SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998, 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 1-14369
American Community Properties Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-2058165
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Smallwood Village Center
St. Charles, Maryland 20602
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(301) 843-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days.
Yes / / No /X/
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
5,207,952 Common Shares
------------------------
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
FORM 10-Q
INDEX
Page
PART I FINANCIAL INFORMATION Number
------
Item 1. Financial Statements of American
Community Portfolio Properties 3
Combined Statements of Income for
the Nine Months Ended September 30, 1998 and
1997. (Unaudited) 4
Combined Statements of Income for
the Three Months Ended September 30, 1998 and
1997. (Unaudited) 5
Combined Balance Sheets at September 30, 1998
(Unaudited) and December 31, 1997. 6
Combined Statements of Cash Flow for the
Six Months Ended September 30, 1998 and 1997.
(Unaudited) 8
Combined Statements of Cash Flow for the
Three Months Ended September 30, 1998 and 1997.
(Unaudited) 9
Notes to Combined Financial Statements. 10
Financial Statement of American Community
Properties Trust 21
Balance Sheet as of September 30, 1998 (Unaudited) 21
Notes to Balance Sheet 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Month Periods Ended September 30, 1998 and
1997 for American Community Portfolio Properties 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Material Modifications of Rights of Registrant's 30
Securities
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
<PAGE>
Introductory Note
On March 17, 1997, American Community Properties Trust ("ACPT") was
formed as a real estate investment trust under Article 8 of the Maryland
Trust Law. Prior to October 5, 1998, ACPT was a wholly owned subsidiary of
Interstate General Company L.P. ("IGC"). ACPT was formed to succeed to
most of IGC's real estate operations.
On October 5, 1998, IGC transferred to ACPT the common shares of four
subsidiaries that collectively comprised the principal real estate
operations and assets of IGC. In exchange ACPT issued to IGC 5,207,952
common shares of ACPT, all of which were distributed to the partners of
IGC.
As of September 30, 1998, ACPT had not commenced operations. The
financial statements included herein for American Community Portfolio
Properties represent the operations and assets that would have been
transferred to American Community Properties Trust ("ACPT") if the
restructure and distribution had been completed at January 1, 1997.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
1998 1997
---------- -----------
REVENUES
Community development-land sales
Non-affiliates $ 11,776 $ 4,340
Affiliates 1,179 3,105
Equity in earnings from partnerships
and developer fees 1,144 938
Rental property revenues 6,693 6,540
Management and other fees, substantially
all from related entities 2,518 3,038
Interest and other income 892 594
---------- ----------
Total revenues 24,202 18,555
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $936 and $1,760 8,011 4,749
Selling and marketing 54 113
General and administrative 4,289 4,765
Interest expense 2,726 2,852
Rental properties operating expense 2,748 2,784
Depreciation and amortization 1,420 1,368
Write-off of deferred project costs -- 6
Spin-off costs 1,831 300
---------- ----------
Total expenses 21,079 16,937
---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 3,123 1,618
PROVISION FOR INCOME TAXES 582 473
---------- ----------
INCOME BEFORE MINORITY INTEREST 2,541 1,145
MINORITY INTEREST (607) (249)
---------- ----------
NET INCOME $ 1,934 $ 896
========== ==========
BASIC NET INCOME PER SHARE $ .37 $ .17
========== ==========
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING 5,216 5,189
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
1998 1997
---------- -----------
REVENUES
Community development-land sales
Non-affiliates $ 187 $ 1,843
Affiliates 559 35
Equity in earnings from partnerships
and developer fees 498 287
Rental property revenues 2,261 2,240
Management and other fees, substantially
all from related entities 769 769
Interest and other income 219 179
---------- ----------
Total revenues 4,493 5,353
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $446 and $52 678 1,269
Selling and marketing 13 49
General and administrative 1,173 1,512
Interest expense 983 951
Rental properties operating expense 967 1,016
Depreciation and amortization 476 427
Spin-off costs 783 300
---------- ----------
Total expenses 5,073 5,524
---------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST (580) (171)
PROVISION FOR INCOME TAXES 184 465
---------- ----------
LOSS BEFORE MINORITY INTEREST (764) (636)
MINORITY INTEREST (103) (148)
---------- ----------
NET LOSS $ (867) $ (784)
========== ==========
BASIC NET (LOSS) PER SHARE $ (.17) $ (.15)
========== ==========
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING 5,211 5,189
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED BALANCE SHEETS
(In thousands)
A S S E T S
September 30, December 31,
1998 1997
------------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,451 $ 2,127
Restricted cash 2,467 374
-------- --------
3,918 2,501
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Operating properties, net of accumulated
depreciation of $22,343 and $21,392 as
of September 30, 1998 and December 31,
1997, respectively 37,635 38,143
Investment in unconsolidated rental property
partnerships, net of deferred income of
$1,901 and $2,193 as of September 30,
1998 and December 31, 1997, respectively 7,376 8,657
Other receivables, net of reserves of
$128 and $223 as of September 30,
1998 and December 31, 1997, respectively 1,314 621
-------- --------
46,325 47,421
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 33,346 34,268
St. Charles, Maryland 25,584 21,750
Notes receivable on lot sales and other 2,066 5,629
-------- --------
60,996 61,647
-------- --------
ASSETS RELATED TO HOMEBUILDING
Investment in joint venture 976 591
-------- --------
976 591
-------- --------
OTHER ASSETS
Receivables and other 2,417 2,514
Property, plant and equipment, less accumulated
depreciation of $1,709 and $1,675 as of
September 30, 1998 and December 31, 1997,
respectively 428 448
-------- --------
2,845 2,962
-------- --------
Total assets $115,060 $115,122
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED BALANCE SHEETS
(In thousands)
LIABILITIES AND CAPITAL
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt $ 905 $ 969
Non-recourse debt 38,775 39,101
Accounts payable and accrued liabilities 2,905 2,779
-------- --------
42,585 42,849
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 40,213 39,784
Non-recourse debt -- 2,295
Accounts payable and accrued liabilities 3,019 4,502
Deferred income 356 598
-------- --------
43,588 47,179
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 4,302 3,246
Notes payable and capital leases 183 173
Accrued income tax liability - current 2,457 1,539
Accrued income tax liability - deferred 4,256 4,120
-------- --------
11,198 9,078
-------- --------
Total liabilities 97,371 99,106
-------- --------
CAPITAL 17,689 16,016
-------- --------
Total liabilities and capital $115,060 $115,122
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,934 $ 896
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation and amortization 1,420 1,368
Provision (benefit) for deferred income taxes 136 (526)
Equity in earnings from unconsolidated
partnerships and developer fees (759) (1,004)
Distributions from unconsolidated partnerships 1,912 5,142
Cost of sales 8,011 4,749
Equity in (earnings) loss from homebuilding
joint venture (385) 66
Write-off of deferred project cost -- 6
Changes in notes and accounts receivable, due
from affiliates changed $4,004 and $(176) 3,551 31
Changes in accounts payable, accrued liabilities
and deferred income 2,713 (2,055)
------- -------
Net cash provided by operating activities 18,533 8,673
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (10,083) (4,370)
Change in assets related to unconsolidated
rental property partnerships 128 (760)
Change in restricted cash (2,093) 291
Additions to rental operating properties, net (780) (396)
Acquisitions of other assets, net (696) (1,304)
Contributions to homebuilding joint venture -- (245)
------- -------
Net cash used in investing activities (13,524) (6,784)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 12,287 19,000
Payment of debt (14,533) (15,440)
Purchase of minority interest in subsidiary (3,100) --
Cash contributions from (distributions to) IGC, net (398) (5,334)
Distributions to Unitholders (209) --
Issuance of Warrants 268 --
------- -------
Net cash used in financing activities (5,685) (1,774)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (676) 115
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,127 2,143
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 1,451 $ 2,258
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
COMBINED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(867) $ (784)
Adjustments to reconcile net loss to net cash
provided by (used by) operating activities:
Depreciation and amortization 476 427
Provision for deferred income taxes 784 574
Equity in earnings from unconsolidated
partnerships and development fees (276) (305)
Distributions from unconsolidated partnerships 116 175
Cost of sales 678 1,269
Equity in (earnings) loss from homebuilding
joint venture (222) 18
Changes in notes and accounts receivable, due
from affiliates changed $(75) and $2 (464) 92
Changes in accounts payable, accrued liabilities
and deferred income 1,941 (1,813)
------- -------
Net cash provided by (used in) operating activities 2,166 (347)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (4,460) (2,386)
Change in assets related to unconsolidated
rental property partnerships (14) 1
Change in restricted cash (238) 208
Additions to rental operating properties, net (223) (46)
Acquisitions of other assets, net (583) (653)
Contributions to homebuilding joint venture -- (20)
------- -------
Net cash used in investing activities (5,518) (2,896)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 8,347 16,143
Payment of debt (2,585) (9,365)
Purchase of minority interest in subsidiary (3,100) --
Cash contributions from (distributions to) IGC, net (449) (2,823)
Distributions to Unitholders -- --
Issuance of Warrants 268 --
------- -------
Net cash provided by financing activities 2,481 3,955
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (871) 712
CASH AND CASH EQUIVALENTS, JUNE 30 2,322 1,546
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 1,451 $ 2,258
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PORTFOLIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE TRANSFERRED TO
AMERICAN COMMUNITY PROPERTIES TRUST AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Interstate General Company L.P. ("IGC") was formed as a Delaware
limited partnership in 1986. Directly and through predecessors, IGC has
been engaged in business since 1957. IGC has traded publicly as a master
limited partnership since February 1987 on the American Stock Exchange and
Pacific Stock Exchange. Company Management and the Board of Directors of
IGC's Managing General Partner have undertaken steps to restructure IGC.
IGC is a diversified real estate organization specializing in
community development, investment apartment properties, property management
services and homebuilding. IGC owns and participates in these operations
directly and through the following subsidiaries: Interstate General
Properties, S.E. ("IGP"); St. Charles Associates Limited Partnership
("SCA"); Land Development Associates, S.E. ("LDA"); and American Family
Homes, Inc. ("AFH"). IGC's assets and operations are concentrated
primarily in the metropolitan areas of Washington, D.C. and San Juan,
Puerto Rico. Additionally, its homebuilding operations are active in
Virginia, North Carolina and South Carolina. Through its wholly owned
subsidiary Interstate Waste Technologies, Inc. ("IWT"), IGC is involved in
the pre-development of municipal waste treatment facilities.
American Community Properties Trust ("ACPT"), American Rental
Properties Trust ("American Rental"), American Rental Management Company
("American Management"), American Land Development U.S., Inc. ("American
Land") and Interstate General Properties Group, S.E. ("IGP Group") are or
will be formed to carry out the restructuring of IGC. These entities and
their subsidiaries collectively represent American Community Portfolio
Properties ("ACPP"). IGC expects to transfer its principal operations to
ACPT and distribute to the partners of IGC, including its Unitholders, all
the common shares of ACPT (the "Restructuring"). Due to these companies
being commonly controlled entities, the transfers to ACPT will occur at
book value.
ACPT is a Maryland real estate investment trust that is expected to be
taxed as a partnership. It is a self-managed holding company that owns all
of the outstanding equity interests in American Management, American Land,
and IGP Group and all of the common stock of American Rental.
American Rental.
IGC expects to transfer to American Rental substantially all of its
partnership interests in United States investment properties and its land
in the United States presently intended for development as apartment
properties. The partnership interests in 13 investment apartment
properties ("U.S. Apartment Partnerships") will be held by American Rental
indirectly through American Housing Properties L.P. ("American Housing"), a
Maryland partnership, in which American Rental will have a 99% limited
partner interest and American Housing Management Company, a wholly owned
subsidiary of American Rental, will have a 1% general partner interest.
The transfer of the general partner interest in five partnerships requires
limited partner approval which is not expected to be obtained prior to the
<PAGE>
Restructuring. Therefore, IGC will assign to ACPT beneficial ownership in
these partnerships. The beneficial interests in two of these partnerships
will be evidenced by a Class C IGP interest. ACPT has agreed to indemnify
IGC against any losses it may suffer as a result of being the general
partner and IGC will be obligated to remit to ACPT any cash received from
these five partnerships. To avoid termination of the partnership for tax
purposes, sixty percent of the general partners' interest in four
additional partnerships will not be transferred to ACPT until twelve months
and one day after the date of Restructure. Where control does not exist
the cost method of accounting will be used.
American Management.
Effective December 31, 1997 IGC transferred to American Management its
United States property management operations. The United States property
management operations provide management services for the United States
apartment properties and for other rental apartments not owned by IGC.
American Land.
IGC expects to transfer to American Land its principal United States
property assets and operations. These will include the following:
1. A 100% interest in St. Charles Community LLC which holds 4,500
acres of land in St. Charles, Maryland. This constitutes all of
the land formerly held by SCA, a partnership in which IGC holds a
99% partnership interest and Interstate Business Corporation
("IBC") holds a 1% partnership interest, except for a 50%
interest in Brandywine Investment Associates L.P., which hold 277
acres of land held for development in Brandywine, Maryland, that
will continue to be held by SCA.
IGC will retain 26 remaining single-family lots in Dorchester and
an 800 acre tract held for development in Pomfret, Maryland, 90
acres and 27 acres, respectively, in the communities of Montclair
and Westbury and the Wetlands Properties.
2. A 41.0346% interest in Maryland Cable Limited Partnership which
holds receivables from the 1988 sale of IGC's cable television
assets.
3. The Class B IGP interest that represents IGP's rights to income,
gains and losses associated with land in Puerto Rico held by LDA
and designated for development as saleable property.
4. As part of the asset transfers, IGC conditionally has agreed to
transfer to American Land 14 acres of land in St. Charles that
currently is zoned for commercial use (the "Commercial Parcel")
if and when IGC settles the wetlands litigation on terms approved
by the Board of Directors of IGMC, provided that IGC shall have
received confirmation that the transfer of the Commercial Parcel
(and resulting decrease in the value of IGC's assets) will not
cause the IGC Units to be delisted from AMEX or the PSE. The
Commercial Parcel has a book value of approximately $1,000,000 at
July 28, 1998. If IGC is unable to settle the wetlands
litigation on satisfactory terms or IGC does not receive
confirmation of the continued listing of IGC Units, IGC will
retain the Commercial Parcel.
<PAGE>
There have been no adjustments made to the accompanying financial
statements to record the inclusion of the Commercial Parcel.
IGP Group.
IGC expects to transfer to IGP Group its entire 99% limited
partnership interest and 1% general partner interest in IGP other than the
Class B IGP interest to be held by American Land and the Class C interest
to be held by American Land. IGP's assets and operations will continue to
include:
1. an 80% partnership interest in LDA, a Puerto Rico special
partnership, which holds 312 acres of land in the planned
community of Parque Escorial and 543 acres of land in Canovanas.
On July 30, 1998, LDA acquired the 20% interest in LDA owned by
an unrelated third party at a purchase price of $5.5 million. As
a result of this purchase, IGP owns 100% of LDA;
2. a 50% partnership interest in Escorial Builders Associates S.E.
("Escorial Builders"), which is engaged in the construction of
condominiums in the planned community of Parque Escorial;
3. a 1% interest in El Monte Properties S.E., a Puerto Rico special
partnership which owns El Monte Mall Complex, a 169,000 square
foot office complex in San Juan, Puerto Rico; and
4. general partner interests in 11 Puerto Rico apartment
partnerships.
After these asset transfers have been completed, IGC expects to
distribute all of the outstanding common shares of ACPT to the general and
limited partners (including Unitholders) of IGC pro rata in accordance with
their percentage interest in IGC (the "Distribution"). Unitholders in the
aggregate will receive 99% of ACPT's common shares.
