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, 1994, 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 1-9393
Interstate General Company L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1488756
------------------------------- -----------------------
(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 /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
10,207,010 Class A Units
------------------------
<PAGE>2
INTERSTATE GENERAL COMPANY L.P.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION Page
Number
Item 1. Consolidated Financial Statements ------
Consolidated Statements of Income for
the Nine Months Ended September 30, 1994
and 1993. (Unaudited) 3
Consolidated Statements of Income for
the Three Months Ended September 30, 1994
and 1993. (Unaudited) 5
Consolidated Balance Sheets at September 30, 1994
(Unaudited) and December 31, 1993. 6
Consolidated Statements of Changes in
Partners' Capital for the Nine
Months Ended September 30, 1994.
(Unaudited) 9
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1994 and 1993.
(Unaudited) 10
Notes to Consolidated Financial Statements. 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Nine
and Three Months Ended September 30, 1994 and 1993. 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 2. Changes in Securities 38
Item 3. Defaults Upon Senior Securities 39
Item 4. Submission of Matters to a Vote of Security Holders 39
Item 5. Other Information 39
Item 6. Exhibits and Reports on Form 8-K 39
Signatures 40
<PAGE>
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
REVENUES:
Homebuilding - home sales $ 15,135 $ 16,732
Community development - lot sales 18,958 11,613
Revenues from investment properties -
Investment in partnerships 11,564 4,256
Apartment rental income 3,286 1,026
Management fees, substantially all
from related entities 2,569 3,211
Interest and other income 375 451
---------- ----------
Total revenues 51,887 37,289
---------- ----------
EXPENSES:
Cost of home sales 14,012 14,342
Cost of lot sales 12,324 8,101
Selling and marketing 1,076 912
General and administrative 6,902 5,771
Rental apartment expense 3,336 1,065
Depreciation and amortization 456 427
Interest expense 1,512 1,580
Write-off deferred project cost 1,761 --
---------- ----------
Total expenses 41,379 32,198
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 10,508 5,091
---------- ----------
PROVISION FOR INCOME TAXES:
Current 2,012 48
Deferred 1,008 852
---------- ----------
Total taxes 3,020 900
---------- ----------
INCOME BEFORE MINORITY INTERESTS 7,488 4,191
Minority interest in
Land Development Associates S.E. ("LDA") 659 63
---------- ----------
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 6,829 4,128
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 1,500
---------- ----------
NET INCOME $ 6,829 $ 5,628
========== ==========
<PAGE>
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
PER UNIT AMOUNTS--
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ .66 $ .41
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- .14
---------- ----------
NET INCOME PER UNIT $ .66 $ .55
========== ==========
NET INCOME
GENERAL PARTNERS $ 68 $ 56
LIMITED PARTNERS 6,761 5,572
---------- ----------
$ 6,829 $ 5,628
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,105 10,080
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
REVENUES:
Homebuilding - home sales $ 5,130 $ 5,934
Community development - lot sales 2,239 4,476
Revenues from investment properties -
Investment in partnerships 7,309 1,395
Apartment rental income 1,128 619
Management fees, substantially all
from related entities 693 1,149
Interest and other income 188 150
---------- ----------
Total revenues 16,687 13,723
---------- ----------
EXPENSES:
Cost of home sales 4,939 5,037
Cost of lot sales 1,653 3,083
Selling and marketing 396 341
General and administrative 2,999 1,680
Rental apartment expense 1,163 624
Depreciation and amortization 149 147
Interest expense 419 598
Write-off deferred project costs 1,761 --
---------- ----------
Total expenses 13,479 11,510
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,208 2,213
---------- ----------
PROVISION FOR INCOME TAXES:
Current 10 38
Deferred 175 342
---------- ----------
Total taxes 185 380
---------- ----------
INCOME BEFORE MINORITY INTERESTS 3,023 1,833
Minority interest in LDA (42) 22
---------- ----------
NET INCOME $ 3,065 $ 1,811
========== ==========
NET INCOME PER UNIT $ .30 $ .18
========== ==========
NET INCOME
GENERAL PARTNERS $ 31 $ 18
LIMITED PARTNERS 3,034 1,793
---------- ----------
$ 3,065 $ 1,811
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,131 10,080
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
September 30, December 31,
1994 1993
------------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
including restricted cash of $8,099
and $2,587 at September 30, 1994 and
December 31, 1993, respectively $ 8,998 $ 4,596
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
St. Charles, Maryland 26,342 26,683
Puerto Rico 24,989 31,389
Other United States locations 17,573 18,660
Notes receivable on lot sales, net of
reserves of $279 and $230
as of September 30, 1994 and
December 31, 1993, respectively 1,404 1,785
Other 350 359
-------- --------
70,658 78,876
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 5,091 6,645
Mortgages receivable 262 396
Receivables on home sales 211 405
Other 130 120
-------- --------
5,694 7,566
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment in residential rental
partnerships, net of deferred income and
reserves of $4,910 and $5,054 at September 30,
1994 and December 31, 1993, respectively 10,554 14,953
Investment properties, net of accumulated
