given such security or indemnity, fail to prosecute such contest
with diligence, or to maintain such indemnity or security so required
by the Title Company for its full amount, or (d) upon adverse
conclusion of any such contest, fail promptly to cause any judgment or
decree to be satisfied and lien to be released, then Lender may, but
shall not be required to, procure the release and discharge of any such
claim and any judgment or decree thereon and, further, may, in its sole
discretion, effect any settlement or compromise of the same, or may
furnish such security or indemnity to the Title Company, and any
amounts so expended by Lender, including premiums paid or security
furnished in connection with the issuance of any surety company bonds,
shall be deemed to constitute disbursements of the proceeds of the
Loans hereunder and shall bear interest from the date so disbursed
until paid at the Default Rate. In settling, compromising or
discharging any claims for lien, Lender shall not be required to
inquire into the validity or amount of any such claim.
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7.8 Financial Statements; Reports. Borrower shall deliver or
cause to be delivered to Lender each month, a detailed report showing
the progress of the Work, the number of reservation deposits for Units
made, if any, and the number of sales contracts for Units entered into
by Borrower during the immediately preceding month, if any, and the
status of all reservation deposits and sales contracts entered into
prior thereto, if any. In addition to such progress reports and any
other financial statements required to be delivered to Lender pursuant
to the provisions of any of the other Loan Documents, Borrower will
from time to time furnish to Lender such information and reports,
financial and otherwise, concerning Borrower, Member and Heartland, the
performance of the Work and the operation of the Project as Lender
reasonably requires, including, without limitation, the following:
(a) Within ninety days after the end of each calendar
year, compiled financial statements of the Project on a form
acceptable to Lender, setting forth the information therein
required as of December 31 of the immediately preceding year,
containing income and expense statements and a balance sheet.
The financial statements shall be prepared by an independent
accounting firm in accordance with generally accepted
accounting principles consistently applied and shall be
certified by the chief financial officer of Borrower as fairly
and accurately presenting the information contained therein.
(b) Within ninety days after the end of each calendar
year, financial statements and the federal and state income
tax returns for Borrower, Member and Heartland, such financial
statements to be on Lender's standard form or another form
acceptable to Lender, setting forth the information therein
required as of December 31 of the immediately preceding year,
and certified by such Person as fairly and accurately
presenting the information contained therein.
(c) Within ninety days after the end of each calendar
year, detailed cash flow statements for the preceding calendar
year, on a form acceptable to Lender, for all income producing
properties listed on the financial statements of Borrower,
Member and Heartland, certified by the chief financial officer
of such Person, as fairly and accurately presenting the
information contained therein.
7.9 Affirmation of Representations and Warranties. Borrower
agrees that all representations and warranties of Borrower contained in
Article 6 hereof shall remain true in all material respects at all
times until the Construction Loan is repaid in full.
7.10 Title. Except for (i) the Mortgage and other security for
the Loans, (ii) the lien of general real estate taxes payment of which
is not yet due, (iii) mechanics' liens which are contested in the
manner permitted in Paragraphs 7.6 above, and (iv) any other Permitted
Exceptions, Borrower shall keep its fee simple title to the Project
free and clear of all liens, claims and encumbrances, whether senior or
junior to or at parity with the Mortgage.
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7.11 Proceedings Affecting Property. If any proceedings are
filed seeking to enjoin or otherwise prevent or declare invalid or
unlawful the construction, occupancy, use, maintenance or operation of
the Project, or any portion thereof, Borrower shall cause such
proceedings to be vigorously contested in good faith, and in the event
of an adverse ruling or decision, prosecute all allowable appeals
therefrom, and shall, without limiting the generality of the foregoing,
resist the entry or seek the stay of any temporary or permanent
injunction that may be entered, and use its best efforts to bring about
a favorable and speedy disposition of all such proceedings. All such
proceedings, including without limitation, all of Lender's costs, and
fees and disbursements of Lender's counsel in connection with any such
proceedings, whether or not Lender is a party thereto, shall be at
Borrower's expense. To the extent that Lender incurs any such expenses,
including attorneys' fees and fees and charges for court costs, bonds
and the like, Borrower shall reimburse Lender for such expenses and the
amount due Lender shall bear interest from the date so incurred by
Lender until repaid to Lender at the Default Rate and shall be payable
to Lender on demand.
7.12 Disposal and Encumbrance of Property. Except as expressly
permitted pursuant to Article 12 below, Borrower shall not, without
Lender's prior written consent, suffer, permit or enter into any
agreement for any sale, lease, transfer, or in any way encumber or
dispose of or grant or suffer any security or other assignment
(collateral or otherwise) of or in all or any portion of the Project.
Any consent given by Lender or any waiver of default under this
Section, shall not constitute a consent to, or waiver of any right,
remedy or power of Lender under any subsequent default hereunder.
7.13 Insurance. Borrower shall pay all premiums on all
insurance policies required from time to time under this Agreement, and
thirty days prior to expiration of any such policies, Borrower shall
furnish to Lender, with premiums prepaid, additional and renewal
policies in form, and with companies, coverage, deductibles and amounts
satisfactory to Lender. In the event of failure by Borrower to provide
such insurance, Lender may, but shall not be required to, place
insurance and treat the amounts expended therefor as disbursements of
Loans proceeds and such amounts from the date so expended by Lender
until repaid to Lender shall bear interest at the Default Rate.
7.14 Performance of Obligations; Notice of Default. Borrower
shall promptly and fully perform and comply in all respects with the
obligations, terms, agreements, provisions and requirements of this
Agreement and the other Loan Documents and all other documents and
instruments relating thereto and will not permit to occur any default
or breach hereunder or thereunder. Borrower shall promptly give to
Lender notice of the occurrence of any Unmatured Default or of any
event that could have a material adverse effect on any security for the
Loans or on Borrower's ability to perform its obligations under this
Agreement or any of the other Loan Documents.
7.15 Subcontracts. Borrower shall deliver to Lender a copy of
each Subcontract entered into by the Contractor within ten days of its
receipt, if at all.
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7.16 Restrictions Affecting Borrower. Borrower covenants and
agrees that, without the prior written consent of Lender, there shall
not occur: (i) any amendment or modification of the Borrower's
operating agreement or the certificate of formation of Borrower, (ii)
the admission of any new members to Borrower. At all times prior to the
repayment of the Loans, (A) the Member shall be the sole member of
Borrower; (B) Borrower shall not make or permit any distributions of
cash flow or cash proceeds to Member or any partner, subpartner,
member, shareholder, officer, director or affiliate of Borrower or
Member and all positive cash flow from the Project shall be paid to
Lender and applied to the repayment of the Principal Balance; (C)
Borrower shall not enter into any contract or agreement for the
provision of services or otherwise with respect to the Project with any
partner, subpartner, member, shareholder, officer, director or
affiliate of any partner of Borrower or Member unless such contract or
agreement is an arms-length, market rate agreement and is cancelable
upon thirty days written notice from any owner of the Project; and (D)
neither Borrower nor Member shall be dissolved or its existence
terminated; provided, however, as long as the Letter of Credit is
surrendered to Lender and not drawn upon, Borrower shall be able to
make distributions of cash flow or cash proceeds to Member as a result
of sales of the condominiums in the Tower Residence Building located at
333 N. Des Plaines Avenue, Chicago, Illinois 60661.
7.17 Use of Receipts. Borrower shall cause all rents and other
income and receipts realized and received by Borrower, if any, from and
in connection with the Project to be used for the purpose of paying the
actual costs and expenses incurred by Borrower in connection with the
ownership, operation, management and repair of the Project, including
without limitation, operating expenses, real estate taxes, insurance
premiums and interest on the Loans. Borrower shall cause all sale
proceeds and other income and receipts realized and received by
Borrower, if any, from and in connection with the Project to be used
for the purpose of repaying the Loans, as more fully described in the
Mortgage Note, Section 3.3 and Section 12.2 of this Agreement.
7.18 Budget. Borrower shall not make any changes in the
expenses contained in the Budget without the prior written consent of
Lender. Borrower shall not be entitled to reallocate among line items
in the Budget without the prior written consent of Lender, which
consent shall not be unreasonably withheld if Borrower has (i) proposed
the reduction of a line item and the reallocation of the amount of such
reduction to other line items in the Budget, and (ii) provided Lender
with satisfactory evidence that the reduction of a line item is
appropriate and reasonable because the amount originally set forth with
respect thereto will not be required to complete said item.
7.19 Management and Leasing Agreements; Subordination.
Borrower shall not amend, extend, substitute or enter into any new
management or leasing agreement covering all or any portion of the
Project without Lender's prior written consent. In the event that
Lender grants such consent, Borrower shall cause the manager or leasing
broker under said agreement to enter into an agreement with Lender,
acceptable in form and substance to Lender, pursuant to which said
manager or broker subordinates its liens for unpaid fees to the liens
of the Mortgage and the other Loan Documents.
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7.20 Additional Documents. Borrower shall not execute or
record any document pertaining to, affecting or running with all or any
portion of the Property, including, without limitation, any condominium
declaration or plat, without the prior written approval of Lender of
the form and substance of such documents, which approval shall not be
unreasonably withheld. Upon granting such approval, Lender agrees to
execute such consents and subordination agreements with respect to such
condominium documents as are acceptable to Lender in its reasonable
discretion.
7.21 Sale to Investors. Without the prior written consent of
Lender, which consent may be granted or denied at Lender's sole
discretion, Borrower shall not knowingly sell multiple Unit Interests
to investors or syndicators who are acquiring such Unit Interests with
the intent to resell them.
7.22 Condominium Act. As soon as reasonably requested by
Lender, and in any event at least thirty (30) days prior to the sale of
the first Unit Interest, Borrower shall take all necessary actions and
execute, deliver, record (except recording of such documents shall not
take place until immediately prior to such first sale) and file all
necessary documents and instruments (including, without limitation, the
condominium plats for the residential condominiums constituting part of
the Project) to cause the Property to be submitted and made subject to
the provisions of the Condominium Laws and to comply with all other
legal requirements relating to the development of the Property as a
condominium project; provided, however, that Borrower shall not take
any such action or execute, deliver, record or file any such documents
or instruments without first (a) providing Lender with written notice
of such actions and copies of such documents and instruments and (b)
obtaining Lender's written consent thereto, which consent shall not be
unreasonably withheld. Borrower shall not terminate, amend or otherwise
modify any of the Condominium Documents without Lender's prior written
consent, which consent shall not be unreasonably withheld. Upon
recordation of the plat of condominium, the condominium declaration and
the other Condominium Documents required to be recorded, Borrower shall
cause the Title Company to add to the Title Policy a Condominium
Endorsement (No. 4) in form and substance acceptable to Lender. At all
times after such recordation, Borrower shall, to the extent permitted
by the Condominium Laws and the Condominium Documents, take all actions
in its capacity as developer, declarant, manager, unit owner and
otherwise to cause the Property (including, without limitation, all
common elements) to (i) be insured, (ii) remain free and clear of all
liens and encumbrances except the Permitted Exceptions and any other
exceptions hereafter approved by Lender in writing, and (iii) be
operated in accordance with all of the requirements of this Agreement
and the other Loan Documents.
7.23 Survey. Within thirty days subsequent to the completion
of the foundation of the Building and as a condition to any subsequent
disbursement by Lender, the Survey shall be updated to show the
location of such foundation; that such foundation is within all
applicable lot, side, rear and set-back lines; and that there are no
encroachments by the improvements over easements or adjoining property.
Within thirty days subsequent to the completion of the exterior walls
and roof of the Building and as a condition to any
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subsequent disbursement by Lender, the Survey shall be updated to show
the Building "as built" and to show the location of all utilities and
any additional easements or other matters of record affecting the
Project.
7.24 Borrower's Accounts. Borrower shall maintain the
operating, earnest money and reserve accounts for the Property with
Lender and pledge the operating and reserve accounts to Lender as
security for the Loans.
7.25 Ineligible Securities. Borrower represents and warrants
that no portion of any advance or loan made hereunder shall be used
directly or indirectly to purchase ineligible securities, as defined by
applicable regulations of the Federal Reserve Board, underwritten by
any affiliate of Banc One Corporation during the underwriting period
and for thirty (30) days thereafter.
8. LOAN EXPENSES. Borrower agrees to pay all of the Loan Expenses. Any
Loan Expenses paid by Lender shall bear interest commencing on the date demand
for repayment thereof is made by Lender until repaid to Lender at the Default
Rate and shall be paid by Borrower upon demand, or may be paid by Lender at any
time by disbursement of proceeds of the Loans. Any Loan Expenses paid by Lender
shall be reimbursed to Lender by Borrower regardless of whether there shall be
any disbursements of the Loans.
9. LENDER'S REPRESENTATIVES. Lender, at Borrower's expense, shall have
the right to engage personnel in connection with negotiation, documentation,
administration and servicing of the Construction Loan, including without
limitation, the Consultant, to (i) review and approve the Plans and
Specifications, (ii) review and approve Borrower's final construction budget,
(iii) conduct monthly inspections of the Work and report on the progress of
construction thereof, (iv) review and approve all change orders, (v) review and
approve applications for disbursements and accompanying documents, (vi) issue
reports and certificates to Lender, (vii) inspect the structural, mechanical,
electrical, plumbing, HVAC and roof systems constituting the Work, (viii)
determine whether the Work has been completed in accordance with the Plans and
Specifications, and (ix) provide other services as requested by Lender, and
Borrower shall fully cooperate with the Consultant and other personnel in all
reasonable respects in connection therewith.
10. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default":
(a) Failure by Borrower or any other obligor to pay on or
before the fifth day following the date when due any installment of
principal or interest or any other amount payable pursuant to the
Notes, this Agreement or any of the other Loan Documents.
(b) Failure by Borrower to promptly perform or cause to be
performed any non-monetary obligation or observe any non-monetary
condition, covenant, term, agreement or provision required to be
performed or observed by Borrower or any other obligor under this
Agreement, the Notes, the Mortgage, the Indemnity Agreement or any
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of the other Loan Documents; provided, however, that if such failure by
its nature can be cured, then so long as the continued operation and
safety of the Project, and the priority, validity and enforceability of
the lien created by the Mortgage or any of the other Loan Documents and
the value of the Project are not imminently impaired, threatened or
jeopardized, then Borrower shall have a period (the "Cure Period") of
thirty days after written notice from Lender of any such failure of
performance or observance to cure or cause the cure of the same, and an
Event of Default shall not be deemed to exist during the Cure Period,
provided further that if Borrower commences to cure such failure during
the Cure Period and is diligently and in good faith attempting to
effect such cure, the Cure Period shall be extended until such failure
is cured, but in no event shall the Cure Period be longer than 90 days
in the aggregate. The foregoing Cure Period is intended only to apply
in circumstances not referred to in any of the other paragraphs of this
Section; Borrower's right to a grace or cure period, if any, with
respect to such other circumstances are to be governed by the
provisions of such other paragraphs.
(c) The existence of any material inaccuracy or untruth in any
representation, or warranty contained in this Agreement or any other
Loan Documents, or of any statement or certification as to facts
delivered to Lender by or on behalf of Borrower.
(d) A discontinuance of the construction of the Work for a
period of fifteen consecutive days (unless otherwise approved by
Lender), other than a discontinuance resulting from strikes, acts of
God, adverse weather conditions or other occurrences beyond the
reasonable control of Borrower (it being understood that a delay caused
by an insufficiency of funds shall not be deemed to be beyond the
control of Borrower), or any delay in the Work, regardless of cause,
the result of which may be, in Lender's sole judgment, that the Work
will not be substantially completed prior to July 31, 2000.