Basis of Presentation
The accompanying financial statements of ACPP have been presented on a
combined historical cost basis because of affiliated ownership, common
management and because the assets and liabilities of IGC are expected to be
transferred to ACPT, a newly formed entity with no prior operations. IGC's
historical basis in the assets and liabilities of ACPP have been carried
over to the combined historical financial statements. Certain assets and
liabilities of IGC will not be contributed to ACPP and, therefore, these
financial statements are not intended to represent the financial positions
and results of operations of IGC or any entity included therein. In
management's opinion, these financial statements include the assets,
liabilities, revenues and expenses associated with the portions of IGC
operations intended to be transferred to ACPT. All significant
intercompany balances and transactions have been eliminated in the
presentation. Changes in the capital account represent the net income of
ACPP, the exercise of employee and director options, asset transfers less
cash distributions to Unitholders and net cash (distributions to)
contributions from IGC. Net income per share is calculated based on the
weighted average shares that would have been outstanding had the
Restructuring and Distribution been completed prior to January 1, 1997.
Diluted earnings per share for the three and nine months ended September
30, 1998 does not differ from basic earnings per share.
<PAGE>
The combined historical financial statements include the accounts of
ACPP and its majority owned partnerships and subsidiaries, after
eliminating intercompany transactions. All of the entities included in the
combined historical financial statements are hereinafter referred to
collectively as the "Company" or "ACPP". As of December 31, 1997, the
combined group includes ACPT, American Rental, American Management,
American Land and IGP Group. The following entities are consolidated with
American Rental: Lancaster Apartments Limited Partnership, New Forest
Apartments Partnership, Fox Chase Apartments General Partnership, Palmer
Apartments Associates Limited Partnership, Headen House Associates Limited
Partnership, Wakefield Terrace Associates Limited Partnership and Wakefield
Third Age Associates Limited Partnership. St. Charles Community LLC is
consolidated with American Land. The following entities are consolidated
with IGP Group: Interstate General Properties S.E. and Land Development
Associates S.E.
These financial statements should be read in conjunction with the
audited financial statements and the notes included in ACPT's Registration
Statement on Form S-11 No. 333-58835.
(2) IMPACT ON RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, IGC adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income" and will adopt SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" at December 31, 1998.
The adoption of SFAS No. 130 did not have a material effect on IGC's
financial statements.
(3) INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
Housing Partnerships
The following information summarizes financial data and principal
activities of unconsolidated housing partnerships which the Company
accounts for under the equity method. The information is presented to
segregate the two projects undergoing condominium conversion from the
operating properties (in thousands).
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
September 30, 1998 $ 96,076 $10,791 $106,867
December 31, 1997 102,466 9,509 111,975
Total Non-Recourse Debt
September 30, 1998 104,834 12,014 116,848
December 31, 1997 106,390 11,612 118,002
Total Other Liabilities
September 30, 1998 9,545 2,253 11,798
December 31, 1997 9,903 122 10,025
Total Equity
September 30, 1998 (18,303) (3,476) (21,779)
December 31, 1997 (13,827) (2,225) (16,052)
Company's Investment
September 30, 1998 7,377 -- 7,377
December 31, 1997 8,657 -- 8,657
<PAGE>
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended September 30, 1998 $ 6,758 $ 10 $ 6,768
Three Months Ended September 30, 1997 6,571 324 6,895
Nine Months Ended September 30, 1998 20,264 103 20,367
Nine Months Ended September 30, 1997 19,704 1,417 21,121
Net Income (Loss)
Three Months Ended September 30, 1998 290 (433) (143)
Three Months Ended September 30, 1997 216 (169) 47
Nine Months Ended September 30, 1998 685 (1,251) (566)
Nine Months Ended September 30, 1997 574 (99) 475
Company's recognition of equity in
earnings and developer fees
Three Months Ended September 30, 1998 277 -- 277
Three Months Ended September 30, 1997 341 (35) 306
Nine Months Ended September 30, 1998 760 -- 760
Nine Months Ended September 30, 1997 1,003 -- 1,003
SUMMARY OF CASH FLOWS:
Cash flows from operating activities
Three Months Ended September 30, 1998 1,290 (899) 391
Three Months Ended September 30, 1997 920 136 1,056
Nine Months Ended September 30, 1998 4,142 (2,605) 1,537
Nine Months Ended September 30, 1997 3,213 573 3,786
Company's share of cash flows
from operating activities
Three Months Ended September 30, 1998 442 (450) (8)
Three Months Ended September 30, 1997 367 67 434
Nine Months Ended September 30, 1998 1,519 (1,303) 216
Nine Months Ended September 30, 1997 1,285 286 1,571
Cash distributions
Three Months Ended September 30, 1998 261 -- 261
Three Months Ended September 30, 1997 479 -- 479
Nine Months Ended September 30, 1998 5,074 -- 5,074
Nine Months Ended September 30, 1997 1,335 9,292 10,627
Company's share of cash distributions
Three Months Ended September 30, 1998 116 -- 116
Three Months Ended September 30, 1997 204 (25) 179
Nine Months Ended September 30, 1998 1,912 -- 1,912
Nine Months Ended September 30, 1997 500 4,646 5,146
The unconsolidated rental properties partnerships as of September 30,
1998 include 19 partnerships owning 4,563 rental units in 22 apartment
complexes owned by Alturas Del Senorial Associates Limited Partnership,
Bannister Associates Limited Partnership, Bayamon Gardens Associates
Limited Partnership, Brookside Gardens Limited Partnership, Carolina
Associates Limited Partnership, Colinas de San Juan Associates Limited
Partnership, Crossland Associates Limited Partnership, Essex Apartments
Associates Limited Partnership, Huntington Associates Limited Partnership,
Jardines de Caparra Associates Limited Partnership, Lakeside Apartments
<PAGE>
Limited Partnership, Monserrate Associates Limited Partnership, Monte de
Oro Associates Limited Partnership, New Center Associates Limited
Partnership, San Anton Associates Limited Partnership, Turabo Limited
Dividend Partnership and Valle del Sol Limited Partnership. The Company
holds a general partner interest in these partnerships and generally shares
in zero to 5% of profits, losses and cash flow from operations until such
time as the limited partners have received cash distributions equal to
their capital contributions. Thereafter, the Company generally shares in
50% of cash distributions from operations. Pursuant to the partnership
agreements, the general partners of the unconsolidated partnerships are
prohibited from selling or refinancing the apartment complexes without
majority limited partner approval. Due to the absence of control and non-
majority ownership, these partnerships are accounted for under the equity
method of accounting.
During 1997, the rental complexes owned by Monte de Oro and New Center
were refinanced to provide distributions to their partners and funds to
convert the rental units into condominiums. Rental revenues started to
decline in 1997 as the units were vacated in preparation for conversion.
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. It purchased land to construct 118
units in 1997 and land to construct 98 units in 1996. The profit on these
lots are deferred until sold by Escorial Builders to a third party. The
following tables summarize Escorial Builders' financial information (in
thousands):
SUMMARY OF FINANCIAL POSITION:
AS OF
----------------------------
September 30, December 31,
1998 1997
------------- ------------
Total assets $11,660 $13,374
Total liabilities 9,709 12,191
Total equity 1,951 1,183
Company's investment 976 591
SUMMARY OF OPERATIONS:
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Total revenue $ 8,431 $ 2 $3,950 $ 2
Net income (loss) 768 (136) 442 (41)
Company's recognition of
equity in earnings (losses) 384 (68) 221 (20)
<PAGE>
SUMMARY OF OPERATING CASH FLOWS:
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Cash flows from operating
activities $ 3,801 $(7,642) $ 2,423 $(2,012)
Company's share of cash flows
from operating activities 1,900 (3,821) 1,211 (1,006)
Operating cash distributions -- -- -- --
Company's share of operating
cash distributions -- -- -- --
(4) DEBT
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of the
Company at September 30, 1998 and December 31, 1997 (in thousands):
Outstanding
Maturity Interest --------------------------
Dates Rates (a) September 30, December 31,
From/To From/To 1998 1997
-------- --------- ------------- ------------
Related to community
development:
Recourse debt 12-31-98 P+6.5%/ $40,213 $39,784
07-31-04 10.0% (b)
Non-recourse debt Paid P+1.5% -- 2,295
Related to investment
properties:
Recourse debt Demand 8.19% 905 969
Non-recourse debt 10-01-19/ 6.85%/ 38,775 39,101
10-01-28 8.5%
General:
Recourse debt Demand 9.56%/ 183 173
04-01-03 18.5% ------- -------
Total debt $80,076 $82,322
======= =======
(a) P = Prime lending interest rate.
(b) Approximately $15,484,000 of this debt requires additional
interest payments on each annual anniversary date. The amount
due is 1% of the outstanding balance in 1998 and 1999, and
increases 1/2% each year thereafter, through 2003.
As of September 30, 1998, the $40,213,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $15,484,000 of this
amount is further secured by investments in apartment rental partnerships.
<PAGE>
As of September 30, 1998, recourse investment property debt is secured
by cash receipts received by the Company pursuant to the terms of a sales
contract. The non-recourse investment properties debt is collateralized by
apartment projects and secured by FHA or the Maryland Housing Fund.
Mortgage notes payable of $7,147,000 have stated interest rates of 7.5% and
7.75%; however, after deducting interest subsidies provided by HUD, the
effective interest rate over the life of the loans is 1%.
The homebuilding debt is secured by eight homes under construction.
(5) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of IGC and
certain officers and trustees of the Company have ownership interests in
various entities that conducted business with the Company during the last
<PAGE>
two years. The financial impact of the related party transactions on the
accompanying financial statements are reflected below:
<TABLE>
<CAPTION>
INCOME STATEMENT IMPACT:
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Community Development - Land Sales (A)
IGC $ -- $ 105 $ -- $ 35
Homebuilding joint venture 1,179 -- 559 --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, trustee, IGC director (A2) -- 3,000 -- --
------ ------ ------ ------
$1,179 $3,105 $ 559 $ 35
====== ====== ====== ======
Cost of Land Sales
IGC $ -- $ 71 $ -- $ 22
Homebuilding joint venture 936 -- 446 --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, trustee, IGC director (A2) -- 1,689 -- 30
------ ------ ------ ------
$ 936 $1,760 $ 446 $ 52
====== ====== ====== ======
Management and Other Fees (B)
Unconsolidated subsidiaries $1,795 $2,282 $ 530 $ 527
Affiliate of IBC, general partner of IGC (B1) 183 291 58 57
Affiliate of James Michael Wilson, trustee, IGC director, Thomas B.
Wilson, trustee, IGC director, and James J. Wilson, IGC director 118 113 41 39
Affiliate of James Michael Wilson, trustee, IGC director, Thomas B.
Wilson, trustee, IGC director, James J. Wilson, IGC director, and
an Affiliate of IBC, general partner of IGC 62 52 22 15
------ ------ ------ ------
$2,158 $2,738 $ 651 $ 638
====== ====== ====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 42 $ 36 $ 18 $ 12
Affiliate of a former director 97 126 40 35
Affiliate of IBC, general partner of IGC 39 -- -- --
Affiliate of Thomas B. Wilson, trustee, IGC director -- 13 -- 4
------ ------ ------ ------
$ 178 $ 175 $ 58 $ 51
====== ====== ====== ======
General and Administrative Expense
Affiliate of IBC, general partner of IGC (C1) $ 246 $ 246 $ 84 $ 91
Reserve additions and other write-offs-
Affiliate of IBC, general partner of IGC (B2) (59) 88 (123) 31
Unconsolidated subsidiaries (B2,C4) 8 86 (97) 31
------ ------ ------ ------
$ 195 $ 420 $ (136) $ 153
====== ====== ====== ======
Interest Expense
IBC, general partner of IGC $ 8 $ -- $ 8 $ --
====== ====== ====== ======
<PAGE>
<CAPTION>
BALANCE SHEET IMPACT:
Increase Increase
Balance (Decrease) Balance (Decrease)
September 30, in Reserves December 31, in Reserves
1998 1998 1997 1997
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $ 818 $ (35) $ 552 $ 111
Affiliate of IBC, general partner
of IGC (B1) 79 (60) 51 (9)
Affiliate of James Michael Wilson, trustee,
IGC director and James J. Wilson, IGC
director 69 -- 20 --
------ ----- ------ -----
$ 966 $ (95) $ 623 $ 102
====== ===== ====== =====
Assets Related to Community Development
Notes receivable and accrued interest-
Affiliate of a former IGC Interest 10%
director, secured by land matured April 1,
1998, paid (A1) $ -- $ -- $ 980 $ --
Affiliate of a former IGC Interest 10%
director, secured by land payments per month
$27,000, matures
April 1, 1999 (A1) 2,077 -- 2,088 388
Affiliate of IBC, general partner Interest P+1.5%
of IGC, secured by land matured June 29,
1998, paid (A2) -- -- 2,520 --
------ ----- ------ -----
$2,077 $ -- $5,588 $ 388
====== ===== ====== =====
Other Assets
Receivables - All unsecured
IBC, general partner of IGC Payable from IGC
distributions, paid (C2) $ -- $ -- $ 681 $ --
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
trustee, IGC director (B) 8 -- 12 --
IBC, general partner of IGCdemand 28 -- (39) --
------ ----- ------ -----
$ 36 $ -- $ 654 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Accounts payable
Whitman, Requardt (C3) $ 277 $ -- $ 121 $ --
====== ===== ====== =====
</TABLE>
<PAGE>
(A) Land Sales
The Company sells land to affiliates and non-affiliates with similar
terms. The sales prices to affiliates are based on third party appraisals,
payable in cash or a combination of a 20% cash down payment and a note for
the balance. The notes receivable are secured by deeds of trust on the
land sold, and bear an interest rate equal to those charged at that time
for land sales. The notes mature in one year or mature in five or less
years with annual amortizations. As circumstances dictate, the maturity
dates and repayment terms of the notes receivable due from affiliates or
non-affiliates have been modified. Any sales transactions that vary from
these terms are described below:
(1) The notes receivable due from an affiliate of a former IGC
director did not bear interest until certain infrastructure
improvements were completed. This infrastructure was delayed and
the interest commencement dates modified. These delays created
the additional discount reflected above.
(2) On June 30, 1997, the Company sold 374 acres to an affiliate of
IBC for $3,000,000 and recognized a profit of $1,311,000. As
payment for this parcel, the Company received a 20% down payment
and assumption of a note payable.
(B) Management and Other Services
The Company provides management and other support services to its
unconsolidated subsidiaries and other related entities in the normal course
of business. These fees are typically collected on a monthly basis, one
month in arrears. These receivables are unsecured and due upon demand.
Certain partnerships experiencing cash shortfalls have not paid timely. As
such, these receivable balances are reserved until satisfied or the
prospects of collectibility improves. Decreases to the reserves for other
than routine cash payments are discussed below:
(1) During the second quarter of 1997, an affiliate of IBC purchased
the management fees receivable of $190,000 due from Chastleton,
Coachman's, Rolling Hills, and Village Lake for a cash payment of
$190,000. The collection of these receivables had previously been
questionable and they had been fully reserved. This transaction
resulted in income recognition of $190,000.
(2) The collectibility of management fee receivables are evaluated
quarterly. Any increase or decrease in the reserves are reflected
as additional expenses or recovery of such expenses.
(C) Other
Other transactions with related parties are as follows:
(1) The Company rents executive office space and other property from
affiliates both in the United States and Puerto Rico pursuant to
leases that expire through 2005. In management's opinion, all
leases with affiliated persons are on terms generally available
from unaffiliated persons for comparable property.