depreciation and amortization of
$4,576 and $4,106 as of September 30,
1994 and December 31, 1993, respectively 24,065 24,551
Other receivables, net of reserves of
$2,875 and $2,800 as of September 30,
1994 and December 31, 1993, respectively 2,523 2,610
Other -- 593
-------- --------
37,142 42,707
-------- --------
<PAGE>
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S (continued)
September 30, December 31,
1994 1993
------------- -----------
(Unaudited) (Audited)
OTHER ASSETS
Property, plant and equipment, less
accumulated depreciation of $1,840
and $1,837 as of September 30, 1994 and
December 31, 1993, respectively 1,592 1,704
Costs in excess of net assets acquired,
less accumulated amortization of
$698 and $584 as of September 30,
1994 and December 31, 1993, respectively 2,337 2,450
Deferred costs regarding waste technology
and other 1,895 2,415
-------- --------
5,824 6,569
-------- --------
$128,316 $140,314
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>8
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
1994 1993
------------- ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued
liabilities $ 5,258 $ 3,661
Mortgages and notes payable 390 428
Accrued income tax liability
Current 2,065 390
Deferred 1,997 989
-------- --------
9,710 5,468
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 37,229 50,137
Non-recourse debt 5,145 2,762
Loan payable to HDA -- 12,684
Accounts payable and accrued liabilities 2,346 2,553
Deferred income 145 199
-------- --------
44,865 68,335
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 1,821 3,320
Accounts payable and accrued liabilities 3,270 4,231
-------- --------
5,091 7,551
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,621 1,857
Non-recourse debt 22,370 22,457
Accounts payable, accrued liabilities
and deferred income 6,168 2,401
-------- --------
30,159 26,715
-------- --------
Total Liabilities 89,825 108,069
-------- --------
PARTNERS' CAPITAL
General partners' capital 214 155
Limited partners' capital-10,190,760 Units
issued and outstanding as of September 30, 1994
and 10,081,810 as of December 31, 1993 38,277 32,090
-------- --------
Total partners' capital 38,491 32,245
-------- --------
$128,316 $140,314
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>9
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
1994
- - - ----
Balances, December 31, 1993 $ 155 $32,090 $32,245
Net income for the six
months ended June 30, 1994 38 3,727 3,765
Employee Unit options exercised -- 69 69
Cash distributions to partners -- (504) (504)
------- ------- -------
Balances, June 30, 1994 193 35,382 35,575
Net income for the three months
ended September 30, 1994 31 3,034 3,065
Employee Unit options exercised 367 367
Cash distributions to partners (10) (506) (516)
------- ------- -------
Balances, September 30, 1994 $ 214 $38,277 $38,491
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
<PAGE>10
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,829 $5,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 456 475
Investment properties 470 456
Provision for income taxes
Current 2,012 48
Deferred 1,008 852
Equity in earnings of partnerships (1,484) (2,960)
Increase in sponsor and developer fees
from partnerships and other (242) (252)
Distribution of note receivable from partnership (6,526) --
Cumulative effect of accounting change -- (1,500)
Increase (decrease) in
Accounts payable and accrued liabilities 97 (834)
Deferred income (54) 249
Decrease (increase) in
Receivables 515 2,809
Homebuilding assets 1,738 1,962
Community development assets 7,807 1,327
Restricted cash (5,512) (1,167)
------- -------
Net cash provided by operating activities 7,114 7,093
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in net assets related to
investment properties 4,340 2,583
Reductions (additions) to other assets 318 (194)
------- -------
Net cash provided by investing activities 4,658 2,389
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 6,796 5,368
Payment of debt (19,094) (16,324)
Employee Unit options exercised 436 8
Cash distributions to partners (1,020) --
------- -------
Net cash used in financing activities (12,882) (10,948)
------- -------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (1,110) (1,466)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 2,009 2,259
------- -------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 899 $ 793
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount capitalized) $ 2,934 $ 3,781
Income taxes paid $ 337 $ --
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>11
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Unaudited)
(1) BASIS OF PRESENTATION AND PRINCIPLES OF ACCOUNTING
The accompanying consolidated financial statements are unaudited but
include all adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the results of
operations for the interim periods. Certain account balances in the 1993
financial statements have been reclassified to conform to the 1994
presentation. The operating results for the nine months ended September 30,
1994 are not necessarily indicative of the results that may be expected for the
year. Net income per unit is calculated on weighted average units outstanding
and on 1% general partnership interest.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with Generally Accepted Accounting Principles ("GAAP")
have been condensed or omitted. While the Managing General Partner believes
that the disclosures presented are adequate to make the information not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes included in the
Partnership's Annual Report filed on Form 10-K for the year ended December 31,
1993 and Form 8-K filed on May 23, 1994.