(e) At any time Borrower, Member or Heartland files a
voluntary petition in bankruptcy, or is adjudicated a bankrupt or
insolvent, or institutes (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
composition, readjustment, dissolution, liquidation or similar
proceedings under any present or future federal, state or other statute
or law, or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of its creditors, or
seeks or consents to the appointment of any receiver, trustee or
similar officer for all or any substantial part of its property.
(f) The commencement of any involuntary petition in bankruptcy
against Borrower, Member or Heartland or the institution against
Borrower, Member or Heartland of any reorganization, arrangement,
composition, readjustment, dissolution, liquidation or similar
proceedings under any present or future federal, state or other statute
or law, or the appointment of a receiver, trustee or other officer for
all or any substantial part of the property of Borrower, Member or
Heartland which remains undismissed or undischarged for a period of
thirty days.
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(g) Borrower intentionally causes or knowingly permits any of
the Work to be performed in a manner which is materially contrary to
the Plans and Specifications or any provisions of this Agreement or the
other Loan Documents.
(h) Any sale, transfer, lease, assignment, conveyance,
financing, lien, encumbrance or other transaction made in violation of
this Agreement.
(i) Failure of Borrower for a period of thirty days after
Lender's demand to procure the reversal, dismissal or disposition to
Lender's satisfaction of any order enjoining or otherwise preventing or
declaring invalid or unlawful the construction, occupancy, maintenance,
operation or use of the Project, or any portion thereof, in the manner
required by the terms of this Agreement, or of any proceedings which
could or might affect the validity or priority of the lien of the
Mortgage or any of the other security for the Loans, or which could
materially affect Borrower's ability to perform its obligations under
this Agreement or the other Loan Documents, except that Borrower shall
have the right to contest by appropriate proceedings the validity of
such order if and only if Borrower shall, within thirty days after
Lender's demand aforesaid, (i) places a bond with Lender in an amount,
form, content and issued by a surety reasonably acceptable to Lender
for adequate security from such order, or, if acceptable to Lender (ii)
cause the Title Company to issue an endorsement to the Loan Policy
insuring against loss or damage on account of any such order.
(j) The attachment, seizure, levy upon or taking of possession
by any receiver, custodian or assignee for the benefit of creditors of
all or a substantial part of the property of Borrower, Member or
Heartland which is not stayed or dismissed within thirty days after the
occurrence thereof.
(k) The assignment or attempted assignment of this Agreement
by Borrower without Lender's prior written consent.
(l) The filing or threatened filing of any condemnation or
administrative proceeding or litigation against the Project or any
casualty thereto which would in any way impair the completion of the
Work prior to the applicable date required therefor or the full
utilization of the Project once completed.
(m) The filing of formal charges under any federal, state or
local law, statute or ordinance for which Borrower's forfeiture of all
or any portion of the Project is a potential penalty.
(n) The occurrence of any material default or event of default
by Borrower pursuant to the Borrower's financing agreements with Corus
Bank in connection with Borrower's construction of Phase I of Kinzie
Park located in Chicago, Illinois.
(o) The occurrence of an Event of Default under any of the
other Loan Documents.
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11. REMEDIES. Upon the occurrence of any Event of Default, Lender, in
addition to availing itself of any remedies conferred upon it at law or in
equity and by the terms of the Notes, the Mortgage and the other Loan Documents,
may pursue any one or more of the following remedies first, concurrently or
successively with each other and with any other available remedies, it being the
intent hereof that none of such remedies shall be to the exclusion of any
others:
(a) Take possession of the Project and complete the Work and
do anything necessary or desirable in Lender's sole judgment to fulfill
the obligations of Borrower hereunder, including either the right to
avail itself of and procure performance of the Construction Contract,
any Subcontracts or any other contract entered into for the performance
of all or any portion of the Work (or any substitute therefor), or to
let new or additional contracts with the same contractors or
subcontractors or others, and to employ watchmen to protect the Project
from injury. Without restricting the generality of the foregoing and
for the purposes aforesaid, Borrower hereby appoints and constitutes
Lender its lawful attorney-in-fact with full power of substitution (i)
to complete the Work in the name of Borrower; (ii) to use portions of
the Construction Loan or other funds which may be reserved, escrowed or
set aside for any purposes hereunder at any time to complete the Work;
(iii) to make changes in the Plans and Specifications which shall be
reasonably necessary or reasonably desirable to complete the Work; (iv)
to retain or employ new general contractors, subcontractors,
architects, engineers and inspectors as shall be required for such
purposes; (v) to pay, settle or compromise all existing bills and
claims, which may be liens or security interests or to avoid such bills
and claims becoming liens or security interests against the Project, or
as may be necessary or desirable for the completion of the Work or for
the clearance of title; (vi) to execute all applications and
certificates in the name of Borrower which may be required by any of
the Loan Documents; (vii) to prosecute and defend all actions or
proceedings in connection with the Work; (viii) to take such action and
require such performance as it deems necessary under any of the bonds
to be furnished pursuant to the provisions hereof and to make
settlements and compromises with the surety or sureties thereunder, and
in connection therewith, to execute instruments of release and
satisfaction; it being understood that the foregoing power of attorney
is coupled with an interest and cannot be revoked. All sums expended by
Lender pursuant to this Article 11 shall be deemed to have been paid to
Borrower and secured by the Mortgage and the other Loan Documents, and
shall bear interest at the Default Rate until repaid to Lender.
(b) Withhold further disbursements of proceeds of the
Construction Loan.
(c) Declare the unpaid indebtedness evidenced by the Notes to
be immediately due and payable.
(d) Excluding any earnest money deposits, apply the balance of
any deposits made with Lender toward the repayment of the Loans.
12. SALES OF UNIT INTERESTS; PARTIAL RELEASES.
-----------------------------------------
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12.1 Right to Sell. Borrower shall have the right to enter
into and perform sales contracts with creditworthy third party
purchasers of the Unit Interests on the form contract submitted to and
approved in writing by Lender, provided that (i) no Event of Default
then exists, (ii) the gross sales price for the Unit Interest being
sold is not less than the minimum sales price therefor contained in
Exhibit E attached hereto, and (iii) the earnest money under said
contract is being held by Lender. Borrower shall deliver to Lender a
copy of each fully signed contract within five (5) days after the full
execution and delivery thereof.
12.2 Release of Liens. Provided that all of the conditions
described in Section 12.1 above have been satisfied in form and
substance acceptable to Lender and no Event of Default then exists,
Lender will issue a partial release of lien of its Loan Documents
covering any Unit Interest upon the payment to Lender of an amount
equal to 100% of the Net Sales Proceeds payable to Borrower with
respect to the sale thereof.
13. MISCELLANEOUS.
-------------
13.1 Additional Indebtedness. If any advances or payments made
by Lender pursuant to this Agreement or any other Loan Document,
together with disbursements of the Loans, shall exceed the aggregate
face amount of the Notes, all such advances and payments shall
constitute additional indebtedness secured by the Mortgage and all
other security for the Loans, and shall bear interest at the Default
Rate from the date advanced until paid.
13.2 Additional Acts. Borrower shall, upon request, execute
and deliver such further instruments and documents and do such further
acts and things as may be reasonably required to provide to Lender the
evidence of and security for the Loans contemplated by this Agreement.
13.3 Loan Agreement Governs. In the event of any inconsistency
between any provision of this Agreement and any provision of any other
Loan Document, the provision of this Agreement shall govern; provided,
however, that the provisions of all of the Loan Documents shall be
construed as an integrated set of provisions governing the Loans and,
accordingly, shall be interpreted and construed liberally to give the
maximum validity, enforceability and effect to all of such provisions.
13.4 Additional Advances. If an Event of Default shall occur,
Lender may, but shall not be obligated to, take any and all actions to
cure such default, and all amounts expended in so doing, all Loan
Expenses and all other amounts paid or advanced by Lender pursuant to
the Loan Documents, and all other amounts advanced by Lender in
connection with the performance of the Work or preserving any security
for the Loans, shall constitute additional advances of the Construction
Loan, shall be secured by the Mortgage and all other security for the
Loans, and shall bear interest at the Default Rate from the date
advanced until paid.
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13.5 Amendment; Waiver; Approval. This Agreement shall not be
amended, modified or supplemented without the written agreement of
Borrower and Lender at the time of such amendment, modification or
supplement. No waiver of any provision of this Agreement or any of the
other Loan Documents shall be effective unless set forth in writing
signed by the party making such waiver, and any such waiver shall be
effective only to the extent therein set forth. Failure by Lender to
insist upon full and prompt performance of any provisions of this
Agreement or any of the other Loan Documents, or to take action in the
event of any breach of any such provision or upon the occurrence of any
Event of Default, shall not constitute a waiver of any rights of
Lender, and Lender may at any time thereafter exercise all available
rights and remedies with respect to such breach or Event of Default.
Receipt by Lender of any instrument or document shall not constitute or
be deemed to be an approval thereof. Any approvals required under any
of the other Loan Documents must be in writing, signed by Lender and
directed to Borrower.
13.6 Notice. All notices, communications and waivers under
this Loan Agreement shall be in writing and shall be (i) delivered in
person or (ii) mailed, postage prepaid, either by registered or
certified mail, return receipt requested, or (iii) sent by overnight
express carrier, addressed in each case as follows:
To Lender: Bank One, Illinois, NA
6000 State Street
Rockford, Illinois 61108
Attn: Donald J. Pafford
and: Bank One, Illinois, NA
200 South Wacker Drive - 6th Floor
Chicago, Illinois 60606
Attn: Terrance Rosenberger
With copy to: Schwartz, Cooper, Greenberger &
Krauss, Chtd.
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attn: Jerrold M. Peven, Esq.
To Borrower: CMC Heartland Partners III, LLC
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Attn: Richard P. Brandstatter
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With copy to: Jenner & Block
One IBM Plaza
330 N. Wabash, 40th floor
Chicago, Illinois 60611
Attn: Michael Margolies, Esq.
or to any other address as to either of the parties hereto, as such
party shall designate in a written notice to the other party hereto.
All notices sent pursuant to the terms of this Section shall be deemed
received (i) if personally delivered, then on the date of delivery,
(ii) if sent by overnight, express carrier, then on the next Business
Day immediately following the day sent, or (iii) if sent by registered
or certified mail, then on the earlier of the third Business Day
following the day sent or when actually received.
13.7 Benefit; Assignment. The rights, powers and remedies of
Lender under this Agreement shall inure to the benefit of Lender and
its successors and assigns. The rights and obligations of Borrower
under this Agreement may not be assigned and any purported assignment
by Borrower shall be null and void.
13.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
13.9 Indemnity. Borrower agrees to indemnify, defend and hold
Lender harmless from and against any and all liabilities, obligations,
losses, damages, claims, costs and expenses (including reasonable
attorneys' fees and court costs) of whatever kind or nature which may
be imposed on, incurred by or asserted against Lender at any time which
relate to or arise from the performance of the Work, the offer for sale
or sale of any limited partnership interest or membership interest in
Borrower, the acquisition or sale or offer for sale of all or any
portion of the Property (including Unit Interests) and/or the
ownership, use, operation or maintenance of the Property, including,
without limitation, (a) any brokerage commissions or finder's fees
asserted against Lender with respect to the making of the Loans, the
acquisition of the Property or the sale of Unit Interests and (b)
claims by purchasers of Unit Interests with respect to defects in the
Property or other matters; provided, however, that the foregoing
indemnity shall not extend to any liabilities, obligations, claims,
losses, costs, damages or expenses resulting from the gross negligence
or willful misconduct of Lender.
13.10 Headings. The titles and headings of the articles,
sections and paragraphs of this Agreement 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
Agreement.
13.11 No Partnership or Joint Venture. Lender, by executing
and performing this Agreement shall not become a partner or joint
venturer with Borrower or any partner
38
<PAGE>
of Borrower or any of their respective associates or affiliates and all
inspections of the Property herein provided for are for the sole
benefit of Lender.
13.12 Time is of the Essence. Time is of the essence of the
payment of all amounts due Lender under the Loan Documents and
performance and observance by Borrower of each covenant, agreement,
provision and term of this Agreement and the other Loan Documents.
13.13 Invalid Provisions. In the event that any provision of
this Agreement is deemed to be invalid by reason of the operation of
law, or by reason of the interpretation placed thereon by any
administrative agency or any court, Borrower and Lender shall negotiate
an equitable adjustment in the provisions of the same in order to
effect, to the maximum extent permitted by law, the purpose of this
Agreement and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected
thereby and shall remain in full force and effect.
13.14 Offset. Without limitation of any other right or remedy
of Lender hereunder or provided by law, any indebtedness relating to
the Property or its operation and now or hereafter owing to Borrower by
Lender (including, without limitation, any amounts on deposit in any
demand, time, savings, passbook or like account maintained by Borrower
with Lender) may be offset and applied by Lender hereunder, or under
the Notes, the Mortgage or any of the other Loan Documents.
13.15 Acts by Lender. Notwithstanding anything herein
contained to the contrary, Lender will not be required to make any
disbursement or perform any other act under this Agreement if, as a
result thereof, Lender will violate any law, statute, ordinance, rule,
regulation or judicial decision applicable thereto.
13.16 Binding Provisions. The covenants, warranties,
agreements, obligations, liabilities and responsibilities of Borrower
under this Agreement shall be binding upon and enforceable against
Borrower and its legal representatives, administrators, successors and
permitted assigns.
13.17 Counterparts. This Agreement may be executed in
counterparts, and all said counterparts when taken together shall
constitute one and the same Agreement.
13.18 No Third Party Beneficiary. This Agreement is only for
the benefit of the parties hereto and their permitted successors and
assigns. No other person or entity shall be entitled to rely on any
matter set forth herein without the prior written consent of such
parties.
13.19 Publicity. Subject to compliance with Applicable Laws,
Lender reserves the right to publicize the making of the Loans in any
manner it deems appropriate, including, without limitation,
advertisements in trade journals and newspapers. In addition, Borrower
agrees that Lender shall have the right to erect and maintain a sign at
39
<PAGE>
the Project in a prominent location for the duration of the term of the
Loans stating that Lender is providing the financing for construction
of the Project. The sign shall be furnished by Lender and the sign
shall be located in a place selected by Lender, provided that such
location does not interfere with performance of the Work.
13.20 JURISDICTION AND VENUE. BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED IN THE CIRCUIT
COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION,
ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMIT AND CONSENT IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS
AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREE
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT
THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS AGREEMENT.
BORROWER WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN
DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM
BASED ON LACK OF VENUE. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET
FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT,
BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING,
BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY, TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
13.21 JURY WAIVER. LENDER AND BORROWER HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) BETWEEN OR AMONG LENDER AND BORROWER ARISING OUT OF
OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR
ANY RELATIONSHIP BETWEEN LENDER AND BORROWER. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE LOANS DESCRIBED HEREIN AND
IN THE OTHER LOAN DOCUMENTS.
[Signature page to follow]
40
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CMC HEARTLAND PARTNERS III, BANK ONE, ILLINOIS, NA, a national
LLC, a Delaware limited liability company banking association
By:______________________________ By: ___________________________
Lawrence S. Adelson, Vice President Title: ___________________________
41
<PAGE>
Schedule of Exhibits
A - Budget
B - Legal Description
C - Permitted Exceptions
D - List of Plans and Specifications
E - Schedule of Minimum Sales Prices
<PAGE>
EXHIBIT A
Budget
<PAGE>
EXHIBIT B
Legal Description of the Land
<PAGE>
EXHIBIT C
Permitted Exceptions
<PAGE>
EXHIBIT D
List of Plans and Specifications
<PAGE>
EXHIBIT E
Schedule of Minimum Sales Prices
<PAGE>
Exhibit 10.21
THIRD AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Third Amendment") is dated as of the 18th day of November,1999
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, f/k/a LaSalle National
Bank ("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 and that certain Second Amendment to Amended and Restated
Loan and Security Agreement dated as of April 29, 1999 (collectively, the
"Agreement"), and now desire to amend the Agreement to, among other things,
increase Bank's commitment to Borrowers, 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 Second 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:
(a) Any and all references to the Agreement shall be deemed to refer to and
include this Third Amendment, as the same may be further amended, modified or
supplemented from time to time.