<PAGE>
(2) During 1996, the sale of four properties in Puerto Rico triggered
a taxable gain, a portion of which is passed through to the
predecessor of IGC that contributed those assets. IGC's
partnership agreement provides for (1) an allocation to that
predecessor of the income tax payable in Puerto Rico on such
portion of the gain and (2) a reduction from its cash
distributions in an amount equivalent to the Puerto Rico income
tax specifically allocated to the predecessor. In accordance with
these provisions, the Company recorded a receivable from IBC of
$881,000 which was subsequently paid.
(3) Thomas J. Shafer became a director of IGMC and a trustee of ACPT
in 1998 after his retirement from Whitman, Requardt, where he was
a Senior Partner. Whitman, Requardt provides engineering services
to IGC. In management's opinion, services performed are on terms
available to other clients.
(4) James J. Wilson, as a former general partner of IGP, was entitled
to priority distributions made by each housing partnership in
which IGP is the general partner. If IGP received a distribution
which represents 1% or less of a partnership's total distribution,
Mr. Wilson received the entire distribution. If IGP received a
distribution which represents more than 1% of a partnership's
total distribution, Mr. Wilson received the first 1% of such
total.
(6) PURCHASE OF MINORITY INTEREST IN LDA
On July 30, 1998, the Company redeemed the 20% minority interest in
Land Development Associates S.E. ("LDA") from an outside partner for
$3,100,000 and assumed a $472,000 deferred tax obligation. LDA also repaid
a $2,400,000 note due to an affiliate of this unrelated partner. This
transaction was financed with a $5,600,000 loan from a commercial bank.
The loan bears interest at prime plus 1%, matures in one year and is
collateralized by an assignment of the 20% partnership interest in LDA and
a second mortgage on Parque El Comandante land held by LDA.
(7) PUERTO RICO EXPROPRIATION
During the third quarter 1998, a Puerto Rico government agency
expropriated 52 cuerdas located in Parque El Comandante and deposited
$784,000 into an account for the Company. The $784,000 was based on
appraisals that were over five years old that do not reflect the current
market value. The Company believes that the market value is significantly
higher and therefore has begun the appeal process to increase the amount of
payment received for this land to the current market price. As a result of
this transaction during the third quarter, the basis of the land was
removed from inventory but no corresponding income was recorded. This
transaction will be recorded as a sale in the period that the Company and
the government agree upon the fair market value of this property.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
ASSETS
Total Assets $ --
====
LIABILITIES AND OWNERS' EQUITY
Owners' Equity
Common Stock $.01 par value, 10,000,000 shares
authorized, one share outstanding $ --
====
The accompanying notes are an integral part of this balance sheet.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NOTES TO BALANCE SHEET
September 30, 1998
Organization
On March 17, 1997, American Community Properties Trust ("ACPT") was
formed as a real estate investment trust under Article 8 of the Maryland
Trust Law. On August 18, 1998 ACPT issued one common share to its sole
owner, Interstate General Company L.P. ("IGC"). ACPT was formed to succeed
to most of IGC's real estate operations.
On October 5, 1998 IGC transferred to ACPT the common shares of four
subsidiaries that collectively comprised the principal real estate
operations and assets of IGC. In exchange ACPT issued to IGC 5,207,952
common shares of ACPT, all of which were distributed to the partners of
IGC.
As of September 30, 1998, ACPT had not commenced operations, and
therefore no statements of operations or cash flows have been presented.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
General:
Historically, the Company's financial results have been significantly
affected by the cyclical nature of the real estate industry. Accordingly,
the Company's historical financial statements may not be indicative of
future results.
For the Nine Months Ended September 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue increased $5,510,000 to
$12,955,000 during the nine months ended September 30, 1998, compared to
sales of $7,445,000 during the nine months ended September 30, 1997. The
increase was attributable to residential lot sales in Puerto Rico of
$7,900,000 which are sold to homebuilders in bulk. The gross profit margin
for the nine months ended September 30, 1998 increased to 38%, as compared
to 36% in the same period of 1997. This increase was due primarily to the
sales mix. During the first nine months of 1998, 28% of the sales revenue
was generated by sales of U.S. commercial parcels, compared to 11% in the
first three quarters of 1997. Commercial parcels have historically
produced higher gross profits due to their high sales prices and relatively
low development costs.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 5% to
$3,945,000 for the nine months ended September 30, 1998, as compared to
$3,756,000 in the same period in 1997. The increase is primarily
attributable to a 2% increase in rental revenues and a less than 1%
decrease in operating expenses. The increase in rental revenues is a
result of a reduction in vacancies and an increase in rental rates.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased 18% to $1,144,000 during the first nine
months of 1998, as compared to $938,000 during the first nine months of
1997. The increase is primarily attributable to an increase of earnings
generated from the homebuilding joint venture during the first nine months
of 1998, as compared to the first nine months of 1997, offset in part by
reduced earnings from rental partnerships that paid refinancing fees.
Management and Other Fees.
Management and other fees decreased 21% to $2,518,000 in the first
nine months of 1998, as compared to $3,038,000 in the same period in 1997.
This decrease is primarily due to a reduction of $435,000 in fees earned
from the refinancing of certain apartment complexes and a reduction of
$230,000 in fees recognized related to prior periods earned during the nine
months ended September 30, 1997, offset by $100,000 of incentive fees
earned during the first nine months of 1998.
<PAGE>
Interest Expense.
Interest expense decreased 5% to $2,726,000 during the nine months
ended September 30, 1998, as compared to $2,852,000 for the nine months
ended September 30, 1997. This decrease is primarily attributable to a
$5,374,000 decrease in outstanding debt from September 30, 1998 as compared
to September 30, 1997.
General and Administrative Expense.
General and administrative expenses decreased 11% to $4,289,000 for
the nine months ended September 30, 1998, as compared to $4,765,000 for the
same period of 1997. This decrease is a result of the recognition during
1998 of previously reserved management fee receivables.
Spin-off Costs.
Costs of $1,831,000 related to the restructuring of the Company were
recognized as an expense for the nine months ended September 30, 1998, as
compared to $300,000 for the same period of 1997.
For the Three Months Ended September 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue decreased $1,132,000 to
$746,000 during the three months ended September 30, 1998, compared to
sales of $1,878,000 during the three months ended September 30, 1997. The
decrease was attributable to a commercial sale in Puerto Rico of $1,500,000
during the third quarter of 1997 and no such sale in the comparable 1998
period. The gross profit margin for the nine months ended September 30,
1998 decreased to 10%, as compared to 32% in the same period of 1997. This
decrease was due primarily to the absorption of period costs by less sales
revenue in the third quarter 1998 as compared to the third quarter 1997 and
the sales mix. During the third quarter of 1998, 12% of the sales revenue
was generated by sales of commercial parcels, as compared to 80% in the
third quarter of 1997. U.S. commercial parcels have historically produced
higher gross profits due to their high sales prices and relatively low
development costs. Eighty-eight percent of the sales were generated by
residential sales in the three months ended September 30, 1998, as compared
to 20% in the same period of 1997.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 5% to
$1,294,000 for the three months ended September 30, 1998, as compared to
$1,224,000 in the same period in 1997. This increase is primarily due to a
1% increase in rental revenues and a 5% decrease in operating expenses.
The decrease in operating expenses is a result of a decrease in maintenance
expenses and timing difference of utility costs.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased $211,000 to $498,000 during the three
months ended September 30, 1998, as compared to $287,000 during the three
months ended September 30, 1997. This increase is primarily attributable
to an increase in earnings from the homebuilding joint venture during the
three months ended September 30, 1998, as compared to the same period of
1997.
<PAGE>
Management and Other Fees.
Management and other fees remained constant at $769,000 for the three
months ended September 30, 1998, as compared to the three months ended
September 30, 1997.
Interest Expense.
Interest expense increased 3% to $983,000 during the three months
ended September 30, 1998, as compared to $951,000 for the three months
ended September 30, 1997. This increase is a result of increased
outstanding loan balances during the third quarter of 1998 as compared to
the same quarter in 1997.
General and Administrative Expense.
General and administrative expenses decreased 29% to $1,173,000 for
the three months ended September 30, 1998, as compared to $1,512,000 for
the same period of 1997. This decrease is primarily attributable to the
recognition during 1998 of previously reserved management fee receivables.
Spin-off Costs.
Costs of $783,000 related to the restructuring of the Company were
recognized as an expense for the three months ended September 30, 1998, as
compared to $300,000 for the three months ended September 30, 1997.
Liquidity and Capital Resources
Cash and cash equivalents were $1,451,000 and $2,127,000 at September
30, 1998 and December 31, 1997, respectively. This decrease was
attributable to $13,524,000 and $5,685,000 used in investing and financing
activities, respectively, offset by $18,533,000 provided by operating
activities. The cash inflow from operating activities was primarily
attributable to distributions from unconsolidated partnerships, land sales,
accounts payable and accrued liabilities and collection of notes
receivable. The cash outflow for investing activities was primarily
attributable to land improvements put in place for future land sales and
deposits into escrow accounts. During the first nine months of 1998, the
Company paid down debt by $2,246,000 net of advances, purchased a
subsidiary's minority interest for $3,100,000 and distributed $209,000 to
the Unitholders.
The Company has historically met its liquidity requirements
principally from cash flow generated from home and land sales, property
management fees, distributions from residential rental partnerships and
from bank financing providing funds for development and working capital.
Over the past several years, the Company's cash flows have been
constrained because of the terms of its existing debt agreements and the
reluctance of lenders to provide financing in the U.S. as a result of IGC's
wetlands litigation. As a result, substantially all of the cash generated
has been used to pay debt service requirements with existing lenders. This
resulted in limited opportunities for new construction and development in
the U.S. The Banc One financing closed in 1997 provided funding to
commence construction in Fairway Village, the third village in St. Charles,
and allows the Company to retain a greater portion of its U.S. land sales
proceeds. The Company currently has other development projects in various
<PAGE>
stages of completion. Substantially all of the projects under construction
have sufficient development loans in place to complete the construction.
The Company's principal demands for liquidity are expected to be the
continued funding of its current debt service and operating costs.
Management expects to obtain additional funding which can be used by ACPT
to fund new community development projects. Such sources of funding may
include, but are not limited to, excess operating cash flows, secured or
unsecured financings, private or public offerings of debt or equity
securities and proceeds from sales of properties. The Company's
anticipated cash provided by operations, new and existing financing
facilities, and extension or refinancing of $14,702,000 of loans that are
due in the next twelve months are expected to satisfy the Company's capital
needs for the next year. However, there are no assurances that these funds
will be generated.
Debt Summary
As of September 30, 1998, the consolidated rental properties with a
net asset book value of $38,000,000 were encumbered by $39,000,000 of non-
recourse debt. The remaining assets with a book value of $77,000,000 are
substantially all collateralized by $33,800,000 of recourse debt. The
significant terms of IGC's recourse debt financing arrangements are shown
below (dollars in thousands):
Balance
Maximum Interest Maturity Outstanding
Descriptions Borrowings Rate Date 9/30/98
------------ ---------- -------- -------- -----------
Banc One-term loan (a) $11,000 P+6.5% 7/31/04 $10,000
Banc One-development loan (a) 4,000 P+6.5% 7/31/04 1,905
Banc One-remediation loan (a) 5,000 P+6.5% 7/31/04 3,578
First Bank-term loan (b) 9,865 P+1.5% 6/30/99 6,399
First Bank-construction loan (b) 5,500 P+1.5% 9/30/98 463
First Bank-construction loan (b) 8,350 P+1.5% 12/31/00 2,523
RG-Premier Bank (c) 1,641 P+1.5% 4/30/99 1,317
Citibank (d) 969 (e) demand 905
Washington Savings Bank (e) 1,317 9.5% 9/30/99 923
Banco Popular (f) 5,600 P+1.0% 7/30/99 5,600
Other miscellaneous 264 Various Various 187
------- -------
$53,506 $33,800
======= =======
(a) The three notes are cross-collateralized by substantially all
of the U.S. land and the U.S. and Puerto Rico future cash
entitlements pursuant to its ownership interest in the housing
partnerships. Interest is paid monthly. The loan agreement
calls for a minimum of $2,000,000 principal curtailments in
1998, and $3,000,000 in each of the following six years. In
addition, IGC is to establish a $1,000,000 development reserve
during 1998. It is IGC's intention to meet the required
payments from land sales and proceeds from the refinancing of a
rental property. On each anniversary date, IGC is to pay an
additional fee, 1% in 1998 and 1999, increasing 1/2% in the
following four years, and grant an option to the lender to
<PAGE>
purchase an additional 75,000 Units at a strike price to be
determined after the restructure. The loan agreement covenants
include restrictions on additional indebtedness of IGC and St.
Charles Community LLC. The loan agreement contains a cross
default provision for any amounts in excess of $1,000,000 past
due for 45 days after demand notification. On October 1, 1998,
in connection with the restructuring plan, Banc One released
its lien on the investment properties in exchange for pledge of
the stock in four major subsidiaries and an increased interest
rate to prime plus 6.5%. The interest rate reverted back to
prime plus 2.5% when the security interests in the investment
properties were reestablished on November 13, 1998.
(b) The three notes are cross collateralized by the Puerto Rico
land assets. The interest is paid monthly from an interest
reserve. Principal payments are funded through the partial
release prices of the collateral. IGC expects to extend the
maturity date of these loans. The loan agreement covenants
include restrictions on distributions by LDA and additional
indebtedness of LDA and cross default provisions for other loan
payment defaults.
(c) The note requires monthly principal payments of $27,000 and is
secured by three mortgage notes receivable totalling
$2,717,600. Interest is paid monthly by advances under the
loan agreement.
(d) The note requires monthly payments of interest calculated at
250 basis points over the cost of funds, 8.1875% at September
30, 1998.
(e) The note requires monthly payments of interest and is
collateralized by the land under development for 115 townhome
lots in St. Charles, Maryland. The loan is to be repaid from
the sale of townhome lots that are currently under an option
contract.
(f) The note requires monthly payment of interest, calculated at 1%
over the prime rate, 9.5% at September 30, 1998. The note is
secured by 549 acres comprising Parque El Comandante, and the
assignment of the purchased 20% partnership interest in LDA.
Year 2000
What is Year 2000?:
The Year 2000 "Y2K" issue exists because many computer systems and
applications and other electronically controlled systems and equipment
currently use two-digit fields to designate a year. As the century date
occurs, date sensitive systems with this deficiency may recognize the year
2000 as 1900 or not at all. This inability to recognize or properly treat
the year 2000 can cause the systems to process critical financial and
operations information incorrectly.
The Company has assessed and continues to assess the impact of the Y2K
issue on its reporting systems and operations.
<PAGE>
Current State of Readiness:
The systems and applications that can critically affect the Company's
operations due to the Y2K issue are its financial reporting and billing
systems and those electronically controlled systems and equipment installed
at the commercial and residential properties managed by the Company, many
of which the Company holds an ownership interest. These systems include
five accounting/billing applications, two time and attendance applications
and the computer network systems on which they are installed and the
telephone, security, elevator, HVAC, and other like systems installed at
the Company's properties. Of secondary importance are those administrative
systems and equipment not directly involved in revenue production but can
still minimally impact the Company's operations.
Of the five software financial applications employed by the Company,
three are currently certified by their respective publishers to be Y2K
compliant. Of the two non-compliant applications, the first is in minimal
use and will not be used for active financial reporting after December 31,
1998. The second application, the property management billing system for
the Puerto Rico properties, is non Y2K compliant and is scheduled for
upgrade during the first quarter of 1999. Active testing to verify the Y2K
compliance of the Company's financial systems will be conducted after
December 31, 1998. "Dummy" companies will be setup in the critical systems
with dates forwarded to beyond 2000 for these tests.