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109) Accounting for Income Taxes, which
changes the method of accounting for income taxes under GAAP. The Company
recognized a cumulative benefit due to the change in accounting principle of
$1,500,000 or $.15 per unit, as of January 1, 1993. The benefit is included
under the caption "Cumulative Effect of Accounting Change" in the Consolidated
Statement of Income.
(2) FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and lot sales, property management fees, and
from bank financing providing funds for development and working capital. In
response to the decline in the real estate markets and the decline in the
availability of financing, the Company undertook a financial restructuring in
1992. During 1994, the Company continued to make progress in completing the
objectives it set forth in its 1992 restructuring plan. New or amended loan
agreements have been executed for all loans which required restructuring.
Under the terms of IGC's loans, most of the cash flow generated by U.S. home
and lot sales and distributions from partnerships, including distributions from
partnership refinancings, will be used to further reduce bank loans and meet
debt service requirements. As a result, the Company's ability to generate cash
for overhead, development and other uses is limited, therefore, it may become
necessary for the Company to negotiate with its lenders to reschedule future
payments. In addition, project financing will be necessary to commence the
development of needed inventory. Debt curtailments during the nine months
ended September 30, 1994 totaled $19,094,000.
<PAGE>12
One of the Company's principal lenders, Signet Bank, has agreed to reduce
the collateral release prices and extend the terms of its $7.4 million loan to
September 1, 1995 in exchange for additional collateral. Documents reflecting
these changes are being prepared and management expects them to be executed
prior to November 30, 1994.
In addition to its traditional sources of liquidity, the Company is
currently pursuing a line of credit and investigating opportunities in the
capital markets for longer term financings.
A potential source of liquidity in late 1995 includes cash from four
partnerships in Puerto Rico which applied in March 1993 for economic incentives
under the 1990 Low-Income Housing Preservation and Resident Homeownership Act
("LIHPRHA"). Under LIHPRHA the partnerships have the option of obtaining
additional HUD insured financing and additional subsidy funds, and distributing
net refinancing proceeds to partners, or selling the projects to non-profit
organizations which would continue the projects under HUD's low income housing
program. The economic benefit to the Company and the partners will be greater
from a sale of the projects, and management has identified a potential non-
profit organization to purchase the projects. The Company expects to retain
the right to manage the properties. It is anticipated that any closing
pursuant to LIHPRHA will be accomplished in the fourth quarter of 1995 in which
event the Company expects that its share of the proceeds will be approximately
$10.0 million, net of taxes. These distributions are assigned to the FDIC and
then to NationsBank for the payment of debt. As of September 30, 1994, debt
payable to the FDIC and NationsBank was $8.9 million and $14.6 million,
respectively.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of September 30, 1994, IGC manages and is a general partner in 29 real
estate partnerships which own 32 apartment projects in Puerto Rico, Maryland,
Virginia and Washington, D.C. The apartment projects are financed by non-
recourse mortgages. Of the 6,559 rental units in the partnerships, the Federal
Housing Administration ("FHA") provides subsidies for low and moderate income
tenants in 5,371 units.