(b) 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:
<PAGE>
"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 and that certain Third Amendment to
Assignment of Rents and Leases dated as of November
18, 1999, as the same may be amended, modified or
supplemented from time to time.
(c) 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 and
that certain Third Amendment to Mortgage and Security
Agreement dated as of November 18, 1999, as the same
may be amended, modified or supplemented from time to
time.
(d) 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 and
that certain Sixth Assignment of Rents and
2
<PAGE>
Leases dated as of November 18, 1999, as the same may
be further amended, modified or supplemented from
time to time.
(e) 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 and that certain
Sixth Amendment to Mortgage and Security Agreement
dated as of November 18, 1999, as the same may be
further amended, modified or supplemented from time
to time.
(f) The definition of the term "Milwaukee Assignment of Rents" in Paragraph 1.1
is hereby amended and restated in its entirety to read as follows:
"Milwaukee Assignment of Rents" means that certain
Assignment of Rents and Leases dated as of April 29,
1999 between CMC and Bank with respect to the
Milwaukee Mortgaged Property, as amended by that
certain Amendment to Assignment of Rents and Leases
dated as of November 18, 1999, as the same may be
amended, modified or supplemented from time to time.
(g) The definition of the term "Milwaukee Mortgage" in Paragraph 1.1 is hereby
amended and restated in its entirety to read as follows:
"Milwaukee Mortgage" means that certain Mortgage and
Security Agreement dated as of April 29, 1999 between
CMC and Bank with respect to the Milwaukee Mortgaged
Property, as amended by that certain Amendment to
Mortgage and Security Agreement dated as of
3
<PAGE>
November 18, 1999, as the same may be amended,
modified or supplemented from time to time.
(h) 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 November 18, 1999 made by
Borrowers, jointly and severally, in favor of Bank,
in the maximum principal amount available of Thirteen
Million Three Hundred Thousand and 00/100 Dollars
($13,300,000), as the same may be amended, modified
or supplemented from time to time, together with any
renewals thereof or exchanges or substitutes
therefor.
(i) The term "Assignment of Partnership Interests" is hereby added to the
definition of the term "Other Agreements" in Paragraph 1.1.
(j) The definition of the term "Assignment of Partnership Interests" is hereby
added to Paragraph 1.1 to read as follows: "Assignment of Partnership Interests"
means that certain Assignment of Partnership Interests dated as of November 18,
1999 made by Heartland in favor of Bank.
(k) 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 Thirteen Million
Three Hundred Thousand Dollars ($13,300,000) 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.
4
<PAGE>
(l) Any and all references to "LaSalle National Bank" shall be deemed to refer
to "LaSalle Bank National Association."
3. 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.
4. Representations and Warranties; No Event of Default. The representations and
warranties set forth in Paragraph 8.1 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.
5. 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 Third 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, on
demand, a closing fee equal to $4,500.
6. Effectuation. The amendments to the Agreement contemplated by this Third
Amendment shall be deemed effective immediately upon the full execution of this
Third Amendment and without any further action required by the parties hereto.
There are no conditions precedent or subsequent to the effectiveness of this
Third Amendment.
7. Counterparts. This Third 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]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Third
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
LASALLE BANK NATIONAL ASSOCIATION,
a national banking
association
By:
-----------------------------------
Its:
-------------------------
6
<PAGE>
EXHIBIT A
(See Attached Closing Checklist)
<PAGE>
EXHIBIT B
None
<PAGE>
Exhibit 10.22
CONSTRUCTION LOAN AGREEMENT
BETWEEN
CMC HEARTLAND PARTNERS VII, LLC,
a Delaware limited liability company, as Borrower
AND
BANK ONE, ILLINOIS, NA, a national
banking association, as Lender
<PAGE>
TABLE OF CONTENTS
Section Page No.
1. RECITALS..........................................................1
--------
2. DEFINITIONS.......................................................1
-----------
3. COMMITMENTS TO LEND; COMMITMENT FEE...............................7
-----------------------------------
3.1 Maximum Amount of the Loan...............................7
--------------------------
3.2 Reborrowing..............................................8
-----------
3.3 Voluntary Prepayment; Mandatory Prepayment...............8
------------------------------------------
3.4 Loan Advances Evidenced by the Note......................8
-----------------------------------
3.5 Interest Rate and Payment of Interest. .................8
-------------------------------------
3.6 Mandatory Principal Payments.............................9
----------------------------
3.7 Default Rate.............................................9
------------
3.8 Late Charge..............................................9
-----------
3.9 Fees. ..................................................9
----
3.10 Loan Extension Option....................................9
---------------------
4. LOAN DOCUMENTS...................................................10
--------------
5. DISBURSEMENT OF THE LOAN.........................................14
------------------------
5.1 Conditions Precedent....................................14
--------------------
5.2 Conditions Precedents for Disbursements after the
Initial Loan Advance....................................14
--------------------------------------------------
5.3 Use of Loan Proceeds; Inspections of the Work...........15
---------------------------------------------
5.4 Disbursement Requests...................................16
---------------------
5.5 Certifications, Representations and Warranties..........17
----------------------------------------------
5.6 Amount of Disbursements; Retainage......................18
----------------------------------
5.7 Costs...................................................18
-----
5.8 Reserves................................................18
--------
5.9 Loan In Balance.........................................19
---------------
5.10 Application of Disbursements............................19
----------------------------
5.11 Release of Retainage....................................20
--------------------
5.12 Additional Loan Limitations.............................21
---------------------------
6. REPRESENTATIONS AND WARRANTIES...................................22
------------------------------
6.1 Borrower................................................22
--------
6.2 Sole Member.............................................22
-----------
6.3 Heartland...............................................22
---------
6.4 Title...................................................22
-----
6.5 Improvements............................................23
------------
6.6 Validity and Enforceability of Documents................23
----------------------------------------
6.7 Litigation..............................................23
----------
<PAGE>
6.8 Utilities; Authorities..................................23
----------------------
6.9 Solvency................................................23
--------
6.10 Financial Statements....................................24
--------------------
6.11 Compliance with Laws....................................24
--------------------
6.12 Construction Contract...................................24
---------------------
6.13 Subcontracts............................................24
------------
6.14 Plans and Specifications................................24
------------------------
6.15 Budget..................................................24
------
6.16 Financing Statements....................................25
--------------------
6.17 Event of Default........................................25
----------------
6.18 Responsible Property Transfer Act.......................25
---------------------------------
6.19 Additional Agreements...................................25
---------------------
7. BORROWER'S COVENANTS.............................................25
--------------------
7.1 Manner of Construction..................................25
----------------------
7.2 Compliance with Laws....................................25
--------------------
7.3 Inspection..............................................25
----------
7.4 Mechanics' Liens........................................26
----------------
7.5 Release by Lender.......................................26
-----------------
7.6 Financial Statements; Reports...........................27
-----------------------------
7.7 Affirmation of Representations and Warranties...........27
---------------------------------------------
7.8 Title...................................................27
-----
7.9 Proceedings Affecting Property..........................28
------------------------------
7.10 Disposal and Encumbrance of Property....................28
------------------------------------
7.11 Insurance...............................................28
---------
7.12 Performance of Obligations; Notice of Default...........28
---------------------------------------------
7.13 Subcontracts............................................29
------------
7.14 Restrictions Affecting Borrower.........................29
-------------------------------
7.15 Use of Receipts.........................................29
---------------
7.16 Management and Leasing Agreements; Subordination........29
------------------------------------------------
7.17 Additional Documents....................................29
--------------------
7.18 Sale to Investors.......................................30
-----------------
7.19 Survey..................................................30
------
8. LOAN EXPENSES....................................................30
-------------
9. LENDER'S REPRESENTATIVES.........................................30
------------------------
10. EVENTS OF DEFAULT................................................30
-----------------
11. REMEDIES........................................................32
--------
12. SALES OF UNITS; PARTIAL RELEASES.................................34
--------------------------------
12.1 Sales Prices............................................34
------------
ii
<PAGE>
12.2 Release Prices..........................................34
--------------
13. MISCELLANEOUS....................................................34
-------------
13.1 Additional Indebtedness.................................34
-----------------------
13.2 Additional Acts.........................................34
---------------
13.3 Loan Agreement Governs..................................34
----------------------
13.4 Additional Advances.....................................34
-------------------
13.5 Amendment; Waiver; Approval.............................35
---------------------------
13.6 Notice..................................................35
------
13.7 Benefit; Assignment.....................................36
-------------------
13.8 Governing Law...........................................36
-------------
13.9 Indemnity...............................................36
---------
13.10 Headings................................................36
--------
13.11 No Partnership or Joint Venture.........................37
-------------------------------
13.12 Time is of the Essence..................................37
----------------------
13.13 Invalid Provisions......................................37
------------------
13.14 Offset..................................................37
------
13.15 Acts by Lender..........................................37
--------------
13.16 Binding Provisions......................................37
------------------
13.17 Counterparts............................................37
------------
13.18 No Third Party Beneficiary..............................37
---------------------------
13.19 Publicity...............................................38
---------
13.20 JURISDICTION AND VENUE..................................38
----------------------
13.21 JURY WAIVER.............................................39
-----------
iii
<PAGE>
CONSTRUCTION LOAN AGREEMENT
---------------------------
This Construction Loan Agreement ("Agreement") is dated as of December
9, 1999, by and between CMC HEARTLAND PARTNERS VII, LLC, a Delaware limited
liability company ("Borrower"), and BANK ONE, ILLINOIS, NA, a national banking
association ("Lender").
1. RECITALS.
--------
1.1 Seller is the fee owner of the Land (this and all other
capitalized terms used in this Article 1 and not otherwise defined
shall have the meanings ascribed thereto in Article 2 below).
1.2 Borrower has certain rights to purchase the Land pursuant
to the terms of the Option Agreement.
1.3 Borrower has requested that Lender make available to
Borrower a construction loan (the "Loan") in the maximum outstanding
principal amount of $5,000,000 to pay a portion of the amounts needed
to pay certain Project Costs associated with the construction of Units
(hereinafter defined) on the Land. Lender has agreed to make the Loan
subject to the terms and conditions set forth herein.
1.4 In consideration of the mutual agreements set forth herein
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree
as follows:
2. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
2.1 "Acceptable Unit Sale Contract" shall mean a binding,
unconditional sale contract for a Unit (with any financing and other
contingencies having been satisfied or expired) (i) with a third party
unrelated to and unaffiliated with Borrower or Seller, (ii) with
earnest money paid in cash in the amount of 5% of the sales price
thereof, but not less than $1,000, and (iii) on a form of contract
approved in writing by Lender (with only such changes thereto as may be
requested by the purchaser and agreed to by Borrower exercising
commercially reasonable judgment).
2.2 "Additional Agreements" shall be all contracts, options,
leases, management, leasing, development, sales or other agreements in
existence that affect the Property (written or oral) as set forth in
Exhibit E attached hereto.
2.3 "Applicable Laws" shall mean all laws, statutes,
ordinances, rules, regulations, judgments, decrees or orders of any
state, federal or local government or agency which are applicable to
Borrower, Seller and/or the Property.
<PAGE>
2.4 "Assignment of Option Agreement" shall mean the Collateral
Assignment of Option Agreement made by Borrower to Lender and consented
to by Seller to secure the Loan. 2.5 "Assignment of Plans" shall mean
the collateral assignment of all licenses, permits, plans,
specifications and contracts relating to the construction, use or
operation of the Project to be made by Borrower to Lender to secure the
Loan.
2.6 "Assignment of Rents" shall mean the Assignment of Rents
and Leases dated as of the date hereof made by Borrower to Lender, as
the same is amended, restated, modified or supplemented from time to
time.
2.7 "Assignment of Sales Contracts" shall mean the assignment
of all sales contracts with respect to any Unit to be made by Borrower
to Lender to secure the Loan.
2.8 "Borrower Mortgage Title Policy" shall mean the title
insurance policy described in Section 4.5 below.
2.9 "Budget" shall mean the detailed budget of all costs to be
incurred in connection with the Work, including both hard costs and
soft costs, as set forth in Exhibit B attached hereto.
2.10 "Business Day" shall mean each day excluding Saturdays,
Sundays and any other day on which Lender is closed for business to the
public.
2.11 "Construction Contract" shall mean that certain contract
dated February 10, 1999 between Borrower and the Contractor regarding
the general contracting and construction management services to be
performed in connection with the construction of the Improvements.
2.12 "Consultant" shall mean an independent architect or
engineer selected by Lender.
2.13 "Contractor" shall mean Lifestyle Construction Company,
Inc., a Delaware corporation.
2.14 "Default Rate" shall mean the Loan Rate plus 3.0% per
annum.
2.15 "Event of Default" shall have the meaning ascribed to it
in Section 10 of this Agreement.
2.16 "Existing Lender" shall mean Bank of America.
2.17 "Heartland" shall mean Heartland Technology, Inc., a
Delaware corporation, a general partner of Sole Member.
2
<PAGE>
2.18 "Hazardous Materials" shall mean and include any and all
hazardous, toxic or dangerous substances, wastes and materials and
other pollutants and contaminants as defined or described in any or all
applicable federal, state or local statutes, laws, ordinances, codes,
rules, regulations, orders or decrees now or hereafter regulating,
relating to or imposing liability or standards of conduct with respect
to environmental matters, including, without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986 (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act
of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984
(42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977 and the Water Quality
Act of 1987 (33 U.S.C. Section 1251 et seq.), the Toxic Substances
Control Act of 1976 (15 U.S.C. Section 2601 et seq.), the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section
11001 et seq.), the Clear Air Act of 1966, as amended (42 U.S.C.
Section 7401 et seq.), the National Environmental Policy Act of 1970
(42 U.S.C. Section 4321 et seq.), the Rivers and Harbours Act of 1899
(33 U.S.C. Section 401 et seq.), the Endangered Species Act of 1973, as
amended (16 U.S.C. Section 1531 et seq.), the Safe Drinking Water Act
of 1974, as amended (42 U.S.C. Section 300(f) et seq.), and the
Occupational Safety and Health Act of 1970, as amended (29 U.S.C.
Section 651 et seq.) and all rules, regulations and guidance documents
promulgated or published thereunder, all as amended or hereinafter
amended. Without intending to limit the scope or breadth of the
foregoing definition, the term Hazardous Materials shall include
asbestos, urea formaldehyde, polychlorinated biphenyls, crude oil,
radioactive materials and underground storage tanks.
2.19 "Improvements" shall mean the Units.
2.20 "Indemnity Agreement" shall mean the Environmental
Indemnity Agreement dated as of the date hereof, made by Borrower in
favor of Lender, as the same may be hereafter amended or otherwise
modified from time to time.
2.21 "Initial Disbursement Date" shall mean the date on which
the first disbursement of the Loan occurs.
2.22 "Land"shall mean the real property legally described on
Exhibit A attached hereto and known as the Longleaf developments in
Southern Pines, North Carolina.
2.23 "Loan Advance" shall mean a disbursement of all or any
portion of the Loan.
2.24 "Loan Documents" shall mean this Agreement, the
Assignment of Option Agreement, the Assignment of Plans, the Assignment
of Sales Contracts, the Assignment of Rents, the Mortgage, the Note,
the Security Agreement, the Seller Mortgage, the
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Indemnity Agreement and every other document now or hereafter
evidencing, securing or otherwise executed in conjunction with the
Loan, together with all amendments and modifications thereof.