The U.S. and Puerto Rico operations rely on separate time and
attendance systems for payroll processing. The U.S. payroll system
utilizes the services of a third party provider and is certified Y2K
compliant. The Puerto Rico payroll system is not Y2K compliant. The
Company is currently evaluating its options and costs in either upgrading
or replacing the Puerto Rico payroll system. This evaluation is expected
to be completed by December 31, 1998.
The hardware component of the Company's financial systems consists of
industry standard PC operating systems, servers, desktop computers, and
networking hardware. These systems have been evaluated and tested for Y2K
compliance. It has been found that two of the network operating systems
maintained by the Puerto Rico division require minor upgrades to achieve
Y2K compliance. These upgrades are available from the publisher at no cost
and are expected to be installed and tested by December 1998. The
remaining information technology "IT" hardware has been verified to be Y2K
compliant.
The non-IT related electronically controlled systems installed at the
Company's owned and managed properties are currently being inventoried and
evaluated for Y2K exposure. This evaluation is expected to be completed by
January 1999. Once the extent of Y2K exposure is determined for these
systems, costs will be ascertained and procedures implemented to bring non-
compliant systems into Y2K compliance. Since it has already been
determined that a majority of these systems are not "date sensitive" and do
not perform data logging, it is expected that Y2K exposure and related
costs in this area will be minimal.
The administrative applications (word processing, spreadsheet,
messaging, etc) utilized by the Company have been certified by the various
publishers to be Y2K compliant. Testing is currently in progress to verify
compliance of these applications and is expected to be completed by
December 31, 1998.
<PAGE>
Third Party Impact on Company Operations:
The Company performs all financial and revenue production procedures
in house with the exception of U.S. rental payment processing. Failure to
timely process and deposit tenant payments indirectly impacts the Company's
cash flow. Statements of Y2K compliance have been requested from those
vendors supplying these services to the Company.
Of the administrative procedures, only U.S. payroll processing is
performed by a third party vendor. A statement of Y2K compliance has been
obtained from the vendor in question and ACPT considers Y2K exposure with
U.S. payroll processing to be minimal.
With the exception of payment processing, the Company does not foresee
any adverse impact to company fiscal operations due to third party non-
compliance.
Costs to Achieve Y2K Compliance:
Because of the Company's almost exclusive use of "off the shelf"
applications and hardware and that the Company maintains service
maintenance agreements on all critical business systems, costs to achieve
Y2K compliance have been nominal. Y2K upgrades for a majority of the
Company's financial and billing systems have been included with standard
system updates as part of the normal maintenance procedures.
Costs to upgrade the Puerto Rico property management system is
expected to be in the range of $4,000 to $5,000.
The Company does not separately track the internal costs incurred for
the Y2K project. These costs are principally related to payroll costs for
the Company's information systems and property management groups. The
costs for the financial departments to perform the scheduled tests of the
accounting and billing systems for Y2K compliance has not been ascertained,
though it is expected that these costs will be nominal.
Risks of the Company's Y2K Issues:
The failure of one or all of the Company's financial systems for more
than a few days would create a hardship on company operations. Failure of
the basic accounting systems will affect the Company's general ledger,
accounts payable, accounts receivable, and reporting functions. Of utmost
importance is the correct operation of the Company's property management
systems. Failure of these systems could jeopardize the Company's cash flow
from these rental operations.
Failure of the various non-IT systems installed at the Company's owned
and managed properties could seriously affect employee/tenant ingress and
egress and could affect environmental conditions at these properties.
The Company has not obtained insurance specific to Y2K liability
issues and is evaluating whether current policies will cover damages due to
Y2K non-compliance.
The Company's Contingency Plans:
The Company is currently evaluating its various Y2K failure scenarios
and developing contingency plans to ensure continued company operations.
<PAGE>
Forward-Looking Statements
Certain matters discussed and statements made within this Form 10-Q
are forward-looking statements within the meaning of the Private Litigation
Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance or achievements of the company to be different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Although the Company believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Company's
filings with the Securities and Exchange Commission or other public
statements.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 30, 1998, St. Charles Community, LLC filed a complaint in
the Circuit Court for Charles County, Maryland against the County
Commissioners of Charles County and five individual members of the
commission. The complaint presents a challenge to Charles County Ordinance
No. 98-69, which became effective on October 1, 1998. That ordinance
places a moratorium on the issuance of building permits for multi-family or
townhouse developments in Charles County for the period of October 2, 1998
through March 15, 1999. The complaint alleges that the County's
enforcement of the moratorium against St. Charles Community, LLC amounts to
a breach of a 1989 settlement agreement between St. Charles Associates and
the County. St. Charles Community, LLC is a successor in interest to the
rights of St. Charles Associates under that agreement. The October 30,
1998 complaint also alleges that the procedure by which the moratorium
ordinance was enacted violated Maryland law relating to open government
meetings. The complaint seeks in excess of $7,000,000 in damages and an
injunction preventing enforcement of the moratorium.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Securities and Exchange Commission
Section 601 of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- - ------- ----------------------------------------- ----------------------
10.1 First Modification to Credit Facility and Filed herewith
Second Amendment to Master Loan Agreement
between Banc One Capital Partners IV, Ltd.,
Interstate General Company L.P., American
Community Properties Trust, St. Charles
Community, LLC, James J. Wilson, J. Michael
Wilson, Edwin L. Kelly, American Rental
Properties Trust, American Rental Management
Company, American Land Development U.S.,
Inc., IGP Group Corp., and American Housing
Properties L.P. dated October 1, 1998
10.2 Seventh Amendment to Second Amended and Filed herewith
Restated Certificate and Agreement of
Limited Partnership of Interstate General
Properties Limited Partnership S.E. dated
October 1, 1998
(b) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN COMMUNITY PROPERTIES TRUST
-----------------------------------
(Registrant)
Dated: November 16, 1998 By: /s/ J. Michael Wilson
----------------- -----------------------------
J. Michael Wilson
Chairman and Chief
Executive Officer
Dated: November 16, 1998 By: /s/ Cynthia L. Hedrick
----------------- -----------------------------
Cynthia L. Hedrick
Vice President and Controller
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
10.1 First Modification to Credit Facility and Second Amendment to
Master Loan Agreement between Banc One Capital Partners IV, Ltd.,
Interstate General Company L.P., American Community Properties
Trust, St. Charles Community, LLC, James J. Wilson, J. Michael
Wilson, Edwin L. Kelly, American Rental Properties Trust, American
Rental Management Company, American Land Development U.S., Inc.,
IGP Group Corp., and American Housing Properties L.P. dated
October 1, 1998
10.2 Seventh Amendment to Second Amended and Restated Certificate and
Agreement of Limited Partnership of Interstate General Properties
Limited Partnership S.E. dated October 1, 1998
27. Financial Data Schedule
<PAGE>
Exhibit 10.1
FIRST MODIFICATION TO CREDIT FACILITY AND
SECOND AMENDMENT TO MASTER LOAN AGREEMENT
THIS FIRST MODIFICATION TO CREDIT FACILITY AND SECOND AMENDMENT TO
MASTER LOAN AGREEMENT (this "Agreement") is made as of this 1st day of
October, 1998, and is effective as of the 1st day of October, 1998, by and
among the following entities: (i) BANC ONE CAPITAL PARTNERS IV, LTD., an
Ohio limited liability company (the "Lender"), (ii) INTERSTATE GENERAL
COMPANY, L.P., a Delaware limited partnership ("IGC"), (iii) AMERICAN
COMMUNITY PROPERTIES TRUST, a Maryland real estate investment trust
("ACPT"), (iv) ST. CHARLES COMMUNITY, LLC, a Delaware limited liability
company ("St. Charles"), (v) JAMES J. WILSON ("James Wilson"), (vi) J.
MICHAEL WILSON ("Michael Wilson"), (vii) EDWIN L. KELLY ("Edwin Kelly")
(James Wilson, Michael Wilson, and Edwin Kelly are herein the "Original
Guarantors"), (viii) AMERICAN RENTAL PROPERTIES TRUST, a Maryland real
estate investment trust ("American Rental"), (ix) AMERICAN RENTAL
MANAGEMENT COMPANY, a Delaware corporation ("American Management"), (x)
AMERICAN LAND DEVELOPMENT U.S., INC., a Maryland corporation ("American
Land"), (xi) IGP GROUP CORP., a Puerto Rico corporation ("IGP Group") and
(xii) AMERICAN HOUSING PROPERTIES, L.P., a Delaware limited partnership
("American Housing") (American Rental, American Management, American Land,
American Housing and IGC Group are herein, the "Subsidiary Entities").
RECITALS
I. ORIGINAL LOAN STRUCTURE.
WHEREAS, pursuant to that certain Master Loan Agreement, dated as of
August 1, 1997, by and among IGC, ACPT, St. Charles and Lender, as amended
by that certain First Amendment to Master Loan Agreement, dated as of
September 30, 1997, by and among IGC, ACPT, St. Charles and Lender (the
Master Loan Agreement, as amended by the First Amendment to Master Loan
Agreement is herein, the "Original Loan Agreement"), Lender agreed to
provide IGC and ACPT a credit facility in the principal sum of up to Twenty
Million Dollars ($20,000,000) (the "Original Credit Facility" and the
Original Credit Facility as amended pursuant to the terms herein, the
"Credit Facility"); and
WHEREAS, the obligations of ACPT and IGC under the Original Loan
Agreement were evidenced by that certain Promissory Note dated as of August
1, 1997, in the original principal sum of Twenty Million Dollars
($20,000,000) executed and delivered by IGC and ACPT to Lender (the
"Original Promissory Note"); and
WHEREAS, pursuant to the terms of the Original Loan Agreement, IGC and
ACPT have re-loaned a portion of the Original Credit Facility proceeds to
St. Charles to fund St. Charles' development of certain of the Real
Property (as defined below); and the obligations of St. Charles to repay
such sums to IGC and ACPT are evidenced by that certain Mirror Promissory
Note dated as of August 1, 1997, in the original principal sum of Twenty
Million Dollars ($20,000,000) executed and delivered by St. Charles to IGC
and ACPT (the "Original Mirror Promissory Note"); and
<PAGE>
A. Real Estate Collateral.
WHEREAS, pursuant to that certain Property Owner Guaranty
Agreement, dated as of August 1, 1997, from St. Charles to Lender (the
"Original Property Guaranty"), St. Charles guaranteed the obligations of
IGC and ACPT under the Original Loan Agreement and Original Promissory
Note; St. Charles secured its obligations under the Original Property
Owner Guaranty pursuant to (i) that certain Indemnity Deed of Trust,
Security Agreement and Assignment of Leases and Rents, from St. Charles to
Charles R. Moran and Thomas A. Hauser, as Trustees (the "Trustees") for the
benefit of Lender and recorded among the Land Records of Charles County
(the "Original Deed of Trust"), thereby encumbering approximately 4,400
acres of improved and unimproved real estate located in Charles County (the
"Real Property"); (ii) that certain Assignment of Contracts dated as of
August 1, 1997, from IGC and St. Charles for the benefit of Lender (the
"Original Assignment of Contracts"); and (iii) that certain Assignment of
Plans, Specifications and Permits, dated as of August 1, 1997, from IGC and
St. Charles for the benefit of Lender (the "Original Assignment of Plans,
Specifications and Permits", and together with the Original Property
Guaranty, Original Deed of Trust, and Original Assignment of Contracts, the
"Original Real Estate Collateral Documents"); and
B. Partnership Interest Collateral.
WHEREAS, IGC further secured its obligations to Lender under the
Original Credit Facility pursuant to that certain Assignment and Pledge of
Partnership Interest, dated as of August 1, 1997, by and between Lender and
IGC (the "IGC Partnership Pledge Agreement"), whereby IGC conveyed to
Lender and granted to Lender a security interest in, all of IGC's right,
title and interest in certain partnerships formed under Maryland law
(herein collectively, the "Maryland Partnerships"), and pursuant to that
certain Assignment and Pledge of Partnership Interest, dated as of August,
1998, by and between Lender and IGC (the "IGPLP Partnership Pledge
Agreement", and together with the IGC Partnership Pledge Agreement, the
"Partnership Pledge Agreements"), whereby IGPLP conveyed to Lender and
granted to Lender a security interest in, all of IGC's right, title and
interest in Interstate General Properties Limited Partnership S.E., a
Maryland limited partnership ("IGPLP"); and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment and Pledge of Management Fees, dated as of August 1,
1997, between Lender and IGC (the "Pledge of IGC Management Fees"), whereby
IGC conveyed to Lender and granted to Lender a security interest in, all of
IGCs right, title and interest in and to the management fees (the "American
Partnership Management Fees") payable to IGC by the Maryland partnerships
and certain other partnerships (herein collectively, the "American
Partnerships"); and pursuant to that certain Assignment and Pledge of
Management Fees, dated as of August 1, 1997, between Lender and IGPLP (the
"Pledge of IGPLP Management Fees", and together with the Pledge of IGC
Management Fees, the "Pledge of Management Fees"), whereby IGPLP conveyed
to Lender and granted to Lender a security interest in, all of IGPLP's
right, title and interest in and to the management fees (the "Puerto Rico
Management Fees", and together with the American Partnership Management
Fees, the "Partnership Management Fees") payable to IGPLP by certain
partnerships (herein collectively, the "Puerto Rico Partnerships"); and
<PAGE>
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to (i)
that certain Assignment of Incentive Management Fees, dated as of August 1,
1997, by and between IGC and Lender (the "IGC Assignment of Incentive
Management Fees"), whereby IGC conveyed to Lender and granted to Lender a
security interest in, all of IGC's right, title and interest in and to all
incentive management fees (the "IGC Incentive Management Fees") payable to
IGC by the American Partnerships; (ii) that certain Assignment of Incentive
Management Fees, dated as of August 1, 1997, by and between IGPLP and
Lender (the "IGPLP Assignment of Incentive Management Fees"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to all management fees (the "IGPLP
Incentive Management Fees") payable to IGPLP by all of the Puerto Rico
Partnerships except for Carolina Associates Limited Partnership; and (iii)
that certain Assignment and Pledge of Excluded Incentive Management Fees,
dated as of August 1, 1997, between Lender and IGPLP (the "Pledge of IGPLP
Excluded Incentive Management Fees", and together with the IGC Assignment
of Incentive Management Fees and IGPLP Assignment of Incentive Management
Fees, the "Assignment of Incentive Management Fees"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to the incentive management fees
(the "IGPLP Excluded Incentive Management Fees", together with the IGC
Incentive Management Fees and IGPLP Incentive Management Fees, the
"Incentive Management Fees") payable to IGPLP by Carolina Associates
Limited Partnership; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment and Pledge of Operating Deficit Loans, dated as of
August 1, 1997, by and between Lender and IGC (the "IGC Deficit Loans
Pledge"), whereby IGC conveyed to Lender and granted to Lender a security
interest in, all of IGC's right, title and interest in and to all amounts
due to IGC relating to those certain short term operating deficit loans
(the "American Partnership Deficit Loans") made from time to time by IGC to
the American Partnerships; and pursuant to that certain Assignment and
Pledge of Operating Deficit Loans, dated as of August 1, 1997, by and
between Lender and IGPLP (the "IGPLP Deficit Loans Pledge", and together
with the IGC Deficit Loans Pledge, the "Deficit Loans Pledge"), whereby
IGPLP conveyed to Lender and granted to Lender a security interest in, all
of IGPLP's right, title and interest in and to all amounts due to IGPLP
relating to those certain short term operating deficit loans (the "Puerto
Rico Partnership Deficit Loans" together with the American Partnership
Deficit Loans, are herein the "Partnership Deficit Loans") made from time
to time by IGPLP to the Puerto Rico Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Proceeds from Sale of Partnership Interest, dated as
of August 1, 1997, by and between IGC and Lender (the "IGC Assignment of
Sale Proceeds"), whereby IGC conveyed to Lender and granted to Lender a
security interest in, all of IGC's right, title and interest in and to all
proceeds received by or payable to IGC from the sale or transfer of IGC's
partnership interests in the American Partnerships; and pursuant to that
certain Assignment of Proceeds from Sale of Partnership Interest, dated as
of August 1, 1997, by and between IGPLP and Lender (the "IGPLP Assignment
of Sale Proceeds", and together with the IGC Assignment of Sale Proceeds,
<PAGE>
the "Assignment of Sale Proceeds"), whereby IGPLP conveyed to Lender and
granted to Lender a security interest in, all of IGPLP's right, title and
interest in and to all proceeds received by or payable to IGC from the sale
or transfer of IGPLP's partnership interests in the Puerto Rico
Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Proceeds, dated as of August 1, 1997, by and between
IGC and Lender (the "IGC Assignment of Proceeds"), whereby IGC conveyed to
Lender and granted to Lender a security interest in, all of IGC's right,
title and interest in and to all distributions and other amounts received
by or payable to IGC certain of the Maryland Partnerships; and pursuant to
that certain Assignment of Proceeds, dated as of August 1, 1997, by and
between IGPLP and Lender (the "IGPLP Assignment of Proceeds", and together
with the IGC Assignment of Proceeds, the "Assignment of Proceeds" ),
whereby IGPLP conveyed to Lender and granted to Lender a security interest
in, all of IGPLP's right, title and interest in and to all distributions
and other amounts received by or payable to IGPLP from the Puerto Rico
Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Long Term Receivables, dated as of August 1, 1997, by
and between IGC and Lender (the "IGC Assignment of Long Term Receivables"),
whereby IGC conveyed to Lender and granted to Lender a security interest
in, all of IGC's right, title and interest in and to all proceeds payable
to or received by Assignor relating to long-term loans made by Assignor to
the American Partnerships (the "IGC Long Term Receivables"); and pursuant
to that certain Assignment of Long Term Receivables, dated as of August 1,
1997, by and between IGPLP and Lender (the "IGPLP Assignment of Long Term
Receivables", and together with the IGC Assignment of Long Term
Receivables, the "Assignment of Long Term Receivables"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to all proceeds payable to or