The following table summarizes IGC's investment in the 29 residential
rental partnerships:
September 30, December 31,
1994 1993
------------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $3,859 and $4,101 at
September 30, 1994 and December 31, 1993,
respectively $ 2,992 $ 4,255
Other receivables, net of reserves of
$1,052 as of September 30, 1994 and $953
as of December 31, 1993 1,021 1,377
Investment in partnerships 6,541 9,321
------- -------
$10,554 $14,953
======= =======
<PAGE>13
The combined condensed statements of income and the combined condensed
statements of cash flow for the nine month period ended September 30, 1994 and
1993, and the combined condensed balance sheets as of September 30, 1994 and
December 31, 1993 are shown below for the partnerships owning residential
rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30,
------------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $30,909 $31,052
------- -------
Operating expenses
Depreciation 4,849 4,759
Other 25,070 25,478
------- -------
29,919 30,237
------- -------
Net income $ 990 $ 815
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase") and New Forest Apartments General Partnership ("New
Forest") from January 1, 1993 to August 20, 1993 are included above.
The operations of these partnerships after August 20, 1993 are
consolidated with the Company's other operations in IGC's
consolidated Statement of Income.
<PAGE>
<PAGE>14
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
September 30, December 31,
1994 1993
------------- -----------
(In thousands)
Rental apartments, at cost $241,342 $240,554
Accumulated depreciation (80,231) (75,493)
-------- --------
161,111 165,061
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 6,203 18,781
Replacement reserves and escrows 9,759 10,320
-------- --------
Total restricted cash and marketable securities 15,962 29,101
Cash and certificates of deposit 3,661 18,862
-------- --------
Total cash and marketable securities 19,623 47,963
-------- --------
Other assets 4,721 4,084
-------- --------
Total assets $185,455 $217,108
======== ========
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
1994 1993
------------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $172,148 $185,099
Loans and interest payable to the Company 18,708 19,660
Other liabilities 3,514 3,949
-------- --------
Total liabilities 194,370 208,708
-------- --------
Partners' capital
Capital contributions, net of distributions (397) 17,908
Accumulated deficit (8,518) (9,508)
-------- --------
Total partners' capital (8,915) 8,400
-------- --------
Total liabilities and partners' capital $185,455 $217,108
======== ========
<PAGE>15
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF CASH FLOWS FROM OPERATIONS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $30,909 $31,052
------- -------
Cash expenditures
Total expenses 29,919 30,237
Less - Depreciation (4,849) (4,759)
Other non-cash expenses (267) (476)
------- -------
24,803 25,002
Mortgage principal 2,110 1,335
Capital additions 531 835
------- -------
Total cash expenditures 27,444 27,172
------- -------
Cash flow from operations before distributions $ 3,465 $ 3,880
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase") and New Forest Apartments General Partnership ("New
Forest") from January 1, 1993 to August 20, 1993 are included above.
The operations of these partnerships after August 20, 1993 are
consolidated with the Company's other operations in IGC's
consolidated Statement of Income.
The FHA, Puerto Rico Housing Finance Corporation ("PRHFC"), State and
District of Columbia housing agencies and the partnership agreements require
that the accumulation of cash in the partnerships be sufficient to liquidate
all current liabilities prior to any distributions to partners. During 1993
and 1994, four partnerships owning seven apartment projects were released from
these restrictions as part of mortgage refinancings. Most of the partnership
agreements provide that IGC receive a zero to 5% interest in profits, losses
and cash flow from operations until such time as the limited partners have
received cash distributions equal to their capital contributions. Thereafter,
IGC generally shares in 50% of cash distributions from operations.
(4) INVESTMENT IN REAL ESTATE VENTURES RELATING TO HORSE RACING
In September 1993, Equus Gaming Company ("Equus") was formed to hold the
Company's and IBC's interest in HDA and to organize and to hold the stock of
Virginia Jockey Club, Inc. ("VJC"). The Company announced plans to distribute
to its public unitholders 99% of its ownership interest in Equus ("Equus
Distribution" or "Proposed Distribution"). Prior to July 21, 1994, HDA, a
limited partnership that owns the only thoroughbred race track in Puerto Rico,
was owned 49% by IGC, 31% by IBC and 20% by an unaffiliated partnership. The
<PAGE>16
race track facilities are leased to ECOC, which previously was an effectively
29.4% owned non-consolidated affiliate of IGC. In October 1993, VJC submitted
an application to the Virginia State Racing Commission to construct and operate
a thoroughbred horse racing facility in Virginia. On October 13, 1994, the
Virginia State Racing Commission denied VJC's application to construct and
operate the Virginia horse racing facility and $1.8 million of deferred project
costs were written off.