2.25 "Loan Expenses" shall mean the expenses, charges, costs
(including both hard costs and soft costs) and fees relating to the
making, administration, negotiation, documentation or any other aspect
of the Loan or relating to the performance of the Work, including,
without limitation, Lender's reasonable attorneys' fees and costs in
connection with the negotiation, documentation and enforcement of the
Loan, the fees of the Consultant, all recording fees and charges, title
insurance charges and premiums, escrow fees, fees of insurance
consultants, costs of surveys and of other bonds required by the Title
Company in connection with clearing title to the Real Property or the
issuance of title reports, binders, policies and the like, and all
other costs, expenses, charges and fees referred to in or necessitated
by the terms of this Agreement or any of the other Loan Documents.
2.26 "Loan Rate" shall mean the Prime Rate.
2.27 "Maturity Date" shall mean December 8, 2000, unless
otherwise extended pursuant to the terms of Section 3.12 below.
2.28 "Model Unit" shall mean a model Unit which is open for
viewing by prospective purchasers and which is not a Sold Unit.
2.29 "Mortgage" shall mean the Deed of Trust dated as of the
date hereof made by Borrower to Lender, as the same is amended,
restated, modified or supplemented from time to time, to secure the
Loan.
2.30 "Note" shall mean that certain Note of even date herewith
made by Borrower to Lender in the original principal amount of
$5,000,000 to evidence the Loan.
2.31 "Option Agreement" shall mean that certain Option,
Management and Marketing Agreement dated as of September 9, 1998, by
and between Borrower and Seller, as the same is amended, restated,
modified or supplemented from time to time.
2.32 "Parcel" shall mean, individually, a portion of the Land
upon which an individual Unit shall be constructed and collectively,
the portions of the Land upon which the Units shall be constructed.
2.33 "Permitted Exceptions" shall mean the exceptions to the
title of the Real Property listed as "Permitted Exceptions" on Exhibit
C attached hereto.
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2.34 "Person" shall mean any individual, firm, corporation,
business enterprise, trust, association, joint venture, partnership,
governmental body or other entity, whether acting in an individual,
fiduciary or other capacity.
2.35 "Personal Property" shall mean and include any and all
furniture, furnishings, appliances, equipment and all fixtures (to the
extent such fixtures are attached in a manner so as not to be deemed to
be part of the Real Property) to be located in the Homes or otherwise
at the Land which will be used or usable in connection with the
ownership, development, construction or operation of the Project and
which will be owned or otherwise possessed by Borrower or any of its
affiliates, including all of such personal property contemplated under
the Plans and Specifications.
2.36 "Plans and Specifications" shall mean, collectively, the
architectural and engineering plans and specifications relating to the
Work or any portion thereof, all of which must be acceptable to Lender
in its sole and absolute discretion.
2.37 "Prime Rate" shall mean an annual rate of interest equal
to the prime rate as publicly announced by Lender to be in effect from
time to time, adjusted and changing when and as said prime rate changes
(but such rate may not be the lowest, best or most favorable rate of
interest which Lender may charge on loans to its customers).
2.38 "Project" shall mean the residential development to be
constructed on the Land, together with certain other related on-site
improvements.
2.39 "Project Cost" shall mean each of the following items,
but only to the extent specifically set forth in the Budget and only to
the extent specifically required to complete the Project:
(a) The actual hard costs of completing
construction of the Improvements, including demolition and
environmental remediation costs;
(b) The actual costs of acquiring and installing
the Personal Property;
(c) Premiums for title, casualty, liability and
other insurance required by Lender;
(d) The cost of recording and filing the Loan
Documents;
(e) Real estate taxes and other assessments
which Borrower is obligated to pay during the term of the
Loan;
(f) Interest, fees and similar charges payable
by Borrower to Lender hereunder or under the Note;
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(g) Legal and other closing costs;
(h) Architectural, engineering and consulting
fees;
(i) Such other soft costs as may be set forth in
the Budget or as may be hereafter approved in writing by
Lender; and
(j) All other Loan Expenses.
2.40 "Property" shall mean the Real Property, the Units and
the Personal Property (whether before or after completion of the Work)
and all other tangible and intangible assets benefitting or otherwise
appertaining to the Project, including, without limitation, all of the
collateral for the Loan described in the Loan Documents.
2.41 "Real Property" shall mean the Land, the Improvements and
all easements and appurtenants thereto.
2.42 "Reserves" shall mean the reserves described in Section
5.8 below.
2.43 "Retainage" shall mean the portion of each Loan Advance
retained by Lender in accordance with Section 5.6 below.
2.44 "Security Agreement" shall mean the security agreement
encumbering the Personal Property dated as of the date hereof, made by
Borrower to, as the same may be hereafter amended, restated, modified
or supplemented from time to time.
2.45 "Seller" shall mean Longleaf Associates Limited
Partnership, a North Carolina limited partnership.
2.46 "Seller Mortgage" shall mean the Deed of Trust executed
and delivered by Seller and Borrower to secure the Loan, as described
in Section 5.2(a) below.
2.47 "Seller Mortgage Title Policy" shall mean the title
insurance policy described in Section 5.2(b) below.
2.48 "Sold Unit" means a Unit that is subject to an Acceptable
Unit Sale Contract.
2.49 "Sole Member" shall mean CMC Heartland Partners, a
Delaware general partnership, the sole member of Borrower.
2.50 "Spec Unit" means any Unit for which construction has
commenced (including construction of foundations) and which is not a
Model Unit or a Sold Unit.
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2.51 "Subcontracts" shall mean all subcontracts now or
hereafter entered into by the Contractor for the construction of any of
the Improvements or the installation of any of the Personal Property or
the performance of any other aspect of the Work, together with all
sub-subcontracts, material or equipment purchase orders, equipment
leases and other agreements entered into by the Contractor, any
subcontractor or any other party supplying labor or materials in
connection with the Work.
2.52 "Title Company" shall mean Chicago Title Insurance
Company.
2.53 "Title Policies" shall mean the Borrower Mortgage Title
Policy and the Seller Mortgage Title Policy.
2.54 "Town" shall mean the town of Southern Pines, North
Carolina.
2.55 "Town Assessments" shall mean the payments to the Town
for each Unit.
2.56 "Unit" shall mean a detached single family home or an
attached town home on the Land.
2.57 "Unmatured Default" shall mean an event or circumstance
that with the giving of notice, the passage of time, or both, would
constitute an Event of Default.
2.58 "Work" shall mean the performance of all work to be
performed and the supplying of all materials to be supplied in
connection with the building, furnishing, fixturing and equipping of
the Units, all in accordance with the provisions of this Agreement and
with the Plans and Specifications, the Budget and other documentation
approved by Lender.
3. COMMITMENTS TO LEND; COMMITMENT FEE.
-----------------------------------
3.1 Maximum Amount of the Loan. Lender agrees to lend to
Borrower, and Borrower agrees to borrow from Lender $5,000,000 for the
Loan, upon the terms and subject to the conditions contained in this
Agreement. Notwithstanding anything contained in this Article to the
contrary, Loan Advances shall be limited to such amounts as Borrower is
eligible to receive pursuant to, and upon compliance with, the
conditions of Article 5 hereof. Additionally, the aggregate amount of
the Loan that may be advanced for any Unit at any time (the "Advance
Rate") shall not exceed the lesser of the following:
(a) the lesser of 100% of the cost of such Unit or
80% of the appraised value of such Unit, if such Unit at such
time is a Sold Unit, or
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(b) subject to Section 3.10(b), the lesser of 90% of
the cost of such Unit or 75% of the appraised value of such
Unit, if such Unit at such time is a Model Unit or Spec Unit.
Notwithstanding anything to the contrary contained herein, (i) for
Units which are currently under construction and financed with the
Existing Lender, the cost of such Unit shall be deemed to include
Borrower's acquisition cost of the Parcel for such Unit pursuant to the
Option Agreement, and (ii) for those Units which are not currently
under construction or financed with the Existing Lender, the cost of
such Unit shall not include any amounts payable to Seller pursuant to
the Option Agreement. Furthermore, there shall be no more than seven
Spec Units or more than two Model Units financed by Lender at any time.
3.2 Reborrowing. Borrower shall be entitled to reborrow
portions of the Loan that are repaid or prepaid.
3.3 Voluntary Prepayment; Mandatory Prepayment.
(a) Borrower may prepay all or any part of the Loan
at any time and from time to time upon five days prior written
notice to Lender without cost or penalty.
(b) If the outstanding principal balance of the 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.
(c) Borrower must make a mandatory principal payment
on the Loan equal to the aggregate amount of the 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 Loan for such Sold Unit was made. Borrower must make a
mandatory principal payment on the Loan equal to the aggregate
amount of the Loan previously disbursed by Lender with respect
to each Spec Unit twelve months after the date on which the
first draw of proceeds of the Loan for such Spec Unit was
made. Borrower must make a mandatory principal payment on the
Loan equal to the aggregate amount of the Loan previously
disbursed by Lender with respect to each Model Unit eighteen
months after the date on which the first draw of proceeds of
the Loan for such Model Unit was made.
3.4 Loan Advances Evidenced by the Note. All advances of
the Loan shall be evidenced by the Note.
3.5 Interest Rate and Payment of Interest. Interest shall
accrue on the unpaid principal balance of the Loan during each calendar
month (whether full or partial) at the Prime Rate. Interest shall be
computed on the basis of a year consisting of 360 days and
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shall be based on the actual number of days during the period for which
interest is being charged. Accrued and unpaid interest on the Loan
shall be due and payable to Lender on the first day of each month
commencing on the first day of the month following the month in which
the Initial Disbursement Date occurs. Borrower hereby authorizes Lender
during the term of the Loan to disburse to itself from the undisbursed
proceeds of the Loan all then accrued and unpaid interest on the Loan
which is then due and payable; provided, however, that such
authorization shall not be deemed to limit, reduce or otherwise affect
Borrower's obligation to pay interest if (a) there are no remaining
amounts in the Budget for the Loan allocated for the payment of such
interest (including Reserves specifically allocated to pay such
interest), or (b) Lender is entitled to withhold disbursement of the
Loan for any reason. Any amounts disbursed from the interest reserve
shall become part of the outstanding principal balance of the Loan and
interest thereon shall accrue and be payable as provided herein.
3.6 Mandatory Principal Payments. Concurrently with the
closing of the sale of each Unit, Borrower shall make a principal
payment on the Loan equal to the aggregate amount of the Loan
previously disbursed by Lender with respect to such Unit.
3.7 Default Rate. At any time when an Event of Default exists
under this Agreement or any of the other Loan Documents and after the
Maturity Date (or the First Extended Maturity Date or the Second
Extended Maturity Date, if applicable), (a) the aggregate outstanding
principal balance of the Loan and any other amounts then owing by
Borrower to Lender shall bear interest at the Default Rate until paid
in full and (b) subject to the maximum rate permitted by Applicable
Law, all accrued but unpaid interest shall bear interest at the Default
Rate therefrom until paid in full.
3.8 Late Charge. If any payment of interest or principal due
under the Note is not made within ten days after such payment is due,
then, in addition to the payment of the amount so due, Borrower shall
pay to Lender a "late charge" equal to five percent (5.0%) of the
amount of that payment or $25.00, whichever is greater, up to the
maximum amount of $1,500.00 per late charge to compensate Lender for
the cost of collecting and handling such late payment. This late charge
may be assessed without notice, shall be immediately due and payable
and shall be in addition to all other rights and remedies available to
Lender.
3.9 Fees. Concurrently with the initial disbursement of the
Loan, Lender shall be deemed to have fully earned a non-refundable loan
and administration fee in the amount of $50,000 (the "Loan Fee"), which
fee shall be due and payable by Borrower on the Initial Disbursement
Date.
3.10 Loan Extension Option. If on the Maturity Date (a) any
Units are then under construction, or (b) there are any Units then
deemed to be Spec Units or Model Units, Borrower shall have the right
to extend the maturity date of the Loan for an additional six months
(the last day of said six month period being referred to herein as the
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"First Extended Maturity Date"), upon and subject to the following
terms, provisions and conditions:
(i) Borrower shall give written notice (the
"Extension Notice") to Lender of Borrower's election to
exercise the aforementioned extension right not less than 60
days prior to the Maturity Date;
(ii) No Event of Default or Unmatured Default exists
under any of the Loan Documents on the date Borrower delivers
the Extension Notice or on the Maturity Date;
(iii) Concurrently with the delivery of the Extension
Notice, Borrower shall pay to Lender $25,000 for the six month
extension period;
(iv) The Advance Rate for each Spec Unit shall be
reduced from 75% to 70% of the appraised value on the date
that is twelve months after the date on which the first draw
of proceeds of the Loan for such Spec Unit was made;
(v) The Advance Rate for each Spec Unit shall be
reduced from 70% to 65% of the appraised value on the date
that is eighteen months after the date on which the first draw
of proceeds of the Loan for such Spec Unit was made;
(vi) Borrower makes mandatory principal payments on
the Loan equal to the amount of the Loan previously disbursed
by Lender with respect to each Spec Unit twenty-four months
after the date on which the first draw of proceeds of the Loan
for such Spec Unit was made; and
(vii) Borrower may not commence construction of any
Units;
(viii) Except as expressly provided to the contrary
in this Section 3.10, all of the other terms, provisions and
conditions of the Loan Documents shall remain in full force
and effect in accordance with their respective terms during
the additional extension period, including without limitation,
the obligation to make monthly payments of interest.
4. LOAN DOCUMENTS. Prior to the Initial Disbursement Date, Borrower
shall execute and/or deliver to Lender those of the following documents and
other items required to be executed and/or delivered by Borrower (and Seller),
and shall cause to be executed and/or delivered to Lender those of the following
documents and other items required to be executed and/or delivered by others,
all of which documents and other items shall contain such provisions as shall be
required to conform to this Agreement and otherwise shall be satisfactory in
form and substance to Lender:
4.1 The Loan Documents.
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4.2 UCC financing statements perfecting the security
interests created by the Security Agreement.
4.3 Copies of surveys reasonably acceptable to Lender.
4.4 Borrower, at its expense, shall obtain and deliver to
Lender policies of insurance providing the following:
(a) Policies of insurance evidencing bodily injury,
death or property damage liability coverages in amounts not
less than $1,000,000 (combined single limit), and an
excess/umbrella liability coverage in an amount not less than
$1,000,000 shall be in effect with respect to Borrower. Such
policies must be written on an occurrence basis so as to
provide blanket contractual liability, broad form property
damage coverage, and coverage for products and completed
operations.
(b) "Special Cause of Loss" insurance on the
Improvements in an amount not less than the full insurable
value on replacement cost basis of the insured Improvements
and personal property related thereto. During the construction
period, such policy shall be written in the so-called
"Builder's Risk Completed Value Non-Reporting Form" (or
"Reporting Form" if the Improvements are a single family
residential development) with no coinsurance requirement and
shall contain a provision granting the insured permission to
complete.
(c) Evidence of worker's compensation insurance
coverage satisfactory to Lender.
(d) If the Real Property, or any part thereof, lies
within a "special flood hazard area" as designated on maps
prepared by the Department of Housing and Urban Development, a
National Flood Insurance Association standard flood insurance
policy, plus insurance from a private insurance carrier if
necessary, for the duration of the Loan in the amount of the
full insurable value of the Improvements.
(e) Such other insurance as Lender may require, which
may include, without limitation, errors and omissions,
insurance with respect to the contractors, architects and
engineers, earthquake insurance, rent abatement and/or
business loss.