received by Assignor relating to long-term loans made by Assignor to the
Puerto Rico Partnerships (the "IGPLP Long Term Receivables", and together
with the IGC Long Term Receivables, the "Long Term Receivables"); and
WHEREAS, the Partnership Pledge Agreements, Pledge of Management
Fees, Assignment of Incentive Management Fees, Deficit Loans Pledge,
Assignment of Proceeds, and Assignment of Long Term Receivables all as
amended to date are herein collectively, the "Original Partnership
Collateral Documents"; and Lender's rights pursuant to the Original
Partnership Collateral Documents, the Maryland Partnerships, IGPLP, the
Partnership Management Fees, the Incentive Management Fees, the Partnership
Deficit Loans, and the Long Term Receivables are herein collectively the
"Partnership Collateral"; and
C. Guaranties, Indemnifications and Warrants.
WHEREAS, certain of the obligations of IGC and ACPT are
guaranteed by (i) James Wilson, Michael Wilson, and Edwin Kelly pursuant to
that certain Guaranty Agreement dated as of August 1, 1998 from James
Wilson, Michael Wilson, and Edwin Kelly to and for the benefit of Lender
(the "Original Principal Guaranty"); and (ii) James Wilson pursuant to that
certain Guaranty Agreement dated as of August 1, 1997 from James Wilson to
<PAGE>
and for the benefit of Lender, as amended by that certain First Amendment
to Guaranty Agreement dated as of September 30, 1997 by and between James
Wilson and Lender (the Guaranty Agreement, as amended by the First
Amendment to Guaranty Agreement is herein, the "Original Wilson Guaranty");
and
WHEREAS, pursuant to that certain letter dated as of August 1,
1997, from IGC, ACPT, St. Charles, James Wilson, Michael Wilson, and Edwin
Kelly to Lender (the "Original Environmental Indemnification"), each IGC,
ACPT, St. Charles, James Wilson, Michael Wilson, and Edwin Kelly agreed to
indemnify and hold Lender harmless against certain environmental claims
which may arise relating to the Real Property; and
WHEREAS, as additional consideration for agreeing to provide the
Credit Facility, IGC granted Lender a right to purchase units of limited
partnership interest of IGC pursuant to that certain Warrant Certificate,
dated as of August 1, 1997, from IGC to Lender (the "Original Warrant
Certificate") (the Original Loan Agreement, the Original Promissory Note,
the Original Mirror Promissory Note, the Original Real Estate Collateral
Documents, the Original Partnership Collateral Documents, the Original
Principal Guaranty, the Original Wilson Guaranty, the Original
Environmental Indemnification and the Original Warrant Certificate are
herein the "Original Loan Documents"); and
II. RESTRUCTURING OF IGC AND ACPT.
WHEREAS, IGC holds all of the issued and outstanding shares of
American Rental, American Management, American Land and IGP Group; and
American Rental owns a 99% limited partnership interest in American Housing
and is the sole stockholder of American Housing Management Company, a
Delaware corporation ("American Housing"), which owns a 1% general
partnership interest in American Housing; and
WHEREAS, as set forth in the Registration Statement of ACPT on Form S-
11 Registration No. 333-58835 as filed with the Securities and Exchange
Commission (the "Registration Statement") IGC and ACPT will consummate the
terms of the "Restructuring" as defined therein (the "Restructuring")
whereby, among other things, IGC will (i) transfer and convey to American
Land, all of its right, title and interest in all of the membership
interests of St. Charles, and then subsequently transfer and convey to ACPT
all of its right, title and interest in all of the issued and outstanding
shares of American Land; (ii) transfer and convey to IGP Group, American
Land and American Housing, all of IGC's right, title and interest in 100%
of the partnership interests in IGPLP and then subsequently transfer and
convey to ACPT, all of IGC's right, title and interest in all of the issued
and outstanding shares of IGP Group; and (iii) pursuant to the Partnership
Transfer Documents (as defined in Schedule 4 hereto) transfer and convey to
American Housing all of IGC's right, title and interest in certain of the
American Partnerships which will result in American Housing holding all of
IGC's right, title and interest in the American Partnerships and then
subsequently convey to ACPT all of IGC's right, title and interest in all
of the issued and outstanding shares of American Rental; and
<PAGE>
WHEREAS, in connection with the Restructuring, IGC, ACPT and the
Lender wish to (i) modify and amend the terms of the Original Credit
Facility and the Original Loan Documents and release ACPT as a primary
obligor of the Original Credit Facility, a co-maker of the Original
Promissory Note and a borrower under the Original Loan Agreement, (ii)
permit American Land to assume all of the obligations of ACPT under the
Original Credit Facility and Original Loan Documents, and (iii) release all
of Lender's interest in the Released Partnership Collateral (defined
below); and
WHEREAS each of IGC, ACPT, American Land, American Rental, American
Housing, IGP Group and American Management will receive substantial
benefits in connection with the Restructuring, and Lender wishes to modify
the Original Credit Facility and the Original Loan Documents as hereinafter
provided, so that upon transfer of the Released Partnership Collateral, the
Released Partnership Collateral will not be subject to the Obligations;
and
WHEREAS, in consideration for the release of ACPT by Lender of its
direct obligations under the Original Credit Facility, Lender's agreement
to release all of its interests in the Partnership Collateral and Lender's
agreement to otherwise modify and amend the Original Credit Facility, as
hereinafter provided, American Land has agreed to assume all obligations of
ACPT under the Original Credit Facility and the Original Loan Documents,
ACPT has agreed to unconditionally guarantee the obligations of IGC and
American Land under the Credit Facility and the Original Loan Documents, as
amended hereby, and ACPT and IGC have further agreed to secure its
obligations to Lender by pledging to Lender all of the issued and
outstanding shares of American Rental, American Management, American Land
and IGP Group to be held by ACPT; and
WHEREAS, as additional consideration for Lender's agreement to modify
and amend the Original Credit Facility as hereinafter provided, American
Housing, IGP Group and American Management have agreed to guarantee the
obligations of IGC and American Land under the Credit Facility and the
Original Loan Documents and ACPT under the ACPT Guaranty Agreement (as
defined herein) and have further agreed that their respective guaranty
agreements shall include certain negative covenants whereby each will
agree, among other things, that it shall not directly or indirectly
encumber or otherwise pledge any of the Partnership Collateral owned by
such entity; and James Wilson and his wife, Barbara A. Wilson have agreed
to unconditionally guarantee the obligations of IGC, ACPT and American Land
to Lender.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows without in any way or
manner whatsoever affecting, limiting, impairing, releasing, changing or
evading any of the provisions of the Original Loan Documents except to the
extent expressly and specifically amended or modified by the provisions of
this Agreement or by instruments or agreements executed and delivered
pursuant to this Agreement.
<PAGE>
ARTICLE I
Section 1. Definitions and Rules of Construction, Recitals.
1.1. Definitions. As used in this Agreement, the terms defined in
the Recitals hereto shall have the respective meaning specified therein.
Terms used herein but not otherwise defined shall have the meanings given
to them under in the Original Loan Agreement.
1.2. Rules of Construction. All accounting terms which are not
expressly defined herein shall have the meanings given to them under
generally accepted accounting principles ("GAAP"), consistently applied to
applicable persons. Unless otherwise defined herein or in he Original Loan
Agreement, all terms used herein which are defined by the Maryland Uniform
Commercial Code shall have the same meanings as given to them by the
Maryland Uniform Commercial Code unless and to the extent varied by this
Agreement or the Original Loan Agreement. The words "hereof", "herein",
and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and "Section", "Subsection", "Schedule" and
"Exhibit" references to sections or subsections of, or schedules or
exhibits to, as the case may be, of this Agreement unless otherwise
specified. As used herein, the singular number shall include the plural,
the plural shall include the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may
require.
1.3. Incorporation of Recitals. The Recitals set forth hereinabove
are hereby incorporated into this Agreement as though fully set forth
herein.
Section 2. Assumption of Obligations by American Land. In consideration
for IGC's conveyance of all of its right, title and interest in St. Charles
to American Land, American Land hereby assumes any and all obligations of
ACPT under the Original Credit Facility, the Original Loan Agreement and
all other Original Loan Documents, and succeeds to the rights and
obligations of ACPT thereunder, and further hereby represents, warrants and
covenants that it will perform all of the obligations of ACPT in accordance
with the terms thereof. From and after the date of this Agreement,
American Land shall be deemed one of the Borrowers, together with IGC,
under the Original Loan Agreement, the Original Promissory Note, and all
other Original Loan Documents.
Section 3. Release of ACPT. Lender hereby releases and discharges ACPT as
a direct obligor under the Credit Facility, a Borrower under the Original
Loan Agreement, a co-maker of the Original Promissory Note and as borrower
or obligor under any of the other Original Loan Documents, provided,
however, that such release shall not in any way be deemed nor interpreted
as a release of ACPT as a guarantor of any of the Obligations existing or
arising after the date hereof, pursuant to that certain ACPT Guaranty
Agreement (as hereinafter defined), executed and delivered by ACPT
simultaneously herewith. Notwithstanding the release of ACPT as a Borrower
under the Original Loan Agreement, ACPT shall, and hereby agrees to,
perform, observe and comply with the Affirmative Covenants and the Negative
Covenants set forth in Sections 5 and 6 of the Original Loan Agreement as
if ACPT remains a "Borrower" thereunder.
<PAGE>
Section 4. Release of Partnership Collateral; Consummation of
Restructuring.
4.1 Release of Partnership Collateral. Lender waives, relinquishes
and releases all of its right, title and interest in all of the Partnership
Collateral except for the "Retained Partnership Collateral" as defined on
Schedule 4 hereto (such released portion of the Partnership Collateral
being referred to herein as the "Released Partnership Collateral"),
effective immediately preceding the assignment and transfer of the Released
Partnership Collateral by IGC to American Management, IGP Group and
American Housing pursuant to the Restructuring. Lender agrees to execute
and deliver to IGC and ACPT such UCC-3 Termination Statements and such
other documents necessary to effectuate such relinquishment and release of
the Released Partnership Collateral as reasonably requested by IGC and
ACPT. IGC and ACPT agree to execute and deliver, or cause their affiliates
to execute and deliver, to Lender such documents as Lender may reasonably
request to confirm and ratify Lender's rights with respect to the Retained
Partnership Collateral.
4.2 Consummation of Restructuring. IGC covenants and agrees that
immediately following the relinquishment and release by Lender of all of
its right, title and interest in the Released Partnership Collateral, IGC
will assign and transfer the respective Released Partnership Collateral to
American Management, IGP Group and American Housing and will promptly, in
accordance with the Restructuring, assign and transfer all of the issued
and outstanding shares of stock and beneficial interest in American Land,
American Rental, IGP Group and American Management to ACPT in exchange for
shares of beneficial interest in ACPT, and distributing such shares of
beneficial interest in ACPT to the unitholders of IGC.
Section 5. Amendments and Modifications to Original Loan Documents.
5.1. Modification to Master Loan Agreement. The Original Loan
Agreement shall be and hereby is, modified and amended as follows (all
references in this Section 5.1 to Subsections shall mean Subsections of the
Original Loan Agreement):
5.1.1. Any and all reference to the term "Borrower" shall now
mean both IGC and American Land, jointly and severally.
5.1.2. The definition of "Base Rate" under Subsection 1.8 is
amended by deleting all of the text of such subsection and inserting in
lieu thereof "means the Base Interest Rate under the Note equal to the Bank
One Prime Rate, as in effect from time to time, plus Six Hundred Fifty
(650) Basis Points, provided, however, that if and when Bank One is re-
granted a security interest in the Released Partnership Collateral as more
fully set forth in the Note, then effective as of the first calendar day of
the immediately succeeding calendar month, the Base Interest Rate under the
Note shall be equal to the Bank One Prime Rate, as in effect from time to
time, plus Two Hundred Fifty (250) Basis Points."
5.1.3. The definition of "Borrower" in Subsection 1.10 is
amended by deleting all of the text therefrom and inserting in lieu thereof
"means individually and collectively IGC and American Land".
5.1.4. The definition of "Financing Documents" in Subsection
1.32 is amended to include this Agreement and the other Loan Modification
Documents.
<PAGE>
5.1.5. The definition of "Guarantor" and "Guarantors" in
Subsection 1.38 is amended by adding thereto, Barbara A. Wilson, the spouse
of James Wilson.
5.1.6. The definition of "Loan Agreement" is hereby added and
inserted as Subsection 1.51A, and shall mean collectively, the Original
Loan Agreement as modified and amended by this Agreement.
5.1.7. The definition of "Loan Modification Documents" is
hereby added and inserted as Subsection 1.51B, and shall mean collectively,
this Agreement, the Amended and Restated Promissory Note, the Amendment to
Property Owner Guaranty Agreement, the Amended and Restated Mirror
Promissory Note, the Modification to Deed of Trust, the Modification of
Assignment of Contracts and Assignment of Plans, Specifications and
Permits, the Amended and Restated Principals' Guaranty, the Amended and
Restated Wilson Guaranty, the Amended and Restated Environmental
Indemnification, the ACPT Guaranty, the Stock Pledge Agreement, the IGP
Group Guaranty, the American Housing Guaranty, the American Management
Guaranty, the New Wilson Guaranty, the ACPT Warrant Certificate and any
other documents or agreements executed and delivered in connection with the
first modification of the Original Credit Facility.