Equus is consolidated in the Company's financial statements. The
Company's financial statements reflect the equity method of accounting for its
investment in HDA. HDA is a special partnership under Puerto Rico law and
partners of such partnerships are not liable for losses in excess of their
capital investment. Due to the costs related to the refinancing of HDA debt in
1993 and HDA cash distributions, the partners' capital account is in a deficit
position. As a result of the deficit position in HDA and the Proposed
Distribution, IGC did not recognize its share of HDA's earnings during the
first nine months of 1994 and does not expect to recognize any earnings in the
future.
Prior to the expected Equus Distributuion, IGC completed a series of
intermediary transactions: (1) On July 21, 1994, the Puerto Rico Racing Board
approved the issuance by HDA of a 15% interest to HDA Management Corporation
("HDAMC"). The entire equity interest in HDAMC is represented by warrants
issued in December 1993 in connection with the refinancing of HDA indebtedness.
As a result, IGC's, IBC's and the unaffiliated owner's interests in HDA were
diluted to 41.65%, 26.35%, and 17%, respectively, (2) On July 29, 1994, the
Company formed Equus Management Corporation ("EMC"), a wholly owned subsidiary,
to hold the general partner interest in Equus, (3) On August 1, 1994, ECOC was
reorganized as a nonstock corporation. As a result, IGC's ownership interest
in ECOC was terminated. Because ECOC was a non-consolidated affiliate, this
transaction resulted in no financial statement impact to the Company, (4) On
August 2, 1994, IBC transferred its entire 26.35% HDA interest and IGC
transferred a 40.65% profits interest in HDA to Equus. Equus was reorganized
as a limited partnership between IGC as a 99% partner, and EMC as a 1% partner
and (5) HDA distributed its note receivable from the Land Development
Associates ("LDA"), a 80% consolidated subsidiary, to its partners, IGC, Equus
and a non-affiliated minority owner.
Equus has filed a registration statement with the Securities and Exchange
Commission ("SEC") relating to the distribution by IGC of Units representing in
the aggregate a 99% limited partnership interest in Equus. IGC expects to
complete the Equus Distribution following the Equus registration statement
being declared effective by the SEC.
<PAGE>
<PAGE>17
HDA's condensed balance sheets as of September 30, 1994 and December 31,
1993 and the condensed statements of income for the nine month period ended
September 30, 1994 and 1993 are shown as follows:
HDA
CONDENSED BALANCE SHEET
(Unaudited)
September 30, December 31,
1994 1993
------------- -----------
(In thousands)
Assets
Cash $ 5,724 $ 1,886
Leased property, less accumulated
depreciation of $7,314 and
$6,157 at September 30, 1994 and
December 31, 1993, respectively 42,072 42,267
Receivables from LDA -- 12,690
Other assets 5,080 4,308
------- -------
$52,876 $61,151
======= =======
Liabilities and partners' deficit
Accounts payable and accrued liabilities $ 3,086 $ 669
Debt-third parties 66,061 65,960
------- -------
69,147 66,629
------- -------
Partners' deficit
Capital contribution 1,914 1,914
Accumulated deficit (1,298) (4,892)
Distributions to partners (16,887) (2,500)
------- -------
(16,271) (5,478)
------- -------
$52,876 $61,151
======= =======
<PAGE>
<PAGE>18
HDA
CONDENSED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1994 1993
----------- -----------
(In thousands)
Revenues
Rental income $ 11,012 $ 9,166
Equity in earnings of ECOC -- 714
Interest income 732 294
------- -------
11,744 10,174
------- -------
Expenses
General and administrative 306 449
Depreciation and amortization 1,379 1,491
Interest 6,463 4,182
------- -------
Total expenses 8,148 6,122
------- -------
Income before provision for income tax $ 3,596 $ 4,052
Provision for income tax 1 --
------- -------
Net income $ 3,595 $ 4,052
======= =======
The race track facilities owned by HDA are leased to ECOC, which until
August 1, 1994 was an effectively 29.4%-owned non-consolidated affiliate of
IGC. The lease agreement requires ECOC to pay an annual rent consisting of the
greater of 25% of the race track commissions ("Basic Rent") or $7.5 million
with annual adjustments based on any increase in the Consumer Price Index from
1989 ("Minimum Basic Rent"). In addition, ECOC is responsible for payment of
all insurance, taxes and other costs to operate and to maintain the race track.
HDA is responsible for capital improvements, if any, up to certain specified
limits.
In December 1993, the Lease Agreement was amended to modify the rent and
provide certain other covenants. The Basic Rent and Minimum Basic Rent under
the revised Lease Agreement are unchanged. However, ECOC is obligated to pay
additional fixed rent ("Fixed Rent") of $150,000 in 1994, $400,000 annually in
1995 through 1998 and $1.3 million in 1999.