All insurance policies shall (i) be issued by an insurance company
having a rating of "A" VII or better by A.M. Best Co., in Best's Rating
Guide, (ii) name Lender as additional insured on all liability
insurance and as mortgagee and loss payee on all casualty insurance,
(iii) provide that Lender is to receive thirty (30) days written notice
prior to
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non-renewal or cancellation, (iv) be evidenced by a certificate of
insurance to be held by Lender, and (v) be in form and amounts
acceptable to Lender.
4.5 An ALTA Construction Loan Policy of Title Insurance
("Borrower Mortgage Title Policy") issued by the Title Company in the
full amount of the Note insuring that the Mortgage will be a first
priority lien upon the fee simple title to the Land to the extent of
advances made by Lender from time to time under this Agreement, subject
to no liens, claims, exceptions or encumbrances except the Permitted
Exceptions and containing endorsements reasonably required by Lender
from time to time (the Borrower Mortgage Title Policy, Permitted
Exceptions and required endorsements are more fully described on
Exhibit C attached hereto).
4.6 Copies of all recorded documents described in the
Borrower Mortgage Title Policy.
4.7 Current Uniform Commercial Code, federal and state tax
lien and judgment searches, pending suit and litigation searches and
bankruptcy court filings searches covering Borrower, Sole Member,
Contractor and Seller and disclosing no matters objectionable to
Lender.
4.8 Copies of the form of Subcontract to be used by the
Contractor.
4.9 The Plans and Specifications, which have been approved by
Borrower and the Contractor and approved and stamped by the appropriate
governmental authorities, including detailed descriptions (with
drawings and specifications).
4.10 Certified copies of the Construction Contract, all
licenses, permits and governmental approvals necessary for the
construction, use or operation of the Project and all other documents
and instruments relating to performance of the Work.
4.11 Opinion letter from Robbins, May & Rich, LLP, legal
counsel for Borrower opining to the authority of such party to execute,
deliver and perform its obligations under the Loan Documents, to the
validity and binding effect of the Loan Documents and to such other
matters as Lender and its counsel shall require.
4.12 Evidence that (i) no portion of the Real Property is
located in an area designated by the Secretary of Housing and Urban
Development as having special flood hazards, or if any portion of the
Real Property is so located, evidence that flood insurance is in
effect; and (ii) no portion of the Real Property is located in a
federally, state or locally designated wetland or other type of
government protected area.
4.13 Certified copies of the Limited Liability Company
Operating Agreement of Borrower, together with all amendments thereto,
and such resolutions and other documents as Lender deems appropriate
evidencing the authority of Borrower to execute
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and deliver the Loan Documents to which such Persons are a party and to
perform the obligations contemplated hereby and thereby.
4.14 Certified copies of all service contracts, development
agreements and other agreements affecting the use, development or
operation of the Project, if any.
4.15 Evidence that the environmental condition of the Property
is satisfactory to Lender. Such testing and investigation shall be
performed by an environmental professional acceptable to Lender in a
manner satisfactory to Lender.
4.16 Evidence that, as of the date of the Initial Loan
Advance, there has been no material adverse change in the financial or
other projections for the Project, the physical condition of the
Property or the financial condition of Borrower since the date of the
most recent financial statements or projections delivered to Lender or
the most recent inspections of the condition of the Property made by
the Consultant, as the case may be.
4.17 Form of proposed sales contracts and other documents to
be used in connection with the sale of the Units, together with a
schedule of minimum sales prices therefor.
4.18 An appraisal satisfactory to Lender indicating the
aggregate fair market value of the Project, as completed that is
acceptable to Lender.
4.19 Certified copies of any sale contracts, letters of intent
and other agreements relating to the sale of the Units that have been
executed as of the date of the Initial Loan Advance.
4.20 A detailed marketing and sales projection, including a
projection of the amount of time required to close sales of the Units.
4.21 Evidence that the Property is, and upon completion the
Project will be, in compliance with all Applicable Laws.
4.22 A reasonably detailed Project development and
construction schedule specifying all of the projected start and
completion dates (or delivery dates) for each component of development
of the Project, including each separate component of performance of the
Work and each required license, permit or other public or private
approval.
4.23 A certified copy of the Option Agreement.
4.24 An Consent Agreement from Seller regarding the Option
Agreement in form and substance acceptable to Lender in its sole and
absolute discretion.
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4.25 Copies of all agreement, declarations, by laws,
certificates, plans, opinions and other documents regarding or
affecting the Land, the Project or the Option Agreement.
4.26 Such other assignments, certificates, opinions and other
documents, instruments and information affecting or relating to
Lender's interest in the Project or the use, operation, development or
construction of the Project as Lender may reasonably require.
50 DISBURSEMENT OF THE LOAN.
------------------------
5.1 Conditions Precedent. In addition to the other conditions
set forth herein, the obligation of Lender to make the initial and each
subsequent disbursement of the Loan under this Agreement shall be
conditioned upon and subject to the payment to Lender of all loan fees
then owing from Borrower to Lender and to satisfaction of all of the
following conditions:
(a) All representations and warranties contained in
this Agreement and in the other Loan Documents shall be true
in all material respects on and as of the date of such
disbursement.
(b) Borrower shall have performed all of its
obligations under all Loan Documents which are required to be
performed on or prior to the date of such disbursement.
(c) The Loan shall not be "out of balance" as
determined under Section 5.9 below, and the disbursement shall
not cause the Loan to be "out of balance."
(d) There shall be no material adverse change in the
financial condition of Borrower as reasonably determined by
Lender.
(e) No Event of Default shall have occurred that has
not been waived in writing by Lender, and no Unmatured Default
shall then exist.
5.2 Conditions Precedents for Disbursements after the Initial
Loan Advance. In addition to all of the other conditions set forth
herein, the obligation of Lender to make each subsequent disbursement
of the Loan under this Agreement shall be conditioned upon and subject
to the satisfaction of all of the following conditions:
(a) Borrower and Seller shall execute and deliver to
the Title Company a Deed of Trust for the benefit of Lender
(the "Seller Mortgage"), in form and substance reasonably
acceptable to Lender for each Parcel that Seller is the fee
simple title holder and which Borrower has exercised its right
to purchase
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pursuant to the Option Agreement. Notwithstanding anything to
the contrary, after the Seller Mortgage is recorded with the
Register of Deeds for Moore County, North Carolina, Borrower
and Seller may execute and deliver to the Title Company,
amendments to the Seller Mortgage, in form and substance
reasonably acceptable to Lender adding each new Parcel to the
legal description of the Seller Mortgage.
(b) An ALTA Construction Loan Policy of Title
Insurance ("Seller Mortgage Title Policy") issued by the Title
Company in the full amount of the Note insuring that the
Seller Mortgage will be a first priority lien upon the fee
simple title to each new Parcel to the extent of advances made
by Lender from time to time under this Agreement, subject to
no liens, claims, exceptions or encumbrances except the
Permitted Exceptions and containing endorsements reasonably
required by Lender from time to time (the Seller Mortgage
Title Policy, Permitted Exceptions and required endorsements
are more fully described on Exhibit C attached hereto).
(c) Prior to any second disbursement for any Unit,
Borrower shall deliver to Lender and the Title Company a
boundary survey for such Unit's Parcel.
(d) Copies of all recorded documents described in the
Seller Mortgage Title Policy pertaining to each new Parcel.
(e) Opinion letter from Robbins, May & Rich, LLP,
legal counsel for Borrower and Seller opining to the authority
of each party to execute, deliver and perform its obligations
under the Seller Mortgage, to the validity and binding effect
of the Seller Mortgage and to such other matters as Lender and
its counsel shall reasonably require.
(f) Such other assignments, certificates, opinions
and other documents, instruments and information affecting or
relating to Lender's interest in the Project or the use,
operation, development or construction of the Project as
Lender may reasonably require.
5.3 Use of Loan Proceeds; Inspections of the Work. The
proceeds of the Loan disbursed to Borrower shall be used by Borrower
solely for the purpose of paying (or reimbursement to others for
payment of) items of Project Cost actually incurred by Borrower, and,
in connection therewith, no Project Cost shall include expenses
relating to any development, construction, operating or other cost
attributable to any project other than the Project specifically
described in this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, all inspections of the Work made by Lender,
the Consultant or their respective agents, employees and designees
shall be solely for Lender's own information and shall not be deemed to
have been made for or on account
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of Borrower or any other party. Borrower hereby specifically relieves
Lender of any and all liability or responsibility relating in any way
whatsoever to the construction of the Project, including but not
limited to, the work thereat, the material or labor supplied in
connection therewith, and any errors, inconsistencies or other defects
in the Project or the Plans and Specifications.
5.4 Disbursement Requests.
---------------------
(a) Borrower shall request and Lender shall be
required to make disbursements of the Loan not more frequently
than once each calendar month per Loan. Lender shall not be
required to make more than five disbursements in connection
with the construction of any one Unit. Lender may at any time
take such action as it deems appropriate to verify that the
conditions precedent to each disbursement have been satisfied,
including, without limitation, verification of any amounts due
under the Construction Contract or any Subcontract. Borrower
agrees to cooperate with Lender in any such action. If in the
course of any such verification, any amount shown on any
contract or subcontract entered into for the performance of
any portion of the Work, or any application for payment, sworn
statement or waiver of lien is subject to a possible
discrepancy, such discrepancy shall be eliminated by Borrower
to Lender's satisfaction. Each request for disbursement shall
be made by a letter from the chief financial officer of
Borrower, addressed to Lender, specifying in detail the amount
and mode of each disbursement, and accompanied by the
following, all in form and substance satisfactory to Lender:
(i) An Owner's Sworn Statement and
disbursement request;
(ii) A Contractor's Application for Payment
and Sworn Contractor's Statement from Contractor, and
a statement of a duly authorized officer of
Contractor that all items of construction cost have
been incorporated into the Project in accordance with
the Plans and Specifications, together with waivers
of lien with respect to the current disbursement and
all previous disbursements from Contractor and all
subcontractors and materialmen to whom payment is to
be made, as are required by the Title Company as a
condition to issuing the date-down endorsements
described in subparagraph (b) below;
(iii) An inspection report of the Consultant
certifying the percentages of completion of the
components of the Work and setting forth the amount
authorized for disbursement and such other matters as
Lender may require (including compliance with the
Plans and Specifications). It is understood and
agreed by Borrower that any and all inspections of
the Work made by Lender, the Consultant or their
respective agents, employees and/or designees shall
be solely for Lender's
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own information and shall not be deemed to have been
made for or on account of Borrower or any other
party, and that Lender shall have no liability or
responsibility relating in any way whatsoever to the
construction of the Project, including, but not
limited to, the work thereon, the material or labor
supplied in connection therewith, and any errors,
inconsistencies or other defects in the Plans and
Specifications.
(iv) Such other documents, assignments,
certificates and opinions as are required by the
Title Company, or as may be reasonably required by
Lender.
(b) Notwithstanding anything contained in this
Agreement to the contrary, Lender shall not be required to
make any disbursement of the Loan pursuant to this Agreement
until the Title Company is unconditionally prepared to issue
endorsements to the Title Policies, updating the same to the
date of such disbursement and increasing the amount of
coverage (including mechanic lien coverage) thereunder to the
aggregate outstanding principal balance of the Loan (taking
into account the then current disbursement), and insuring the
lien of the Mortgage and the Seller Mortgage to be superior to
all defects in title other than the Permitted Exceptions and
other exceptions hereafter approved by Lender in writing.
(c) No disbursement of any amount shown in a Budget
as a contingency reserve shall by made without Lender's
approval with respect to the type and amount of the requested
expenditure, which approval shall not be unreasonably
withheld.
5.5 Certifications, Representations and Warranties. Each
request for disbursement by Borrower shall constitute (a) Borrower's
certification that the representations and warranties contained in
Article 6 below are true and correct in all material respects as of the
date of such request, (b) Borrower's certification that Borrower is in
compliance with the conditions contained in this Article 5, and (c)
Borrower's representation and warranty to Lender, with respect to the
Work, materials and other items for which payment is requested that (i)
such Work and materials have been incorporated into the Project, free
and clear of liens and encumbrances, (ii) the value thereof is as
estimated therein, (iii) such Work and materials substantially conform
to the Plans and Specifications, this Agreement and all Applicable
Laws, and (iv) the requisitioned value of such Work and materials and
the amounts of all other items of cost for which payment is requested
by Borrower have theretofore been in fact paid for in cash by Borrower
or the same are then due and owing by Borrower and (unless Lender
disburses funds directly to the parties performing the Work or to the
Title Company) will in fact be paid in cash by Borrower within five
days after Borrower's receipt of the requested disbursement. Neither
review nor approval by Lender of requests for disbursement or any
information contained therein or any other information provided to
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Lender in accordance with the other provisions of this Article 5 shall
constitute the acceptance or approval by Lender of any portion of the
Work.
5.6 Amount of Disbursements; Retainage. Subject to the other
conditions and limitations set forth herein, the amount of each
disbursement shall be the amount requested by Borrower; provided,
however, that (a) Lender shall have the right to retain 10% of each
"hard cost" item of Project Cost (other than amounts requested for
payment to suppliers of materials who have either fully delivered all
materials or delivered such portion thereof whereby it is reasonable
and necessary to fully pay for such materials)(the "Retainage"), which
Retainage shall be disbursed in accordance with the provisions of
Section 5.11 below, and (b) in no event shall Lender be obligated to
disburse for any item an amount in excess of the amount allocated for
such item pursuant to the Budget, including any Reserve set aside
specifically for such item as provided in Section 5.8 below.
5.7 Costs. For purposes of this Agreement, including without
limitation, Section 5.3 hereof, (a) the cost of labor and material
furnished for the Work shall be deemed to be incurred by Borrower when
the labor and material have been incorporated into the Project and the
payment therefor is due and payable, (b) the cost of services (other
than labor included in the Work) shall be deemed to be incurred by
Borrower when the services are actually rendered and the payment
therefor is due and payable, (c) real estate taxes, interest and
insurance premiums shall be deemed to be incurred by Borrower when such
items become due and payable, and (d) any other costs shall be deemed
to be incurred by Borrower when the payment therefor is due and
payable, but not before the value to be received in return for such
cost has been received by Borrower.
5.8 Reserves. In addition to any reserves for specific line
items that are already established in the Budget, Lender may establish
and set aside out of the undisbursed proceeds of the Loan, reserves
(collectively, the "Reserves") in such amounts as may be reasonably
estimated by Lender from time to time to provide for payment of the
items of Project Cost as the same may accrue or become payable prior to
the repayment in full of the Loan. Amounts set aside as Reserves shall
not be available for disbursement to Borrower for any purpose other
than payment of the item or group or items for which the Reserve was
established. Based upon the facts then available to Lender, Lender may
adjust and reallocate the amount of any Reserve from time to time.
Items for which Reserves may be established shall include (i) Loan
Expenses, (ii) interest on the Loan, (iii) real estate taxes and
assessments, (iv) premiums on insurance policies and bonds (if any)
required to be furnished by Borrower hereunder (v) professional fees
and (vi) promotion and sale costs.
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5.9 Loan In Balance.
---------------
(a) At all times prior to repayment of the Loan in full, (i)
the undisbursed proceeds from the Loan allocated to each line item in
the Budget (the aggregate amount of such proceeds being hereinafter
referred to as the "Available Proceeds") must be sufficient, in
Lender's reasonable determination, to pay the unpaid costs and expenses
that will be incurred to complete such item, and (ii) the aggregate
Available Proceeds must be sufficient, in Lender's reasonable
determination, to pay all Project Costs remaining unpaid and all
operating, management and other expenses of the Project through the
projected date on which all of the Units for which construction of
Improvements have commenced will be sold, as such date is determined by
Lender from time to time.