5.1.8. The definition of the term "Note" under Subsection 2.5.5
is amended to include the Amended and Restated Promissory Note (as
hereinafter defined).
5.1.9. The definition of the term "Mirror Note" in Subsection
2.5.5 is amended to include the Amended and Restated Mirror Note (as
hereinafter defined).
5.1.10. The definition of the term "Property Owner Guaranty" in
Subsection 2.6.1.1 is amended to include the First Amendment to Property
Owner Guaranty Agreement (as hereinafter defined).
5.1.11. The definition of the term "Key Principals Guaranty" in
Subsection 2.6.1.2 is amended to include the Amended and Restated Key
Principals Guaranty (as hereinafter defined).
5.1.12. The definition of the term "Wilson Guaranty" in
Subsection 2.6.1.3 is amended to include the Amended and Restated Wilson
Guaranty (as hereinafter defined).
5.1.13. Section 2.6.2 entitled "Collateral", is hereby amended
by adding a new subsection (e) as follows: "certain Stock Pledge Agreement
(which Stock Pledge Agreement, as the same may from time to time be
amended, restated, supplemented or otherwise modified, is herein called the
"Stock Pledge Agreement") whereby, IGC and ACPT pledged to Lender their
respective rights, title and interest in the "Pledged Stock" and adding to
the definition of "Collateral" contained therein the words "Pledged Stock".
5.1.14. Section 5.25 is hereby amended by deleting all of the
text therein and inserting in lieu thereof as follows: "For the term of the
Loan, ACPT shall maintain a ratio of aggregate liabilities to tangible net
worth equal to no greater than seven and one-half to one (7.5 to 1), and
the Borrower and ACPT shall maintain a ratio of combined aggregate
liabilities to combined tangible net worth equal to no greater than three
to one (3 to 1). For purposes of this Section 5.25, the term "tangible net
<PAGE>
worth" shall mean the net worth ACPT, or ACPT and the Borrower combined, as
the case may be, less any good will and deferred costs, as calculated on a
GAAP basis."
5.1.15. A new Subsection 8.13 is added to read as follows:
8.13. Failure to Comply With Covenants. The failure by
any Borrower, ACPT or any of the Subsidiary Entities to perform, observe or
comply with any of the Negative Covenants contained in Section 6 of this
Agreement, any of the Negative Covenants contained in the ACPT Guaranty,
the IGP Group Guaranty, the American Housing Guaranty, the American Rental
Guaranty or the American Management Guaranty, or any of the Covenants
contained in the Stock Pledge Agreement.
5.1.16. A new Subsection 8.14 is added to read as follows:
8.14. Failure to Consummate Restructuring. The failure
of IGC to transfer and convey the Released Partnership Collateral to
American Management, IGP Group and American Housing immediately after the
relinquishment and release by Lender of its right, title and interest in
the Released Partnership Collateral, or the failure of IGC to assign and
transfer all of the issued and outstanding shares of stock and beneficial
interest in American Land, American Rental, IGP Group and American
Management to ACPT in exchange for shares of beneficial interest in ACPT
and distribution of such ACPT shares to IGC Unitholders on or before
October 31, 1998.
5.1.17. A new Subsection 8.15 is added to read as follows:
8.15. Other Events of Default. The occurrence of any
Event of Default under any of the other Financing Documents.
5.1.18. Subsection 10.5 is hereby amended by deleting all of
the text therein and inserting in lieu thereof as follows: "Upon completion
of the Restructuring, the parties hereby covenant and agree, that, without
further action by any party, as of such date of the Restructuring, IGC
shall be released from any and all prospective covenants, representations
or warranties arising hereunder, except for and excluding, the affirmative
covenants set forth under Section 5.25."
5.2. Amendment to Original Promissory Note. The Original Promissory
Note shall be amended and restated in accordance with the provisions of
that certain Amended and Restated Promissory Note (which Amended and
Restated Promissory Note, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified, is herein the "Amended
and Restated Promissory Note") in the form attached hereto as Exhibit 5.2
to reflect, inter alia, the Restructuring, an increase in the Base Rate,
and American Land's assumption of ACPT's obligations under the Credit
Facility and Original Loan Documents. The Amended and Restated Promissory
Note has been executed and delivered by IGC and American Land
simultaneously herewith.
5.3. Amendment to Original Property Owner Guaranty Agreement. The
Original Property Owner Guaranty Agreement shall be amended in accordance
with the provisions of that certain First Amendment to Property Owner
Guaranty Agreement (which Amendment to Property Owner Guaranty Agreement,
as the same may from time to time be extended, replaced, amended, restated
<PAGE>
or otherwise modified, is herein the "Amendment to Property Owner Guaranty
Agreement") in the form attached hereto as Exhibit 5.3 to reflect, inter
alia, the Restructuring, American Land's assumption of ACPT's obligations
under the Credit Facility and Original Loan Documents, and the change in
definition of the Base Rate. The Amendment to Property Owner Guaranty
Agreement has been executed and delivered by St. Charles simultaneously
herewith.
5.4. Amendment to Original Mirror Promissory Note. The Original
Mirror Promissory Note shall be amended and restated in accordance with the
provisions of that certain Amended and Restated Mirror Promissory Note
(which Amended and Restated Mirror Promissory Note, as the same may from
time to time be extended, replaced, amended, restated or otherwise
modified, is herein the "Amended and Restated Mirror Promissory Note") in
the form attached hereto as Exhibit 5.4 to reflect, inter alia, the
Restructuring, American Land's assumption of ACPT's obligations under the
Credit Facility and Original Loan Documents and the change in definition of
the Base Rate. The Amended and Restated Mirror Promissory Note has been
executed and delivered by Property Owner; and assigned to Lender by allonge
executed and delivered by St. Charles, simultaneously herewith.
5.5. Amendment to Indemnity Deed of Trust. The Indemnity Deed of
Trust shall be amended in accordance with the terms of that certain
Modification to Indemnity Deed of Trust (which Modification to Indemnity
Deed of Trust, as the same may from time to time be extended, replaced,
amended, restated or otherwise modified, is herein the "Modification to
Deed of Trust") in the form attached hereto as Exhibit 5.5 to reflect the
Restructuring and American Land's assumption of ACPT's obligations under
the Credit Facility. The Modification to Deed of Trust has been executed
and delivered by St. Charles simultaneously herewith.
5.6. Amendment to Assignment of Contracts and Assignment of Plans,
Specifications and Permits. The Assignment of Contracts and Assignment of
Plans, Specifications and Permits shall be amended pursuant to the terms of
that certain Modification of Assignment of Contracts and Assignment of
Plans, Specifications and Permits (which Modification to Assignment of
Contracts and Assignment of Plans, Specifications and Permits, as the same
may from time to time be extended, replaced, amended, restated or
otherwise modified, is herein the "Modification of Assignment of Contracts
and Assignment of Plans, Specifications and Permits") in the form attached
hereto as Exhibit 5.6 to reflect, inter alia, the Restructuring and
American Land's assumption of ACPT's obligations under the Credit Facility
and Original Loan Documents. The Modification of Assignment of Contracts
and Assignment of Plans, Specifications and Permits has been executed and
delivered simultaneously herewith.
5.7. Original Principal's Guaranty. The Original Principal's Guaranty
shall be amended and restated in accordance with the provisions of that
certain Amended and Restated Principals' Guaranty (which Amended and
Restated Principals' Guaranty, as the same may from time to time be
extended, replaced, amended, restated or otherwise modified is herein the
"Amended and Restated Principals' Guaranty") in the form attached hereto as
Exhibit 5.7 to reflect, inter alia, the Restructuring and American Land's
assumption of ACPT's obligations under the Credit Facility and Original
Loan Documents. The Amended and Restated Principals' Guaranty has been
executed and delivered by the Key Principals simultaneously herewith.
<PAGE>
5.8. Original Wilson Guaranty. The Original Wilson Guaranty shall be
amended and restated in accordance with the provisions of that certain
Amended and Restated Wilson Guaranty (which Amended and Restated Wilson
Guaranty, as the same may from time to time be extended, replaced, amended,
restated or otherwise modified is herein the "Amended and Restated Wilson
Guaranty") in the form attached hereto as Exhibit 5.8 to reflect, inter
alia, the Restructuring and American Land's assumption of ACPT's
obligations under the Credit Facility and Original Loan Documents. The
Amended and Restated Wilson Guaranty has been executed and delivered by
James Wilson simultaneously herewith.
5.9. Original Environmental Indemnification. The Original
Environmental Indemnification shall be amended and restated in accordance
with the provisions of that certain Amended and Restated Environmental
Indemnification (which Amended and Restated Environmental Indemnification,
as the same may from time to time be extended, replaced, amended, restated
or otherwise modified is herein the "Amended and Restated Environmental
Indemnification") in the form attached hereto as Exhibit 5.9 to reflect,
inter alia, the Restructuring and American Land's assumption of ACPT's
obligations under the Credit Facility and Original Loan Documents. The
Amended and Restated Environmental Indemnification has been executed and
delivered by the signatories thereto simultaneously herewith.
5.10. Amendment of Partnership Collateral Documents. Each of the
Original Partnership Collateral Documents as amended and in effect as of
the date hereof, is hereby amended (i) to release therefrom all of the
Released Partnership Collateral, without affecting in any way Lender's
rights and the Assignors' obligations with respect to the Retained
Partnership Collateral; and (ii) to acknowledge the Restructuring and this
Agreement.
Section 6. Additional Agreements and New Loan Documents.
6.1. ACPT Guaranty and Pledge of Stock.
6.1.1 ACPT Guaranty. In consideration for the release of
ACPT as a primary obligor under the Credit Facility, as a Borrower under
the Original Promissory Note and the other Original Loan Documents, the
release by Lender of its interest in the Released Partnership Collateral
and Lender's consent to the Restructuring, ACPT shall unconditionally
guarantee all of the obligations of IGC and American Land under the
Original Credit Facility, as amended hereby, and the other Original Loan
Documents, as amended hereby, pursuant to that certain Guaranty Agreement
(which Guaranty Agreement, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified is herein the "ACPT
Guaranty") in the form attached hereto as Exhibit 6.1.1. The ACPT Guaranty
has been executed and delivered by ACPT simultaneously herewith.
6.1.2 Pledge of Stock. ACPT shall secure its obligations
under the ACPT Guaranty, and IGC shall further secure its obligations under
the Amended and Restated Note, by pledging to Lender their respective
right, title and interest in all of the issued and outstanding shares of
stock or beneficial interests, as applicable, of American Land, American
Management, American Rental and IGP Group (the "Pledged Stock"), pursuant
to that certain Stock Pledge Agreement (which Stock Pledge Agreement, as
the same may from time to time be extended, replaced, amended, restated or
<PAGE>
otherwise modified is herein the "Stock Pledge Agreement") in the form
attached hereto as Exhibit 6.1.2. The Stock Pledge Agreement has been
executed and delivered by ACPT and IGC simultaneously herewith.
6.2. IGP Group Guaranty. As additional consideration for Lender
agreeing to release all of its right, title and interest in and to the
Released Partnership Collateral, and to consent to the Restructuring, IGP
Group shall unconditionally guarantee the obligations of IGC and American
Land under the Original Credit Facility, as amended herein, and the
Original Loan Documents, as amended herein, and to further guarantee the
obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "IGP Group Guaranty") in the form attached hereto as Exhibit
6.2. The IGP Group Guaranty has been executed and delivered by IGP Group
simultaneously herewith.
6.3. American Housing Guaranty. As additional consideration for
Lender agreeing to release all of its right, title and interest in and to
the Released Partnership Collateral, and to consent to the Restructuring,
American Housing shall unconditionally guarantee the obligations of IGC and
American Land under the Original Credit Facility, as amended herein, and
the Original Loan Documents, as amended herein, and to further guarantee
the obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "American Housing Guaranty") in the form attached hereto as
Exhibit 6.3. The American Housing Guaranty has been executed and delivered
by American Housing simultaneously herewith.
6.4. American Management Guaranty. As additional consideration for
Lender agreeing to release all of its right, title and interest in and to
the Released Partnership Collateral, and to consent to the Restructuring,
American Management shall unconditionally guarantee the obligations of IGC
and American Land under the Original Credit Facility, as amended herein,
and the Original Loan Documents, as amended herein, and to further
guarantee the obligations of ACPT under the ACPT Guaranty, pursuant to that
certain Guaranty Agreement (which Guaranty Agreement, as the same may from
time to time be extended, replaced, amended, restated or otherwise modified
is herein the "American Management Guaranty") in the form attached hereto
as Exhibit 6.4. The American Management Guaranty has been executed and
delivered by American Management simultaneously herewith.
6.5. American Rental Guaranty. As additional consideration for Lender
agreeing to release all of its right, title and interest in and to the
Released Partnership Collateral, and to consent to the Restructuring,
American Rental shall unconditionally guarantee the obligations of IGC and
American Land under the Original Credit Facility, as amended herein, and
the Original Loan Documents, as amended herein, and to further guarantee
the obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "American Rental Guaranty") (the IGP Group Guaranty, American
Housing Guaranty, American Management Guaranty, and American Rental
Guaranty are herein collectively the "Subsidiary Entities' Guaranties") in
the form attached hereto as Exhibit 6.5. The American Rental Guaranty has
been executed and delivered by American Rental simultaneously herewith.
<PAGE>
6.6. New Guaranty from James J. Wilson and Barbara A. Wilson. As
additional consideration for Lender agreeing to release all of its right,
title and interest in and to the Released Partnership Collateral, and to
consent to the Restructuring, James J. Wilson and Barbara A. Wilson shall
unconditionally guarantee the obligations of IGC and American Land under
the Original Credit Facility, as amended herein, and the Original Loan
Documents, as amended herein, and to further guarantee the obligations of
ACPT under the ACPT Guaranty, pursuant to that certain Guaranty Agreement
(which Guaranty Agreement, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified is herein the "New Wilson
Guaranty") in the form attached hereto as Exhibit 6.6. The New Wilson
Guaranty has been executed and delivered by James J. Wilson and Barbara A.
Wilson, his wife, simultaneously herewith.
6.7. New Warrant Certificate. In order to reflect the restructuring,
and as required by the Original Warrant Certificate, ACPT shall issue,
execute and deliver Lender a new Warrant Certificate to replace the
Original Warrant Certificate (which new Warrant Certificate, as the same
may from time to time be replaced, amended, restated or otherwise modified
is herein the "ACPT Warrant Certificate") in the form attached hereto as
Exhibit 6.7. The ACPT Warrant Certificate has been executed and delivered
by ACPT simultaneously herewith but shall be effective upon the
consummation of the Restructuring.
Section 7. Ratification, No-Novation, Effect of Amendments and
Modification.
7.1. Ratification and No Novation. Each of IGC, ACPT, St. Charles,
the Original Guarantors and the Subsidiary Entities, individually and
collectively, hereby ratifies and confirms all of its or his respective
obligations, liabilities and indebtedness under the provisions of the
Original Promissory Note, the Original Deed of Trust, and each other
Original Loan Document, as the case may be, as the same are amended hereby
or will be amended pursuant to the terms hereof. Each of IGC, ACPT, St.