(b) If Lender determines that (i) the costs and expenses to
complete a Unit exceeds the amount allocated therefor, or (ii) the
Project Costs remaining unpaid and all estimated operating, management
and other expenses of the Project through the projected date on which
all of the Units for which construction of Improvements have commenced
will be sold, as such date is determined by Lender from time to time,
exceed the sum of the Available Proceeds, then the Loan shall be deemed
"out of balance" to the extent of such excess.
(c) If Lender deems the Loan to be out of balance as
aforesaid, Borrower shall, within five days after written request by
Lender, deposit with Lender an amount equal to the excess amount or
amounts determined pursuant to subparagraph (b) above of this Section.
The sums thus deposited with Lender will be disbursed by Lender to
complete the Work prior to any further disbursement of Loan proceeds
(or, if the Work has been completed, to the repayment of the
outstanding principal balance of the Loan). If such deposit is not made
within such time, an Event of Default shall be deemed to have occurred.
No interest shall be payable to Borrower on the amounts so deposited.
5.10 Application of Disbursements.
----------------------------
(a) Lender shall make each requested disbursement of the Loan
within ten days after all of the conditions precedent to such
disbursement set forth in this Article have been satisfied (including
delivery of all documentation required under Sections 5.2 and 5.4
above), except that Lender, in its discretion, may make payments of
Project Cost directly to the person or entity Lender determines is
entitled to such payment or jointly to Borrower and such person or
entity.
(b) Notwithstanding the foregoing, Lender shall not be
responsible, liable or obligated to the contractors, subcontractors,
suppliers, materialmen, laborers, architects, engineers, or any other
parties, for services or work performed, or for goods delivered by them
or any of them, in and upon the Land or employed directly or indirectly
in the performance of the Work, or for any debts or claims whatsoever
accruing in favor of any
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such parties and against Borrower or others, or against the Project. It
is expressly understood and agreed that Borrower is not and shall not
be an agent of Lender for any purpose whatsoever. Without limiting the
generality of the foregoing, advances made at Lender's option, directly
to any contractor, subcontractor or supplier of labor or materials, or
any other party, shall not be deemed a recognition by Lender of any
third party beneficiary status of any such person or entity.
(c) Borrower covenants and agrees that it shall receive all
advances of Loan proceeds to be made hereunder by Lender as a trust
fund and that Borrower shall withdraw and use said funds solely for the
payment of the bills for the labor and materials used in the
performance of the Work for which such Loan funds were requested by
Borrower, and for the payment of the other items of Project Cost for
which such Loan proceeds were requested by Borrower, and for no other
purpose whatsoever; however, nothing herein shall impose upon Lender
any obligation whatsoever to see to the proper application of any such
monies by Borrower.
(d) Whenever so requested by Lender, Borrower shall promptly
furnish Lender written evidence reasonably satisfactory to Lender that
all monies theretofore advanced by Lender pursuant to this Agreement
have actually been paid or applied in payment of the cost of
performance of the Work and in payment of the other items of Project
Cost for which such funds were advanced by Lender, and until such
evidence is produced, at the option of Lender, no future or additional
payments or advances of a Loan funds need be made hereunder.
5.11 Release of Retainage. Retainage(s) shall be released as
follows:
(a) Retainage on any Subcontract shall be released within
thirty days after such Subcontract has been fully performed and the
following conditions have been satisfied:
(i) Borrower has delivered final and unconditional
waivers of lien from the subcontractor whose individual
Subcontract has been fully performed to the Title Company with
copies to Lender;
(ii) All conditions precedent to disbursement of
proceeds of the Loan as set forth in this Agreement have been
fully satisfied; and
(iii) Lender has received a certificate in writing
signed by a duly authorized officer of Contractor certifying
that the Work provided for in the Subcontract has been fully
and satisfactorily completed in accordance with the Plans and
Specifications, and in compliance with all Applicable Laws,
and the Consultant has approved all such Work.
20
<PAGE>
(b) Final disbursement of construction retainages to the
Contractor for the Work not previously released shall be made upon
satisfaction of the following conditions in addition to satisfaction of
the other conditions precedent for disbursement of proceeds of the Loan
by Lender:
(i) Borrower has delivered to Lender a certificate in
writing signed by a duly authorized officer of the Contractor
certifying that all obligations of the Contractor under the
Construction Contract and all obligations of the
subcontractors under the Subcontracts have been fully
performed, and that the construction of the Work has been
completed in all respects in accordance with the Plans and
Specifications and the use and occupancy of the Project is
permitted under all Applicable Laws;
(ii) If requested by Lender, Lender shall have
received a certificate in writing signed by the Consultant
certifying that the construction of the Work has been
completed in all respects in accordance with the Plans and
Specifications and the use and occupancy of the Project is
permitted under all Applicable Laws;
(iii) Borrower has delivered to Lender all applicable
licenses or permits necessary for the use of the Project,
including without limitation, a final, unconditional
certificate of occupancy for each Unit as final disbursement
of retainage is made for such Units;
(iv) Borrower has delivered to Lender original
policies of fire and extended coverage insurance as herein
required, with Lender named as mortgagee and as an additional
insured party and loss payee;
(v) The Title Company is unconditionally prepared to
issue its final updated Title Policies, subject only to the
Permitted Exceptions and other exceptions approved by Lender
in writing, and containing full coverage against all
mechanics' liens and such other endorsements as are required
under Section 4.5 above, as modified by the requirements under
Section 5.2 above;
(vi) Borrower has delivered to the Title Company and
Lender final and unconditional waivers of lien from the
Contractor and all subcontractors and materialmen who have
supplied labor or material in connection with the Work and who
have not previously submitted such final waivers.
5.12 Additional Loan Limitations.
(a) At no time shall more than seven Spec Units be
under construction. At no time shall more than two Model Units
be under construction.
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(b) Borrower shall not commence construction of a
Unit if the then unpaid hard and soft costs that will be
incurred to complete the construction and sale of such Unit,
as determined by Lender in its sole and absolute discretion,
exceeds the undisbursed portion of the Loan allocated to such
construction and sale.
6. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to
execute this Agreement and to make the Loan, Borrower represents and warrants to
Lender as follows:
6.1 Borrower. Borrower is a duly formed limited liability
company under the laws of the State of Delaware, validly existing, in
good standing and fully qualified to do business in the State of North
Carolina. The Limited Liability Company Operating Agreement dated as of
December 12, 1997, creating Borrower and the Certificate of Formation
of Borrower, copies of which have been furnished to Lender, are in
effect, unamended and is the true, correct and complete documents
relating to Borrower's creation and governance. Borrower, Sole Member
and their affiliates have fully complied with all applicable securities
and other laws and regulations in connection with the formation of
Borrower and the sale and offer for sale of interests therein.
6.2 Sole Member. Sole Member is a duly formed general
partnership validly existing and in good standing in the State of North
Carolina and has full power and authority to execute and deliver the
Loan Documents and to perform its obligations hereunder and thereunder.
Heartland Partners, L.P., a Delaware limited partnership and Heartland
are the sole general partners of Member. The Amended and Restated
Partnership Agreement dated as of June 27, 1990 creating Sole Member, a
copy of which has been furnished to Lender, is in effect, unamended and
is the true, correct and complete documents relating to Sole Member's
creation and governance. Sole Member has fully complied with all
applicable securities and other laws and regulations in connection with
the formation of Sole Member and the sale and offer for sale of
interests therein.
6.3 Heartland. Heartland is a duly formed corporation under
the laws of the State of Delaware, validly existing, in good standing
and fully qualified to do business in the State of Illinois. The
articles of incorporation and by-laws of Heartland, copies of which
have been furnished to Lender, are in effect, unamended, and are the
true, correct and complete documents relating to Heartland's creation
and governance.
6.4 Title. Seller owns good and marketable fee simple title to
the Real Property, subject to Borrower's interest in the Real Property
pursuant to the Option Agreement. Borrower owns all of the Personal
Property. The Real Property and the Personal Property are owned free
and clear of all liens, claims and encumbrances, except the Permitted
Exceptions.
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6.5 Improvements. Subject to the terms and conditions
contained in this Agreement, Borrower intends to improve the Land with
the Improvements. The Work will be performed in accordance with the
provisions of the Plans and Specifications and the Budget and all of
the other requirements of this Agreement.
6.6 Validity and Enforceability of Documents. Upon the
execution and delivery of the Loan Documents, the Loan Documents shall
be valid and binding upon the parties that have executed the same in
accordance with the respective provisions thereof, and enforceable in
accordance with the respective provisions thereof, subject only to
applicable bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditor's rights. Execution,
delivery and performance of the Loan Documents do not and will not
contravene, conflict with, violate or constitute a default under any
Applicable Law or any agreement, indenture or instrument to which the
Borrower, Sole Member, Contractor or Seller is a party or is bound or
which is binding upon or applicable to the Property or any portion
thereof.
6.7 Litigation. There is not any condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claims or demand
pending or, to the best of Borrower's knowledge after due inquiry,
threatened affecting Borrower, Sole Member, Contractor or Seller or the
Property, or involving the validity or enforceability of the Loan
Documents or involving any risk of a judgment or liability which, if
satisfied, would have an adverse effect on the financial condition,
business or properties of Borrower, Sole Member, Contractor or Seller
or the priority of the lien of the Mortgage or Seller Mortgage, or
which would prevent Borrower, Contractor or Seller from complying with
or performing its obligations under this Agreement, the Note or any of
the other Loan Documents within the time limits set forth therein for
such compliance or performance and no basis for any such matter exists.
6.8 Utilities; Authorities. All utilities necessary for use,
operation and occupancy of the Property (including, without limitation,
water, storm sewer, sanitary sewer and drainage, electric, gas and
telephone facilities) are available at the boundaries of the Land (or
in the streets adjoining the Land), and all requirements for the use of
such utilities have been fulfilled. All building, zoning, safety,
disabled persons, health, fire, water district, sewerage and
environmental protection agency permits and other licenses and permits
which are required by any governmental authority for the use, occupancy
and operation of the Property have been obtained by or furnished to
Borrower and are in full force and effect or will be obtained by and
maintained in full force and effect by Borrower when and as required by
any governmental authority.
6.9 Solvency. Borrower is solvent and able to pay its debts as
such debts become due, and has capital sufficient to carry on its
present business transactions. The value of Borrower's property, at a
fair valuation, is greater than the sum of its debts. Borrower is not
bankrupt or insolvent. Borrower has not made an assignment for the
23
<PAGE>
benefit of its creditors. There has been no trustee or receiver
appointed for the benefit of Borrower's creditors and there has been no
bankruptcy, reorganization or insolvency proceedings instituted by or
against Borrower. Borrower will not be rendered insolvent by its
execution, delivery or performance of the Loan Documents or by the
transactions contemplated thereunder.
6.10 Financial Statements. All financial statements submitted
to Lender relating to Borrower, its affiliates, and the Property are
true, complete and correct, and have been prepared in accordance with
sound accounting principles consistently applied and fairly present the
financial condition of the Person to which they pertain and the other
information therein described and do not contain any untrue statement
of a material fact or omit to state a fact material to the financial
statement submitted or this Agreement. No material adverse change has
occurred in the financial condition of Borrower, any of its affiliates,
or the Property since the dates of each such financial statements.
6.11 Compliance with Laws. The use, occupancy and operation of
the Property for its intended purposes is not in violation any
Applicable Laws, any contractual arrangements with third parties or any
covenants, conditions, easements, rights of way or restrictions of
record. Neither Borrower nor any agent thereof has received any notice,
written or otherwise, alleging any such violation, which violation has
not previously been cured. The Property is in full compliance and
conformity with all zoning requirements, and will not be a
non-conforming or special use. No right to any off-site facilities will
be necessary to insure compliance by the Property with all Applicable
Laws.
6.12 Construction Contract. Pursuant to the Construction
Contract, the Contractor has agreed to construct the Work. The
Construction Contract is in full force and effect, unamended, and no
default exists thereunder by either party thereto. In the event of any
conflict between the terms of the Construction Contract, other
Subcontracts and this Agreement or any other Loan Document, Borrower
shall abide by and shall cause the Contractor to act in accordance with
the provisions of the Loan Documents.
6.13 Subcontracts. Borrower has delivered to Lender true,
complete and correct copies of all Subcontracts that have been entered
into prior to the date hereof. The Subcontracts that have been entered
into prior to the date hereof are in full force and effect, unamended,
and no default exists thereunder by any party thereto.
6.14 Plans and Specifications. Borrower has delivered to
Lender true, complete and correct copies of all of the plans and
specifications listed in Exhibit D attached hereto and the plans and
specifications listed in Exhibit D are the Plans and Specifications
which have been approved by Lender.
6.15 Budget. The Budget is a true, complete and correct budget
with respect to the costs of the Work (including both hard costs and
soft costs associated therewith).
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6.16 Financing Statements. There are no UCC financing
statements in effect other than those to be filed and/or recorded by
Lender which name Borrower as debtor and pertaining to any rights in
any of the Personal Property.
6.17 Event of Default. No Event of Default has occurred, and
no Unmatured Default exists.
6.18 Responsible Property Transfer Act. To the best of
Borrower's knowledge, there are no facilities on the Real Estate that
are subject to reporting under Section 312 of the federal Emergency
Planning and Community Right-To-Know Act of 1986, 43 U.S.C. Section
11022, and federal regulations promulgated thereunder. To the best of
Borrower's knowledge, the Real Estate does not contain any underground
storage tanks.
6.19 Additional Agreements. Except for the Additional
Agreements listed in Exhibit F attached hereto, true and correct copies
of which have been furnished to Lender, there are no leases,
management, leasing, development or other agreements in existence that
affect the Property.
All representations and warranties which have been made by Borrower in
this Agreement or the other Loan Documents shall be true in all
respects at the time of each disbursement of the Loan, and in the event
of any material breach, misrepresentation or omission, Lender shall
have the absolute right to terminate its obligations under this
Agreement (without any obligation to refund any loan or other fees
previously paid), and upon demand by Lender, Borrower shall reimburse
Lender for the Loan Expenses, and Lender shall be entitled to recover
from Borrower all losses and damages resulting therefrom.
7. BORROWER'S COVENANTS.
--------------------
7.1 Manner of Construction. Borrower shall, at its sole cost
and expense, cause the construction of the Project to be diligently and
expeditiously carried out, in a good and workmanlike manner, in
accordance with the Plans and Specifications and all Applicable Laws.
All materials, fixtures, equipment or articles used in the renovation,
construction or equipping of the Project shall comply with the Plans
and Specifications.
7.2 Compliance with Laws. Borrower shall comply or cause
compliance with all Applicable Laws governing the construction,
development, use and operation of the Project and the development,
operation and sale of the Units. Evidence of such compliance shall be
submitted to Lender on request.
7.3 Inspection. Upon reasonable prior written or oral notice
(which shall not be required in the event of an emergency), Borrower
shall permit inspection of the Property by Lender, the Consultant and
any other agent or designee of Lender. In addition, upon reasonable
prior written or oral notice (which shall not be required in the event
of an emergency), Borrower shall permit Lender and/or its agents and
designees
25
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access to and the right to inspect, audit and copy all books, records,
contracts and other documents and information relating to Borrower or
the Property. Lender shall use reasonable efforts to keep confidential
all information and documentation obtained by Lender in connection with
such audits and inspections, except to the extent that Lender
determines, in its reasonable discretion, a need to disclose same;
provided, however, under no circumstances shall Lender have any
liability to Borrower in the event of an unintentional disclosure or
disclosure deemed necessary by Lender. All such books, records and
accounts of operations relating to the Property shall be kept in
accordance with sound accounting practices consistently applied.