Charles, the Original Guarantors and the Subsidiary Entities acknowledge
and agree that to the extent not otherwise specifically provided herein, it
is their intention that nothing in this Agreement or in any of the other
Loan Modification Documents shall be construed to extinguish, release, or
discharge or constitute, create, or effect a novation of, or an agreement
to extinguish, release or discharge, any of the obligations, indebtedness
and liabilities of the IGC, ACPT, St. Charles, the Original Guarantors and
the Subsidiary Entities or any other party under the provisions of the
Original Promissory Note, the Original Deed of Trust, or any of the other
Original Loan Documents. IGC, ACPT, St. Charles, the Original Guarantors
and the Subsidiary Entities, individually and collectively, acknowledge and
agree that all of the provisions of the Original Promissory Note, the
Original Deed of Trust, and each of the other Original Loan Documents shall
remain in full force and effect as the same may be amended hereby or
pursuant to the terms hereof. In the event of any conflict between the
terms of the Original Promissory Note, the Original Deed of Trust, or any
of the other Original Loan Documents and the terms of this Agreement or any
of the other Loan Modification Documents, the terms of this Agreement and
of the other Loan Modification document shall control.
7.2. Effect of Modification. Except as provided above, the Original
Promissory Note, the Original Loan Agreement, and all other Original Loan
Documents shall remain hereinafter unmodified and in full force and effect,
as if this Agreement had not been made.
<PAGE>
7.3. No Waiver. Each of IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities acknowledges that, except to the
extent expressly set forth herein, or as set forth in the Rectification
Agreement among the parties hereto of even date herewith, the execution of
this Agreement by Lender is not intended nor shall it be construed as (i)
an actual or implied waiver of any default under the Original Promissory
Note, or any of the other Original Loan Documents, or (ii) an actual or
implied waiver of any condition or obligation imposed upon each IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities pursuant
to the Original Promissory Note, the Original Loan Agreement or any of the
other Original Loan Documents.
Section 8. Representations and Warranties.
8.1. IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities each, jointly and severally, represents and warrants to
the Lender as of the date hereof, that:
8.1.1. Reaffirmation of IGC, ACPT, St. Charles and Original
Guarantors. Except as otherwise provided herein or as otherwise
effectuated by the Restructuring, all representations and warranties made
by IGC, ACPT, St. Charles and the Original Guarantors in the Original Loan
Documents remain true, complete and correct in all material respects on the
date hereof as if the same were made on the date hereof.
8.1.2. No Actions. As of the date hereof, there are no
actions, suits or proceedings pending, or to the knowledge of IGC, ACPT,
St. Charles, the Original Guarantors, or the Subsidiary Entities,
threatened, (i) against or affecting the Collateral, or (ii) involving the
validity or enforceability of the Deed of Trust or the priority of the lien
thereof, or (iii) against IGC, ACPT, St. Charles, any Original Guarantor or
any of the Subsidiary Entities at law or in equity or before or by any
governmental authority except (a) actions, suits and proceedings against
IGC, ACPT, St. Charles, Original Guarantor or any of the Subsidiary
Entities fully covered by insurance and as to each of which IGC, ACPT, St.
Charles, the Original Guarantor or any of the Subsidiary Entities has
provided information satisfactory to the Lender, (b) actions, suits and
proceedings against IGC, ACPT, St. Charles, Original Guarantor or any of
the Subsidiary Entities which will not materially adversely affect their
business, financial condition or operations, or (c) otherwise previously
disclosed to Lender in the Original Loan Agreement; and to the knowledge of
IGC, ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities,
neither entity is in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
8.1.3. Taxes. All federal, state and local tax returns and
reports of IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities required by law to be filed have been duly filed, and
all taxes, assessments, fees and other governmental charges upon IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities and their
respective properties, assets, income and franchises which are due and
payable have been paid in full. IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities maintain adequate reserves and/or
accruals in respect of federal, state and local taxes for all fiscal
periods, and neither IGC, ACPT, St. Charles, the Original Guarantors and
the Subsidiary Entities know of any unpaid assessments for any taxes or any
basis therefor.
<PAGE>
8.1.4. No Default. Neither IGC, ACPT, St. Charles, the Original
Guarantors or the Subsidiary Entities are in default in the payment of any
of its or their indebtedness or in the performance of any of its
obligations under any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which it is a party or by which it
or any of its assets may be bound, and no Event of Default as provided
under the Original Loan Agreement has occurred and is continuing. Neither
IGC, ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities
are in default under any order, judgment, award or decree of any court,
arbitrator, or governmental authority binding on or affecting it or by
which any of its assets may be bound or affected, and no such order,
judgment, award or decree materially adversely affects the ability of IGC,
ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities to
carry on its business as now conducted or its ability to perform its
obligations under this Agreement, the Original Loan Documents or the Loan
Modification Documents.
8.1.5. Stock, etc. of Subsidiary Entities. Immediately prior to
consummation of the Restructuring, IGC owns, beneficially and of record,
all of the issued and outstanding shares of stock or beneficial interest of
each of the Subsidiary Entities. Immediately following consummation of the
Restructuring, ACPT will own, beneficially and of record, all of the issued
and outstanding shares of stock or beneficial interest of each of the
Subsidiary Entities. All issued and outstanding shares of stock or
beneficial interest of each Subsidiary Entity is duly authorized, validly
issued and fully paid and nonassessable and is, and will, subsequent to
consummation of the Restructuring, be free and clear of all liens, claims
and encumbrances except for the security interest therein granted to Lender
under the Stock Pledge Agreement.
8.1.6. Membership Interests in St. Charles. Immediately prior
to consummation of the Restructuring, American Land is the sole member of,
and the sole beneficial and record owner of membership interests, in St.
Charles. Upon consummation of the Restructuring, American Land will
continue to be the sole member, and the sole beneficial and record owner of
membership interests in St. Charles. All membership interests in St.
Charles are, and subsequent to consummation of the Restructuring, will be
free and clear of all liens, security interests, claims and encumbrances.
8.1.7. Partnership Collateral. Upon consummation of the
Restructuring, the Released Partnership Collateral will be owned by
American Management, IGP Group and American Housing. The Released
Partnership Collateral is, and subsequent to the consummation of the
Restructuring will be, free and clear of all liens, security interests,
claims and encumbrances (other than the security interest of Lender in such
Released Partnership Collateral which is released herein).
8.1.8. Solvency. IGC, ACPT and each of the Subsidiary
Entities are not insolvent and the execution, delivery and performance by
IGC, ACPT and each of the Subsidiary Entities of the Loan Modification
Documents to which each is a party, and the consummation of the
Restructuring, will not render IGC, ACPT, or any of the Subsidiary Entities
insolvent. For purposes of the representations and warranties set forth in
this subsection, the term "insolvent" means either (i) the present fair
market value of each entity's assets is less than the amount necessary to
pay such entity's probable liability on its existing debts as they become
absolute and mature, or (ii) the sum of the entity's debts is greater than
the present fair market value of the entity's assets.
<PAGE>
8.1.9. Title to Properties. Immediately prior to the
Restructuring, ACPT and each of the Subsidiary Entities has good and
marketable title to its assets and properties free and clear of all liens,
securities, claims and encumbrances, except for liens, security interests
or encumbrances in favor of Lender. Immediately following consummation of
the Restructuring, ACPT and each of the Subsidiary Entities will have good
and marketable title to all of its assets and properties, including,
without limitation, the assets and properties transferred to it in
connection with the Restructuring, free and clear of all liens, security
interests and encumbrances except for liens, security interests or
encumbrances in favor of Lender.
8.2. Additional Representations and Warranties. In order to induce
the Lender to enter into this Agreement, IGC, ACPT, St. Charles, the
Original Guarantors or the Subsidiary Entities each represents and warrants
to the Lender that as of the date hereof (a) no default or Event of Default
exists under the Original Promissory Note, or the other Original Loan
Documents, and (b) no event exists which, with the giving of notice or the
lapse of time, or both, could or would constitute a default or an Event of
Default thereunder.
Section 9. Bankruptcy.
9.1. Waiver of Bankruptcy. In consideration for Lender's agreement to
enter into this Agreement, each of IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities hereby irrevocably agrees (i) not to
file a voluntary petition under title 11 of the United States Code, as
amended ("the Bankruptcy Code") with any bankruptcy court of competent
jurisdiction; (ii) not to voluntarily become or remain the subject of any
order for relief issued under the Bankruptcy Code; (iii) not to file or
voluntarily remain the subject of any petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any present or future federal or state act or law
relating to bankruptcy, insolvency, or other relief for debtors; (iv) not
to seek or consent to or acquiesce in the appointment of any trustee,
receiver, conservator, or liquidator, except such as may be sought by
Lender; and (v) not voluntarily become or remain the subject of an order,
judgment or decree of any court of competent jurisdiction approving a
petition filed against each IGC, ACPT, St. Charles, the Original Guarantors
and the Subsidiary Entities for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any present or future federal or state act or law relating to
bankruptcy, insolvency or relief for debtors, except as may be permitted by
Lender. This covenant is a material inducement for Lender to enter into
and accept this Agreement.
9.2. Waiver of Automatic Stay. Each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities hereby agrees that, in
consideration for Lender's agreement to enter into this Agreement, and,
notwithstanding the provisions of subsection 9.1 above, if each IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities shall (i)
file with any bankruptcy court of competent jurisdiction or be the subject
of any petition under the Bankruptcy Code; (ii) be the subject of any order
for relief issued under the Bankruptcy Code; (iii) file or be the subject
of any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future federal or state act or law relating to bankruptcy, insolvency,
<PAGE>
or other relief for debtors; (iv) have sought or consented to or acquiesced
in the appointment of any trustee, receiver, conservator, or liquidator; or
(v) be the subject of an order, judgment or decree entered by any court of
competent jurisdiction approving a petition filed against such person or
entity for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
federal or state act or law relating to bankruptcy, insolvency or relief
for debtors, then Lender shall thereupon be entitled to file a motion to
seek, and each IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities hereby irrevocably consents to and agrees to stipulate
to any motion filed by Lender seeking, relief from the automatic stay
imposed by Section 362 of the Bankruptcy Code, or any other stay of, on or
against the exercise of the rights and remedies otherwise available to
Lender as provided in this Agreement or any of the other Original Loan
Documents or Loan Modification Documents and/or provided by law, and each
IGC, ACPT, St. Charles, the Original Guarantors and the Subsidiary Entities
hereby irrevocably waives its rights to object to such relief. This
covenant is a material inducement for Lender to enter into and accept this
Agreement.
9.3. Reduction of Exclusive Bankruptcy Plan Filing and Plan Acceptance
Periods. Borrower hereby agrees that, in consideration for Lender's
agreement to enter into and accept this Agreement, and, notwithstanding the
provisions of Section 9.1 above, if each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities shall (i) file with any
bankruptcy court of competent jurisdiction or be the subject of any
petition under the Bankruptcy Code; (ii) be the subject of any order for
relief issued under the Bankruptcy Code; (iii) file or be the subject of
any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future federal or state act or law relating to bankruptcy, insolvency,
or other relief for debtors; (iv) have sought or consented to or acquiesced
in the appointment of any trustee, receiver, conservator, or liquidator; or
(v) be the subject of an order, judgment or decree entered by any court of
competent jurisdiction approving a petition filed against such person or
entity for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
federal or state act or law relating to bankruptcy, insolvency or relief
for debtors, then Lender shall thereupon be entitled to file a motion to
seek, and each IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities hereby irrevocably consents to and agrees to stipulate
to any motion filed by Lender seeking, to reduce the exclusive plan filing
and acceptance periods provided by Section 1121 of the Bankruptcy Code or
any similar periods provided by law, and each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities hereby irrevocably waives
its rights to object to such relief. This covenant is a material
inducement for Lender to enter into and accept this Agreement.
Section 9.4. Release. Notwithstanding the foregoing, Subsections 9.1,
9.2, and 9.3 hereof shall be void and of no further effect on the ninety-
first (91st) day following such time as pursuant to a security agreement or
other assignment agreement with the terms substantially identical to the
Partnership Collateral Documents in form and content satisfactory to Lender
in its sole but reasonable discretion, each of IGP Group, American Rental,
American Housing, and American Management has conveyed to Lender a first
priority security interest in all of the Released Partnership Collateral.
<PAGE>
Section 10. Fees, Costs and Expenses. IGC and ACPT shall pay to Banc
One Capital Markets, Inc. ("BOCM"), an affiliate of Lender, prior to or at
the time of execution of this Agreement, a financial advisory fee in the
amount of $100,000 (the "Financial Advisory Fee") in consideration of the
Lender's agreement to modify the Credit Facility as herein provided. BOCM
will credit up to $50,000 of the Financial Advisory Fee against any fees
due to BOCM pursuant to any engagement of BOCM by the Borrower or ACPT to
provide or arrange financing or provide financial advisory services during
the twelve (12) month period immediately following the date hereof. IGC,
ACPT and American Land shall also pay to the Lender upon demand, all costs
and expenses both now and hereafter paid or incurred with respect to the
preparation, negotiation, execution, administration and enforcement of this
Agreement, the Original Loan Documents and the other Loan Modification
Documents including, without limitation, reasonable attorney's fees and
expenses, recording costs, recordation and other taxes, appraisal fees,
costs of record searches and title insurance premiums and other title
costs. IGC and ACPT acknowledge that the provisions of this Agreement and
the other Loan Modification Documents shall not be effective to modify the
Original Loan Documents unless and until the obligation of IGC and ACPT to
pay the Financial Advisory Fee to BOCM and to reimburse Lender for the
expenses incurred through the date of this Agreement in connection with the
preparation, negotiation, execution and administration of this Agreement
are satisfied which such amount shall be set forth in a Closing Statement.
Section 11. Applicable Law, Etc. This Agreement shall be governed by
the laws of the State of Maryland and may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
Section 12. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each party hereto, and their respective successors
and assigns.
Section 13. General.
13.1. Effectiveness. This Agreement shall become effective on and
only on its execution and delivery by each party hereto.
13.2. Headings. The headings of the Sections, subsections,
paragraphs and subparagraphs hereof are provided herein for and only for
convenience of reference, and shall not be considered in construing their
contents.
13.4. Time of Essence. To the extent that it may have been waived
in the past, Lender hereby specifically reinstates that time is of the
essence of this Agreement and of the Original Loan Documents.
13.5. Additional Defaults. If IGC, ACPT, St. Charles, the
Original Guarantors or the Subsidiary Entities shall fail to keep or
perform any of the covenants or agreements contained herein, or if any
statement, representation or warranty contained herein is false, misleading
or erroneous in any material respect, such failure shall be deemed to be an
Event of Default and Lender shall be entitled at its option to exercise any
and all of the rights and remedies granted pursuant to the Deed of Trust,
as amended hereby, or any of the other Financing Documents, or to which
Lender may otherwise be entitled, whether at law or in equity.
<PAGE>
13.6. Lender's Title Policy Endorsement. Contemporaneously with
the execution and delivery hereof, IGC, ACPT or St. Charles shall, at its
sole cost and expense, obtain and deliver to Lender an endorsement dated as
of the date hereof to Lender's existing title insurance policy covering the
Real Property, in form and content acceptable to Lender, insuring that the
Deed of Trust constitutes, and will continue to constitute subsequent to
consummation of the Restructure, a first priority lien on the Real Property
securing the full amount of the Credit Facility.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this
Agreement or caused it to be executed and ensealed on its behalf by its
duly authorized representatives, the day and year first above written.