Borrower shall promptly respond to any inquiry from Lender for
information with respect to the Property, which information may be
verified by Lender at Borrower's expense; provided, however, that
Lender shall at all times be entitled to rely upon any statements or
representations made by Borrower or any agent thereof.
7.4 Mechanics' Liens. Borrower shall not permit any mechanics'
lien claims to be filed or otherwise asserted against the Property or
against any funds due any contractor or subcontractor, and Borrower
shall promptly (and in any event within fifteen days after Borrower has
received notice of such filing) discharge or cause to be discharged the
same in case of the filing of any claims for lien or proceedings for
the enforcement thereof; provided that in connection with any such lien
or claim which Borrower may in good faith desire to contest, Borrower
may contest the same by appropriate legal proceedings diligently
prosecuted, but only if Borrower shall furnish to the Title Company
such security or indemnity as the Title Company requires to induce the
Title Company to issue endorsements to the Title Policies insuring over
the exception created by such lien, and provided further, that Lender
shall not be required to make any further disbursements of a Loan until
any mechanics' lien claims have been so insured against by the Title
Company.
7.5 Release by Lender. With respect to the matters set forth
in Section 7.4 above, if Borrower shall (a) fail promptly to discharge
any asserted liens or claims, or (b) fail promptly to contest asserted
liens or claims or to give security or indemnity in the manner provided
in Section 7.4 above, or (c) having commenced to contest the same, and
having given such security or indemnity, fail to prosecute such contest
with diligence, or to maintain such indemnity or security so required
by the Title Company for its full amount, or (d) upon adverse
conclusion of any such contest, fail promptly to cause any judgment or
decree to be satisfied and lien to be released, then Lender may, but
shall not be required to, procure the release and discharge of any such
claim and any judgment or decree thereon and, further, may, in its sole
discretion, effect any settlement or compromise of the same, or may
furnish such security or indemnity to the Title Company, and any
amounts so expended by Lender, including premiums paid or security
furnished in connection with the issuance of any surety company bonds,
shall be deemed to constitute disbursements of the proceeds of the Loan
hereunder and shall bear interest from the date so disbursed until paid
at the Default Rate. In settling, compromising or
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<PAGE>
discharging any claims for lien, Lender shall not be required to
inquire into the validity or amount of any such claim.
7.6 Financial Statements; Reports. Borrower shall deliver or
cause to be delivered to Lender each month, a detailed report showing
the progress of the Work, the number of reservation deposits for Units
made, if any, and the number of sales contracts for Units entered into
by Borrower during the immediately preceding month, if any, and the
status of all reservation deposits and sales contracts entered into
prior thereto, if any. In addition to such progress reports and any
other financial statements required to be delivered to Lender pursuant
to the provisions of any of the other Loan Documents, Borrower will
from time to time furnish to Lender such information and reports,
financial and otherwise, concerning Borrower, the performance of the
Work and the operation of the Project as Lender reasonably requires,
including, without limitation, the following:
(a) Within ninety days after the end of each calendar
year, compiled financial statements of the Property on a form
acceptable to Lender, setting forth the information therein
required as of December 31 of the immediately preceding year,
containing income and expense statements and a balance sheet.
The financial statements shall be prepared by Borrower in
accordance with generally accepted accounting principles
consistently applied and shall be certified by the chief
financial officer of Borrower as fairly and accurately
presenting the information contained therein.
(b) Within ninety days after the end of each calendar
year, financial statements and the federal and state income
tax returns for Borrower, such financial statements to be on
Lender's standard form or another form acceptable to Lender,
setting forth the information therein required as of December
31 of the immediately preceding year, and certified by
Borrower as fairly and accurately presenting the information
contained therein.
(c) Within ninety days after the end of each calendar
year, detailed cash flow statements for the preceding calendar
year, on a form acceptable to Lender, for all income producing
properties listed on the financial statements of Borrower,
certified by the chief financial officer of Borrower, as
applicable, as fairly and accurately presenting the
information contained therein.
7.7 Affirmation of Representations and Warranties. Borrower
agrees that all representations and warranties of Borrower contained in
Article 6 hereof shall remain true in all material respects at all
times until the Loan is repaid in full.
7.8 Title. Except for (i) the Mortgage, the Seller Mortgage
and other security for the Loan, (ii) the lien of general real estate
taxes payment of which is not yet due, (iii) mechanics' liens which are
contested in the manner permitted in Paragraph 7.4 above, and (iv) any
other Permitted Exceptions, Borrower shall keep its fee simple title to
the
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Project and shall cause Seller to keep its fee simple title to the
Project free and clear of all liens, claims and encumbrances, whether
senior or junior to or at parity with the Mortgage and Seller Mortgage.
7.9 Proceedings Affecting Property. If any proceedings are
filed seeking to enjoin or otherwise prevent or declare invalid or
unlawful the occupancy, use, maintenance or operation of the Property,
or any portion thereof, Borrower shall cause such proceedings to be
vigorously contested in good faith, and in the event of an adverse
ruling or decision, prosecute all allowable appeals therefrom, and
shall, without limiting the generality of the foregoing, resist the
entry or seek the stay of any temporary or permanent injunction that
may be entered, and use its best efforts to bring about a favorable and
speedy disposition of all such proceedings. All such proceedings,
including without limitation, all of Lender's costs, and fees and
disbursements of Lender's counsel in connection with any such
proceedings, whether or not Lender is a party thereto, shall be at
Borrower's expense. To the extent that Lender incurs any such expenses,
including attorneys' fees and fees and charges for court costs, bonds
and the like, Borrower shall reimburse Lender for such expenses and the
amount due Lender shall bear interest from the date so incurred by
Lender until repaid to Lender at the Default Rate and shall be payable
to Lender on demand.
7.10 Disposal and Encumbrance of Property. Except as expressly
permitted pursuant to Article 12 below, Borrower shall not and shall
cause Seller not to, without Lender's prior written consent, suffer,
permit or enter into any agreement for any sale, lease, transfer, or in
any way encumber or dispose of or grant or suffer any security or other
assignment (collateral or otherwise) of or in all or any portion of the
Project. Any consent given by Lender or any waiver of default under
this Section, shall not constitute a consent to, or waiver of any
right, remedy or power of Lender under any subsequent default
hereunder.
7.11 Insurance. Borrower shall pay all premiums on all
insurance policies required from time to time under this Agreement, and
thirty days prior to expiration of any such policies, Borrower shall
furnish to Lender, with premiums prepaid, additional and renewal
policies in form, and with companies, coverage, deductibles and amounts
satisfactory to Lender. In the event of failure by Borrower to provide
such insurance, Lender may, but shall not be required to, place
insurance and treat the amounts expended therefor as disbursements of
Loan proceeds and such amounts from the date so expended by Lender
until repaid to Lender shall bear interest at the Default Rate.
7.12 Performance of Obligations; Notice of Default. Borrower
shall promptly and fully perform and comply in all respects with the
obligations, terms, agreements, provisions and requirements of this
Agreement and the other Loan Documents and all other documents and
instruments relating thereto and will not permit to occur any default
or breach hereunder or thereunder. Borrower shall promptly give to
Lender notice of the occurrence of any Unmatured Default or of any
event that could have a material adverse
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effect on any security for the Loan or on Borrower's ability to perform
its obligations under this Agreement or any of the other Loan
Documents.
7.13 Subcontracts. Within ten days after being executed,
Borrower shall deliver to Lender a copy of each Subcontract entered
into by the Contractor.
7.14 Restrictions Affecting Borrower. Borrower covenants and
agrees that, without the prior written consent of Lender, there shall
not occur: (i) any amendment or modification of the Borrower's
operating agreement or the certificate of formation of Borrower, and
(ii) the admission of any new members to Borrower. At all times prior
to the repayment of the Loan, (A) the Sole Member shall be the sole
member of Borrower; (B) Borrower shall not make or permit any
distributions of cash flow or cash proceeds to Sole Member or any
partner, subpartner, member, shareholder, officer, director or
affiliate of Borrower or Sole Member and all positive cash flow from
the Project shall be paid to Lender and applied to the repayment of the
Principal Balance; (C) Borrower shall not enter into any contract or
agreement for the provision of services or otherwise with respect to
the Project with any partner, subpartner, member, shareholder, officer,
director or affiliate of any partner of Borrower or Sole Member unless
such contract or agreement is an arms-length, market rate agreement and
is cancelable upon thirty days written notice from any owner of the
Project; (D) neither Borrower nor Sole Member shall be dissolved or its
existence terminated; and (E) Borrower shall not own any other real
property other than the Project.
7.15 Use of Receipts. Borrower shall cause all rents and other
income and receipts realized and received by Borrower, if any, from and
in connection with the Project to be used for the purpose of paying the
actual costs and expenses incurred by Borrower in connection with the
ownership, operation, management and repair of the Project, including
without limitation, operating expenses, real estate taxes, insurance
premiums and interest and principal owing on the Loan.
7.16 Management and Leasing Agreements; Subordination.
Borrower shall not amend, extend, substitute or enter into any new
management or leasing agreement covering all or any portion of the
Property without Lender's prior written consent. In the event that
Lender grants such consent, Borrower shall cause the tenant, property
manager or leasing broker under said agreement to enter into an
agreement with Lender, acceptable in form and substance to Lender,
pursuant to which said tenant, property manager or broker subordinates
its liens for unpaid fees to the liens of the Mortgage and the other
Loan Documents.
7.17 Additional Documents. Borrower shall not execute or
record any document pertaining to, affecting or running with all or any
portion of the Property without the prior written approval of Lender of
the form and substance of such documents, which approval shall not be
unreasonably withheld.
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7.18 Sale to Investors. Without the prior written consent of
Lender, which consent may be granted or denied at Lender's sole
discretion, Borrower shall not knowingly sell any Units to investors or
syndicators who are acquiring such Units with the intent to resell
them.
7.19 Survey. Within thirty days subsequent to the completion
of the foundation of each Unit and as a condition to any subsequent
disbursement by Lender, the Survey shall be updated to show the
location of such foundation; that such foundation is within all
applicable lot, side, rear and set-back lines; and that there are no
encroachments by the improvements over easements or adjoining property.
Within thirty days subsequent to the completion of the exterior walls
and roof of each Unit and as a condition to any subsequent disbursement
by Lender, the Survey shall be updated to show such Unit "as built" and
to show the location of all utilities and any additional easements or
other matters of record affecting the Project.
8. LOAN EXPENSES. Borrower agrees to pay all of the Loan Expenses. Any
Loan Expenses paid by Lender shall bear interest commencing on the date demand
for repayment thereof is made by Lender until repaid to Lender at the Default
Rate and shall be paid by Borrower upon demand, or may be paid by Lender at any
time and shall be deemed a disbursement of proceeds of the Loan. Any Loan
Expenses paid by Lender shall be reimbursed to Lender by Borrower regardless of
whether there shall be any disbursements of the Loan.
9. LENDER'S REPRESENTATIVES. Lender, at Borrower's expense, shall have
the right to engage personnel in connection with negotiation, documentation,
administration and servicing of the Loan, including without limitation, the
Consultant, to (i) review and approve the Plans and Specifications, (ii) review
and approve Borrower's final construction budgets, (iii) conduct monthly
inspections of the Work and report on the progress of construction thereof, (iv)
review and approve all change orders, (v) review and approve applications for
disbursements and accompanying documents, (vi) issue reports and certificates to
Lender, (vii) determine whether the Work has been completed in accordance with
the Plans and Specifications, and (viii) provide other services as requested by
Lender, and Borrower shall fully cooperate with the Consultant and other
personnel in all reasonable respects in connection therewith.
10. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default":
(a) Failure by Borrower or any other obligor to pay on or
before the fifth day following the date when due any installment of
principal or interest or any other amount payable pursuant to the Note,
this Agreement or any of the other Loan Documents.
(b) Failure by Borrower to promptly perform or cause to be
performed any non-monetary obligation or observe any non-monetary
condition, covenant, term, agreement or provision required to be
performed or observed by Borrower under this Agreement, the Note or any
of the other Loan Documents; provided, however, that if
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such failure by its nature can be cured, then so long as the continued
operation and safety of the Property, and the priority, validity and
enforceability of the lien created by the Mortgage or any of the other
Loan Documents and the value of the Property are not imminently
impaired, threatened or jeopardized, then Borrower shall have a period
(the "Cure Period") of thirty days after written notice from Lender of
any such failure of performance or observance to cure or cause the cure
of the same, and an Event of Default shall not be deemed to exist
during the Cure Period, provided further that if Borrower commences to
cure such failure during the Cure Period and is diligently and in good
faith attempting to effect such cure, the Cure Period shall be extended
until such failure is cured, but in no event shall the Cure Period be
longer than 90 days in the aggregate.
(c) Failure by Borrower to promptly perform or cause to be
performed any obligation, or observe any condition, covenant, term,
agreement or provision required to be performed or observed by Borrower
under the Option Agreement beyond any applicable cure period for
Borrower.
(d) The existence of any material inaccuracy or untruth in any
representation, or warranty contained in this Agreement or any other
Loan Documents, or of any statement or certification as to facts
delivered to Lender by or on behalf of Borrower.
(e) At any time Borrower or Seller files a voluntary petition
in bankruptcy, or is adjudicated a bankrupt or insolvent, or institutes
(by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, composition,
readjustment, dissolution, liquidation or similar proceedings under any
present or future federal, state or other statute or law, or admits in
writing to its inability to pay its debts as they mature, or makes an
assignment for the benefit of its creditors, or seeks or consents to
the appointment of any receiver, trustee or similar officer for all or
any substantial part of its property.
(f) The commencement of any involuntary petition in bankruptcy
against either Borrower, Seller or the institution against either
Borrower or Seller of any reorganization, arrangement, composition,
readjustment, dissolution, liquidation or similar proceedings under any
present or future federal, state or other statute or law, or the
appointment of a receiver, trustee or other officer for all or any
substantial part of the property of Borrower or Seller which remains
undismissed or undischarged for a period of sixty days.
(g) Any sale, transfer, lease, assignment, conveyance,
financing, lien, encumbrance or other transaction made in violation of
Section 7.8 or 7.10 above.
(h) Failure of Borrower for a period of thirty days after
Lender's demand to procure the reversal, dismissal or disposition to
Lender's satisfaction of any order enjoining or otherwise preventing or
declaring invalid or unlawful the occupancy, maintenance, operation or
use of the Property, or any portion thereof, in the manner
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required by the terms of this Agreement, or of any proceedings which
could or might affect the validity or priority of the lien of the
Mortgage or any of the other security for the Loan, or which could
materially affect Borrower's ability to perform its obligations under
this Agreement or the other Loan Documents, except that Borrower shall
have the right to contest by appropriate proceedings the validity of
such order if and only if Borrower shall, within thirty days after
Lender's demand aforesaid, (i) places a bond with Lender in an amount,
form, content and issued by a surety reasonably acceptable to Lender
for adequate security from such order, or, if acceptable to Lender (ii)
cause the Title Company to issue an endorsement to the Loan Policy
insuring against loss or damage on account of any such order.
(i) The attachment, seizure, levy upon or taking of possession
by any receiver, custodian or assignee for the benefit of creditors of
all or a substantial part of the property of Borrower which is not
stayed or dismissed within thirty days after the occurrence thereof.
(j) the assignment or attempted assignment of this Agreement
by Borrower without Lender's prior written consent.
(k) The filing of formal charges under any federal, state or
local law, statute or ordinance for which Seller's or Borrower's
forfeiture of all or any portion of the Property is a potential
penalty.
(l) The occurrence of an Event of Default under any of the
other Loan Documents.
(m) A discontinuance of the construction of the Work for a
period of fifteen consecutive days (unless otherwise approved by
Lender), other than a discontinuance resulting from strikes, acts of
God, adverse weather conditions or other occurrences beyond the
reasonable control of Borrower (it being understood that a delay caused
by an insufficiency of funds shall not be deemed to be beyond the
control of Borrower), or any delay in the Work, regardless of cause,
the result of which may be, in Lender's sole judgment, that the Work
will not be substantially completed prior to the date that is two
months prior to Maturity Date, as the same may be extended pursuant to
the terms of this Agreement.
(n) Borrower intentionally causes or knowingly permits any of
the Work to be performed in a manner which is materially contrary to
the Plans and Specifications or any provisions of this Agreement or the
other Loan Documents.
11. REMEDIES. Upon the occurrence of any Event of Default, Lender, in
addition to availing itself of any remedies conferred upon it at law or in
equity and by the terms of the Note, the Mortgage and the other Loan Documents,
may pursue any one or more of the following remedies first, concurrently or
successively with each other and with any other available
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remedies, it being the intent hereof that none of such remedies shall be to the
exclusion of any others:
(a) Take possession of the Project and complete the Work and
do anything necessary or desirable in Lender's sole judgment to fulfill
the obligations of Borrower hereunder, including either the right to
avail itself of and procure performance of the Construction Contract,
any Subcontracts or any other contract entered into for the performance
of all or any portion of the Work (or any substitute therefor), or to
let new or additional contracts with the same contractors or
subcontractors or others, and to employ watchmen to protect the Project
from injury. Without restricting the generality of the foregoing and
for the purposes aforesaid, Borrower hereby appoints and constitutes
Lender its lawful attorney-in-fact with full power of substitution (i)
to complete the Work in the name of Borrower upon an Event of Default;
(ii) to, upon an Event of Default, use portions of the Loan or other
funds which may be reserved, escrowed or set aside for any purposes
hereunder at any time to complete the Work; (iii) to, upon an Event of
Default, make changes in the Plans and Specifications which shall be
reasonably necessary or reasonably desirable to complete the Work; (iv)
to, upon an Event of Default, retain or employ new general contractors,
subcontractors, architects, engineers and inspectors as shall be
required for such purposes; (v) to, upon an Event of Default, pay,
settle or compromise all existing bills and claims, which may be liens
or security interests or to avoid such bills and claims becoming liens
or security interests against the Project, or as may be necessary or
desirable for the completion of the Work or for the clearance of title;
(vi) to, upon an Event of Default, execute all applications and
certificates in the name of Borrower which may be required by any of
the Loan Documents; (vii) to, upon an Event of Default, prosecute and
defend all actions or proceedings in connection with the Work; (viii)
to, upon an Event of Default, take such action and require such
performance as it deems necessary under any of the bonds to be
furnished pursuant to the provisions hereof and to make settlements and
compromises with the surety or sureties thereunder, and in connection
therewith, to execute instruments of release and satisfaction; it being
understood that the foregoing power of attorney is coupled with an
interest and cannot be revoked. All sums expended by Lender pursuant to
this Article 11 shall be deemed to have been paid to Borrower and
secured by the Mortgage and the other Loan Documents, and shall bear
interest at the Default Rate until repaid to Lender.
(b) Declare the unpaid indebtedness evidenced by the Note to
be immediately due and payable.
(c) Apply the balance of any deposits made with Lender toward
the repayment of the Loan.
(d) Withhold further disbursements of proceeds of the Loan.
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12. SALES OF UNITS; PARTIAL RELEASES.
--------------------------------
12.1 Sales Prices. Provided that no Event of Default or
Unmatured Default then exists under the Note, this Agreement or any of
the other Loan Documents, Borrower shall have the right to enter into
and perform sales contracts with creditworthy third party purchasers of
the Units on the form contract submitted to Lender pursuant to Section
4.19 above, provided that (a) Lender has approved all sales materials
relating to the Units, (b) the consideration for any such sale consists
solely of cash, and (c) the gross sales price for any such Unit is not
less than the budgeted amount for the construction of Improvements plus
the cost paid or to be paid to Seller for the underlying Parcel for
such Unit.
12.2 Release Prices. Provided that all of the conditions
described in Section 12.1 above have been satisfied in form and
substance acceptable to Lender and no Event of Default or Unmatured
Default then exists, Lender will issue a partial release of the lien of
its Loan Documents covering any Unit upon the payment to Lender of an
amount equal to the amount of the Loan previously disbursed by Lender
with respect to such Unit.
13. MISCELLANEOUS.
-------------
13.1 Additional Indebtedness. All advances or payments made by
Lender pursuant to this Agreement or any other Loan Document shall
constitute indebtedness secured by the Mortgage and all other security
for the Loan, and all advances or payments made by Lender, except for
normal disbursements on the Loan, shall bear interest at the Default
Rate from the date advanced or paid until repaid to Lender by Borrower.
13.2 Additional Acts. Borrower shall, upon request, execute
and deliver such further instruments and documents and do such further
acts and things as may be reasonably required to provide to Lender the
evidence of and security for the Loan contemplated by this Agreement.
13.3 Loan Agreement Governs. In the event of any inconsistency
between any provision of this Agreement and any provision of any other
Loan Document, the provision of this Agreement shall govern; provided,
however, that the provisions of all of the Loan Documents shall be
construed as an integrated set of provisions governing the Loan and,
accordingly, shall be interpreted and construed liberally to give the
maximum validity, enforceability and effect to all of such provisions.
13.4 Additional Advances. If an Event of Default shall occur,
Lender may, but shall not be obligated to, take any and all actions to
cure such default, and all amounts expended in so doing, all Loan
Expenses and all other amounts paid or advanced by Lender pursuant to
the Loan Documents, and all other amounts advanced by Lender in
connection with the performance of the Work or preserving any security
for the Loan,
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shall constitute additional advances of the Loan, shall be secured by
the Mortgage and all other security for the Loan, and shall bear
interest at the Default Rate from the date advanced until paid.
13.5 Amendment; Waiver; Approval. This Agreement shall not be
amended, modified or supplemented without the written agreement of
Borrower and Lender at the time of such amendment, modification or
supplement. No waiver of any provision of this Agreement or any of the
other Loan Documents shall be effective unless set forth in writing
signed by the party making such waiver, and any such waiver shall be
effective only to the extent therein set forth. Failure by Lender to
insist upon full and prompt performance of any provisions of this
Agreement or any of the other Loan Documents, or to take action in the
event of any breach of any such provision or upon the occurrence of any
Event of Default, shall not constitute a waiver of any rights of
Lender, and Lender may at any time thereafter exercise all available
rights and remedies with respect to such breach or Event of Default.
Receipt by Lender of any instrument or document shall not constitute or
be deemed to be an approval thereof. Any approvals required under any
of the other Loan Documents must be in writing, signed by Lender and
directed to Borrower.
13.6 Notice. All notices, communications and waivers under
this Loan Agreement shall be in writing and shall be (i) delivered in
person or (ii) mailed, postage prepaid, either by registered or
certified mail, return receipt requested, or (iii) sent by overnight
express carrier, addressed in each case as follows:
To Lender: Bank One, Illinois, NA
6000 State Street
Rockford, Illinois 61108
Attn: Donald J. Pafford
and: Bank One, Illinois, NA
200 South Wacker Drive - 6th Floor
Chicago, Illinois 60606
Attn: Terrence Rosenberger
and Schwartz, Cooper, Greenberger &
Krauss, Chtd.
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attn: Jerrold Peven, Esq.
To Borrower: CMC Heartland Partners VII, LLC
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Attn: Lawrence Adelson, Esq.
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With copy to: CMC Heartland Partners I, Limited
Partnership
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Attn: Richard P. Brandstatter
or to any other address as to either of the parties hereto, as such
party shall designate in a written notice to the other party hereto.
All notices sent pursuant to the terms of this Section shall be deemed
received (i) if personally delivered, then on the date of delivery,
(ii) if sent by overnight, express carrier, then on the next Business
Day immediately following the day sent, or (iii) if sent by registered
or certified mail, then on the earlier of the third Business Day
following the day sent or when actually received.
13.7 Benefit; Assignment. The rights, powers and remedies of
Lender under this Agreement shall inure to the benefit of Lender and
its successors and assigns. The rights and obligations of Borrower
under this Agreement may not be assigned and any purported assignment
by Borrower shall be null and void.
13.8 Governing Law. Except with respect to the creation,
perfection and priority of the liens and security interests created by
the Loan Documents, which shall be construed in accordance with and
governed by the laws of the State of North Carolina, the validity and
interpretation of the Loan Documents shall be construed in accordance
with the laws and decisions of the State of Illinois.
13.9 Indemnity. Borrower agrees to indemnify, defend and hold
Lender harmless from and against any and all liabilities, obligations,
losses, damages, claims, costs and expenses (including reasonable
attorneys' fees and court costs) of whatever kind or nature which may
be imposed on, incurred by or asserted against Lender at any time which
relate to or arise from the performance of the Work, the offer for sale
or sale of any membership interest in Borrower, the acquisition or sale
or offer for sale of all or any portion of the Property or any Unit
and/or the ownership, use, operation or maintenance of the Property,
including, without limitation, (a) any brokerage commissions or
finder's fees asserted against Lender with respect to the making of the
Loan, the acquisition of the Property or the sale of any Unit and (b)
claims by purchasers of a Unit with respect to defects in the Property
or other matters; provided, however, that the foregoing indemnity shall
not extend to any liabilities, obligations, claims, losses, costs,
damages or expenses resulting from the gross negligence or willful
misconduct of Lender.
13.10 Headings. The titles and headings of the articles,
sections and paragraphs of this Agreement 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
Agreement.
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13.11 No Partnership or Joint Venture. Lender, by executing
and performing this Agreement shall not become a partner, member or
joint venturer with Borrower or any partner or member of Borrower, or
any of their respective associates or affiliates, and all inspections
of the Property herein provided for are for the sole benefit of Lender.
13.12 Time is of the Essence. Time is of the essence of the
payment of all amounts due Lender under the Loan Documents and
performance and observance by Borrower of each covenant, agreement,
provision and term of this Agreement and the other Loan Documents.
13.13 Invalid Provisions. In the event that any provision of
this Agreement is deemed to be invalid by reason of the operation of
law, or by reason of the interpretation placed thereon by any
administrative agency or any court, Borrower and Lender shall negotiate
an equitable adjustment in the provisions of the same in order to
effect, to the maximum extent permitted by law, the purpose of this
Agreement and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected
thereby and shall remain in full force and effect.
13.14 Offset. Without limitation of any other right or remedy
of Lender hereunder or provided by law, any indebtedness relating to
the Property or its operation and now or hereafter owing to Borrower by
Lender (including, without limitation, any amounts on deposit in any
demand, time, savings, passbook or like account maintained by Borrower
with Lender) may be offset and applied by Lender hereunder, or under
the Note, the Mortgage or any of the other Loan Documents.
13.15 Acts by Lender. Notwithstanding anything herein
contained to the contrary, Lender will not be required to make any
disbursement or perform any other act under this Agreement if, as a
result thereof, Lender will violate any law, statute, ordinance, rule,
regulation or judicial decision applicable thereto.
13.16 Binding Provisions. The covenants, warranties,
agreements, obligations, liabilities and responsibilities of Borrower
under this Agreement shall be binding upon and enforceable against
Borrower and its legal representatives, administrators, successors and
permitted assigns.
13.17 Counterparts. This Agreement may be executed in
counterparts, and all said counterparts when taken together shall
constitute one and the same Agreement.
13.18 No Third Party Beneficiary. This Agreement is only for
the benefit of the parties hereto and their permitted successors and
assigns. No other person or entity shall be entitled to rely on any
matter set forth herein without the prior written consent of such
parties.
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13.19 Publicity. Subject to compliance with Applicable Laws,
Lender reserves the right to publicize the making of the Loan in any
manner it deems appropriate, including, without limitation,
advertisements in trade journals and newspapers. In addition, Borrower
agrees that Lender shall have the right to erect and maintain a sign at
the Project in a prominent location for the duration of the term of the
Loan stating that Lender is providing the financing for construction of
the Project. The sign shall be furnished by Lender and the sign shall
be located in a place selected by Lender, provided that such location
does not interfere with performance of the Work.
13.20 JURISDICTION AND VENUE. BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED IN THE CIRCUIT
COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION,
ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS
AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT
THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS AGREEMENT.
BORROWER WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN
DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM
BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO
APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM
FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE
THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM
OR THE TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY,
TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
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13.21 JURY WAIVER. BORROWER AND LENDER HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) BETWEEN OR AMONG BORROWER AND LENDER ARISING OUT OF
OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR
ANY RELATIONSHIP BETWEEN BORROWER AND LENDER. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE LOAN DESCRIBED HEREIN AND
IN THE OTHER LOAN DOCUMENTS.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
CMC HEARTLAND PARTNERS VII, BANK ONE, ILLINOIS, NA, a national
LLC, a Delaware limited liability company banking association
By: ________________________ By: ___________________________
Title: ________________________ Title: ___________________________
39
<PAGE>
Schedule of Exhibits
--------------------
A - Legal Description of the Land
B - Budget
C - Required Title Insurance - Endorsements
D - List of Plans and Specifications
E - Additional Agreements
<PAGE>
EXHIBIT A
Legal Description
<PAGE>
EXHIBIT B
Budget
<PAGE>
EXHIBIT C
Required Title Insurance - Endorsements
<PAGE>
EXHIBIT D
List of Plans and Specifications
<PAGE>
EXHIBIT E
Additional Agreements
<PAGE>
Exhibit 21
Subsidiaries of Registrant
The following is a list of all of the registrant's direct and indirect
subsidiaries, state of incorporation or organization and the percentage
ownership by Heartland of each.
<TABLE>
<CAPTION>
Name of Subsidiary State Ownership
- ------------------ ----- ---------
<S> <C> <C>
CMC Heartland Partners N/A 99.99%
Heartland Development Corporation Delaware 100%
CMC Heartland Partners I, Limited Partnership Delaware (a)
CMC Heartland Partners II, LLC Delaware (b)
CMC Heartland Partners III, LLC Delaware (b)
CMC Heartland Partners IV, LLC Delaware (b)
CMC Heartland Partners V, LLC Delaware (b)
CMC Heartland Partners VI, LLC Delaware (b)
CMC Heartland Partners VII, LLC Delaware (b)
CMC Heartland Partners VIII, LLC Delaware (b)
Lifestyle Communities, Ltd. Delaware (b)
Lifestyle Construction Company, Inc. Delaware (b)
</TABLE>
(a) CMC Heartland Partners I is owned by CMC Heartland Partners as sole limited
partner and Heartland Development Corporation as sole general partner.
(b) CMC Heartland Partners II, III,VI, V, VI, VII, VIII and Lifestyle
Communities, Ltd. and Lifestyle Construction Company, Inc. are all 100% owned by
CMC Heartland Partners.
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 FORM
10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 230 1,115
<SECURITIES> 0 149
<RECEIVABLES> 789 769
<ALLOWANCES> 416 416
<INVENTORY> 34,263 13,978
<CURRENT-ASSETS> 1,913 2,337
<PP&E> 51,816 28,983
<DEPRECIATION> 1,065 931
<TOTAL-ASSETS> 57,256 33,231
<CURRENT-LIABILITIES> 47,067 19,198
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 5,652 9,409
<TOTAL-LIABILITY-AND-EQUITY> 57,256 33,231
<SALES> 11,548 6,231
<TOTAL-REVENUES> 13,360 7,694
<CGS> 9,772 4,405
<TOTAL-COSTS> 7,345 9,373
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,757) (6,084)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,757) (6,084)
<EPS-BASIC> 0 (2.86)
<EPS-DILUTED> 0 0
</TABLE>