WITNESS: BANC ONE CAPITAL PARTNERS, IV, LTD.,
an Ohio limited liability company
By: BOCP Holdings Corporation, its Manager
/s/ Linda M. Heller
- - ---------------------------- By: /s/ Michael S. Wood
------------------------------(SEAL)
Name: Michael S. Wood
Title: Authorized Signer
INTERSTATE GENERAL COMPANY, L.P.,
a Delaware limited partnership
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_______________________________(SEAL)
Name: Edwin L. Kelly
Title: President
AMERICAN COMMUNITY PROPERTIES TRUST,
a Maryland real estate investment trust
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: President
ST. CHARLES COMMUNITY, LLC,
a Delaware limited liability company
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Chairman Management Committee
/s/ Patricia A. Wallace
____________________________ By: /s/ James J. Wilson
_______________________________________
JAMES J. WILSON
<PAGE>
/s/ Cynthia L. Hedrick
____________________________ By: /s/ J. Michael Wilson
_______________________________________
J. MICHAEL WILSON
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_______________________________________
EDWIN L. KELLY
AMERICAN RENTAL PROPERTIES TRUST,
a Maryland real estate investment trust
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
AMERICAN RENTAL MANAGEMENT COMPANY,
a Delaware corporation
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: President
AMERICAN LAND DEVELOPMENT U.S., INC.,
a Maryland corporation
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
IGP GROUP CORP.,
a Puerto Rico corporation
___________________________ By: /s/ Francisco Arrivi
_________________________________(SEAL)
Name: Francisco Arrivi
Title: President
<PAGE>
AMERICAN HOUSING PROPERTIES, L.P.,
a Delaware limited partnership
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
STATE OF OHIO: COUNTY OF FRANKLIN: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared
Michael S. Wood, known to me or satisfactorily proven to be the person
whose name is subscribed to the foregoing instrument, who acknowledged that
he/she is authorized signer of BANC ONE CAPITAL PARTNERS IV, LTD., that
he/she has been duly authorized to execute, and has executed, such
instrument on its behalf for the purposes therein set forth, and that the
same is its act and deed as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Linda M. Heller
__________________________________________
Notary Public
My commission expires on September 10, 2002.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of INTERSTATE GENERAL COMPANY, L.P., that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN COMMUNITY PROPERTIES TRUST, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
Chairman of ST. CHARLES COMMUNITY, LLC, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN RENTAL PROPERTIES TRUST, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN RENTAL MANAGEMENT COMPANY, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is Vice
President of AMERICAN LAND DEVELOPMENT U.S., INC., that he/she has been
duly authorized to execute, and has executed, such instrument on its behalf
for the purposes therein set forth, and that the same is its act and deed
as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF _____________: TO WIT:
I HEREBY CERTIFY that on this ____ day of ______________, 1998, before
me, a Notary Public for the state and county aforesaid, personally appeared
________________________, known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing instrument, who
acknowledged that he/she is __________________ of IGP GROUP CORP., that
he/she has been duly authorized to execute, and has executed, such
instrument on its behalf for the purposes therein set forth, and that the
same is its act and deed as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
__________________________________________
Notary Public
My commission expires on ________________.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is Vice
President of AMERICAN HOUSING PROPERTIES, L.P., that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared J.
MICHAEL WILSON, known to me or satisfactorily proven to be the person whose
name is subscribed to the foregoing instrument, who acknowledged that he
has executed the foregoing instrument for the purposes therein set forth,
and that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 25th day of September, 1998, before me,
a Notary Public for the state and county aforesaid, personally appeared
JAMES J. WILSON, known to me or satisfactorily proven to be the person
whose name is subscribed to the foregoing instrument, who acknowledged that
he has executed the foregoing instrument for the purposes therein set
forth, and that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared EDWIN
L. KELLY, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he has
executed the foregoing instrument for the purposes therein set forth, and
that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
<PAGE>
SCHEDULE 4
The "Retained Partnership Collateral" shall consist of the portion of the
Partnership Collateral derived from the following partnership interests
that shall not be transferred until transferred in accordance with the
attached assignment agreements (the "Partnership Transfer Documents").
Headen House Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Palmer Apartments Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Wakefield Terrace Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Wakefield Third Age Associates Limited Partnership
60% of IGC's beneficial general partnership interest
<PAGE>
Exhibit 10.2
SEVENTH AMENDMENT
TO
SECOND AMENDED AND RESTATED CERTIFICATE
AND AGREEMENT OF LIMITED PARTNERSHIP
OF
INTERSTATE GENERAL PROPERTIES LIMITED PARTNERSHIP S.E.
THIS SEVENTH AMENDMENT dated as of October 1, 1998 ("Effective
Date") to that certain Second Amended and Restated Certificate and
Agreement of Limited Partnership of Interstate General Properties Limited
Partnership S.E., a Maryland limited partnership (the "Partnership"), dated
December 31, 1986, as amended, is made by and among IGP Group Corp. ("IGP
Group"), a Puerto Rico corporation and a General and Limited Partner of the
Partnership, American Land Development US, Inc.("American Land"), a
Delaware corporation and a Limited Partner of the Partnership, and American
Housing Properties, L.P. ("American Housing"), a Delaware limited
partnership and a Limited Partner of the Partnership (collectively the
"Partners").
W I T N E S S E T H:
WHEREAS, the Certificate and Agreement of Limited Partnership of
Interstate Properties was filed on June 29, 1981, in the office of the
Clerk of the Circuit Court of Charles County, Maryland; and
WHEREAS, the foregoing Certificate and Agreement has been
amended from time to time, most recently by that certain Second Amended and
Restated Certificate and Agreement of Interstate General Properties Limited
Partnership S.E., dated as of December 31, 1986, as amended by that certain
First Amendment to Second Amended and Restated Certificate and Agreement of
Interstate General Properties Limited Partnership S.E., effective January
1, 1987, that certain Second Amendment to Second Amended and Restated
Certificate and Agreement of Interstate General Properties Limited
Partnership S.E., effective January 1, 1987, that certain Third Amendment
to Second Amended and Restated Certificate and Agreement of Interstate
General Properties Limited Partnership S.E., effective February 11, 1988,
that certain Fourth Amendment to Second Amended and Restated Certificate
and Agreement of Interstate General Properties Limited Partnership S.E.,
effective February 16, 1990, and that certain Fifth Amendment to Second
Amended and Restated Certificate and Agreement of Interstate General
Properties Limited Partnership S.E., effective December 18, 1991, and that
certain Sixth Amendment to Second Amended and Restated Certificate and
Agreement of Interstate General Properties Limited Partnership S.E.,
effective April 1, 1998 (together the "Partnership Agreement"); and
WHEREAS, James J. Wilson has withdrawn from the Partnership and
will cease to be a General Partner of the Partnership as of the Effective
Date;
<PAGE>
WHEREAS, IGC desires to transfer and contribute to American Land
a portion of its interest in the Partnership consisting of all of IGC's
indirect interest in the LDA Nonrental Assets (as that term is hereinafter
defined);
WHEREAS, IGC desires to transfer and contribute to American
Housing a portion of its interest in the Partnership consisting of all of
IGC's indirect interest in the Identified U.S. Housing Partnerships (as
that term is hereinafter defined); and
WHEREAS, IGC desires to transfer and contribute to IGP Group the
remaining portion of its interest in the Partnership consisting of all of
IGC's interest in the Partnership other than its indirect interest in the
LDA Nonrental Assets (as that term is hereinafter defined) and other than
its indirect interest in the Identified U.S. Housing Partnerships (as that
term is hereinafter defined) and withdraw from the Partnership;
WHEREAS, the Partners desire to amend the Partnership Agreement
to reflect the foregoing, to admit IGP Group as a General Partner, to admit
American Land as a Limited Partner, to admit American Housing as a Limited
Partner, to create a Class A Interest, a Class B Interest and a Class C
Interest in the Partnership (as those terms are hereinafter defined), and
for other purposes, and agree to enter into this Seventh Amendment to the
Partnership Agreement;
NOW, THEREFORE, in consideration of the foregoing, of the
undertakings of the parties hereinafter set forth and good and valuable
other consideration passing between the parties, receipt whereof is hereby
acknowledged, effective as of the Effective Date:
1. Article 1, relating to definitions, shall be amended as
follows:
(a) The following new terms shall have the following
respective meanings:
Class A Interest: All interests in the Partnership other
than the Class B Interest and the Class C Interest.
Class A Partner: IGP Group.
Class B Interest: An interest in the Partnership consisting
solely of a 100 percent interest in the LDA Nonrental
Distributions and the LDA Nonrental Items.
Class B Partner: American Land.
Class C Interest: An interest in the Partnership consisting
solely of a 100 percent interest in the Identified U.S. Housing
Partnership Distributions and the Identified U.S. Housing
Partnership Items.
Class C Partner: American Housing.
Identified U.S. Housing Partnerships: Essex Apartment
Associates L.P., a Virginia limited partnership, and Huntington
Associates Limited Partnership, a Maryland limited partnership.
<PAGE>
Identified U.S. Housing Partnership Distributions: All cash
or other property distributed by the Identified U.S. Housing
Partnerships to the Partnership or received by the Partnership in
exchange for its interest in the Identified U.S. Housing
Partnerships.
Identified U.S. Housing Partnership Items: All items of
income, gain, loss, deduction, or credit allocated by the
Identified U.S. Housing Partnerships to the Partnership or
recognized by the Partnership on the sale or other disposition of
its interest in the Identified U.S. Housing Partnership.
LDA: Land Development Associates, S.E., a Puerto Rico
partnership.
LDA Nonrental Assets: The parcels of land owned by LDA that
are identified in Exhibit C and any other assets owned by LDA
that would be property of a type described in Treas. Reg.
Section 1.367(a)-5T.
LDA Nonrental Distributions: All cash or other property
distributed by LDA to the Partnership with respect to the LDA
Nonrental Assets or received by the Partnership in exchange for
that portion of its LDA interest that is attributable to the LDA
Nonrental Assets. The determination of whether, or to what
extent, cash or other property is distributed with respect to, or
is attributable to, the LDA Nonrental Assets under the preceding
sentence shall be made by the General Partner.
LDA Nonrental Items: All items of income, gain, loss,
deduction, or credit allocated by LDA to the Partnership with
respect to the LDA Nonrental Assets or recognized by the
Partnership on the sale or other disposition of that portion of
its LDA interest that is attributable to the LDA Nonrental
Assets. The determination of whether, or to what extent, an item
is allocated with respect to, or is attributable to, the LDA
Nonrental Assets under the preceding sentence shall be made by
the General Partner.
(b) The definition of "Net Cash Flow" shall be amended by
excluding therefrom all LDA Nonrental Distributions and identified U.S.
Housing Partnership Distributions.
(c) All capitalized terms used and not defined herein shall
have the meanings ascribed thereto in the Partnership Agreement.
2. James J. Wilson ceases to be a General Partner and withdraws
from the Partnership as of the Effective Date.
3. IGC transfers a portion of its interest in the Partnership
consisting of the Class B Interest to American Land, and American Land is
admitted as a Limited Partner of the Partnership and the Class B Partner
with an initial Capital Account balance equal to that portion of IGC's
Capital Account balance that is attributable to the Class B Interest.
<PAGE>
4. IGC transfers a portion of its interest in the Partnership
consisting of the Class C Interest to American Housing, and American
Housing is admitted as a Limited Partner of the Partnership and the Class C
Partner with an initial Capital Account balance equal to that portion of
IGC's Capital Account balance that is attributable to the Class C Interest.
5. IGC transfers all of its remaining interest in the
Partnership (other than the Class B and C Interests) to IGP Group, and IGP
Group is admitted as a General Partner of the Partnership and the Class A
Partner with an initial Capital Account balance equal to its Capital
Account balance immediately prior to the Effective Date plus that portion
of IGC's Capital Account balance other than that attributable to the Class
B Interest and other than that attributable to the Class C Interest.
6. IGC ceases to be a General Partner and withdraws from the
Partnership as of the Effective Date.
7. Article 8 of the Partnership Agreement is amended to reflect
the following allocations and distributions:
(a) Except as otherwise required under Code Section 704(c),
LDA Nonrental Items shall be allocated solely to the Class B Partner,
Identified U.S. Housing Partnership Items shall be allocated solely to the
Class C Partner, and all other Partnership items (including Designated
Entity Items, Service Business Items, and all other items of income, gain,
loss, deduction, or credit other than the LDA Nonrental Items and other
than the Identified U.S. Housing Partnership Items) shall be allocated
solely to the Class A Partner.
(b) All LDA Nonrental Distributions shall be distributed
solely to the Class B Partner, all Identified U.S. Housing Partnership
Distributions shall be distributed solely to the Class C Partner, and all
other distributions of cash or other property (including Net Cash Flow,
Designated Entity Distributions, and Service Business Distributions) shall
be distributed solely to the Class A Partner.
8. On or about August 1, 1997, IGC, American Community
Properties Trust ("ACPT") and Banc One entered into a Master Loan Agreement
and certain related agreements (the "Loan Agreements") whereby Banc One
made available a certain credit facility to ACPT and IGC, and IGC granted
certain security interests to Banc One. The Loan Agreements were modified
on October 1, 1998 (the "Loan Agreement Modification"). The amendments
made pursuant to this Seventh Amendment are expressly conditioned upon, and
shall not be effective prior to, the Loan Agreement Modification.
9. All other provisions of the Partnership Agreement except as
amended hereby shall continue in full force and effect. If there are any
conflicts between the terms of the Partnership Agreement and this Seventh
Amendment, than and in such event this Seventh Amendment shall control.
10. Each Partner hereby consents to the transactions described
above, agrees to continue the business of the Partnership, and agrees to be
subject to and bound by the Partnership Agreement, as amended by this
Seventh Amendment.
11. This Seventh Amendment may be executed in any number of
counterparts, all of which together shall constitute a single instrument.
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed this Seventh
Amendment to the Partnership Agreement as of the date first written above.
GENERAL PARTNER AND CLASS A PARTNER:
IGP Group Corp.
By: /s/ Francisco Arrivi
-----------------------------
Name: Francisco Arrivi
Title: President
LIMITED PARTNER AND CLASS B PARTNER:
American Land Development US, Inc.
By: /s/ J. Michael Wilson
-------------------------------
Name: J. Michael Wilson
Title: President
LIMITED PARTNER AND CLASS C PARTNER:
American Housing Properties, L.P.
By: /s/ Paul Resnik
------------------------------
Name: Paul Resnik
Title: Vice President
WITHDRAWAL OF JAMES J. WILSON
FROM PARTNERSHIP
/s/ James J. Wilson
----------------------------------
James J. Wilson
WITHDRAWAL OF IGC FROM PARTNERSHIP
Interstate General Company L.P.
By: Interstate General Management Corporation
Managing General Partner
By: /s/ Edwin L. Kelly
-------------------------------------
Name: Edwin L. Kelly
Title: President
<PAGE>
Exhibit C
LDA Nonrental Assets
Parque Escorial
Carolina, Puerto Rico
Parcel Acres
------ -----
III-1 3.38
III-2 3.42
III-3 3.42
III-4/5 5.06
III-6 3.96
III-7 3.96
III-8 5.93
Q1/Q5 133.75
Q6/Q7 .44
------
Total 163.30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,918<F1>
<SECURITIES> 0
<RECEIVABLES> 3,580
<ALLOWANCES> (128)
<INVENTORY> 58,930
<CURRENT-ASSETS> 0
<PP&E> 2,137
<DEPRECIATION> 1,709
<TOTAL-ASSETS> 115,060
<CURRENT-LIABILITIES> 0
<BONDS> (80,076)
0
0
<COMMON> 0
<OTHER-SE> 17,689
<TOTAL-LIABILITY-AND-EQUITY> 115,060
<SALES> 12,955
<TOTAL-REVENUES> 24,202
<CGS> 8,011
<TOTAL-COSTS> 10,813
<OTHER-EXPENSES> 7,633
<LOSS-PROVISION> (94)
<INTEREST-EXPENSE> 2,726
<INCOME-PRETAX> 2,516
<INCOME-TAX> 582
<INCOME-CONTINUING> 1,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,934
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<FN>
<F1>Balance includes $2,467 of restricted cash.
</FN>
</TABLE>