<PAGE>
<PAGE>19
(5) DEBT
The following notes are primarily collateralized by land, receivables, and
investments in partnerships. The following table summarizes the
indebtedness of IGC:
Stated
Maturity Interest September 30, December 31,
Description by Lender Date Rate 1994 1993
- - - ------------------------- -------------- -------- ------------- ------------
(In thousands)
Non-recourse debt:
Purchase money
mortgages (5) Demand (3) 9% $ 670 $ 670
Community Development
Administration (9) 06-01-16 10.3% 4,019 4,055
Community Development
Administration (9) 10-01-27 9.575% 6,397 6,417
Community Development
Administration (9) 10-01-28 9.875% 11,954 11,985
Supra & Co. (minority
partner in LDA) None (1) 4,475 2,092
-------- --------
Total non-recourse 27,515 25,219
-------- --------
Recourse debt:
Banco Popular de P.R. Paid Paid -- 5,420
Branch Banking & Paid Paid -- 56
Trust
1st National 09-01-95 9% 337 150
St. Mary's
Citibank (11) Demand (2) 1,621 1,857
NationsBank (5,7,12) 05-01-95 Prime 7,785 7,774
+ 1%
NationsBank (5,7,12) 05-31-95 Prime 1,133 1,353
+ 1.5%
NationsBank (5,7,12) 05-31-95 Prime 5,646 6,013
+ 1.5%
Purchase money Various from 9%-12% 2,145 2,362
mortgages (5) 09-24-95 to
04-01-98
Washington Savings (5) 12-27-95 8% 780 656
Signet Bank (6) 08-31-95 Prime 7,366 11,508
+ 2%
Wachovia Bank & Trust 07-31-95 Prime 347 347
(5,7) + .5%
FDIC (5,7,12) 09-30-96 Prime 8,992 10,993
+ 1%
Banco Central
Hispano (5) 12-31-97 (4) 3,965 6,400
Wachovia Bank & Trust Various from Prime 92 95
(7) 04-26-00 to + 1%
10-25-00
<PAGE>
<PAGE>20
Stated
Maturity Interest September 30, December 31,
Description by Lender Date Rate 1994 1993
- - - ------------------------- -------------- -------- ------------- ------------
Various (5,8,13) Various from Various 852 758
07-23-95 to
02-28-98
-------- --------
Total recourse 41,061 55,742
-------- --------
Total debt $ 68,576 $ 80,961
======== ========
Balance Sheet Classification
- - - ----------------------------
Mortgage and notes payable - Recourse debt $ 390 $ 428
Related to community development -
Non-recourse debt 5,145 2,762
Recourse debt 37,229 50,137
Related to homebuilding projects - Recourse debt 1,821 3,320
Related to investment properties -
Recourse debt 1,621 1,857
Non-recourse debt 22,370 22,457
-------- --------
Total debt $ 68,576 $ 80,961
======== ========
(1) At September 30, 1994, $1.8 million of the outstanding balance bears an
interest rate of 2.5% over the prime rate (10.25%). On December 31,
1993, the interest rate was the 936 rate plus 3% (6.321%). On August 2,
1994 HDA distributed a receivable from LDA to its partners. Supra's
share of the receivable, $2.7 million, consisted of principal and accrued
interest. The accrued interest was distributed as non-interest bearing
note. The principal bears interest at 1.5% over the prime rate with a
floor of 6% and a ceiling of 9%. At September 30, 1994 the rate was
9.00%. The outstanding balance of these notes at September 30, 1994 was
$2.7 million.
(2) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 6.70% on September 30, 1994 and
5.15% on December 31, 1993.
(3) The lender of $.7 million of past due purchase money mortgages has agreed
to accept a deed in lieu of payment.
(4) Interest rate is 936 rate plus 3%, with minimum of 6% and maximum of 9%.
The rate at September 30, 1994 and December 31, 1993 was 7.65% and 6.55%,
respectively.
(5) Collateralized with land and improvements.
(6) Collateralized with land and housing.
(7) Collateralized with receivables.
(8) Collateralized with land and building.
(9) These loans are FHA mortgages on apartment projects.
<PAGE>21
(10) Intentionally left blank.
(11) Collateralized with a letter of credit.
(12) Collateralized by investments in partnerships.
(13) Collaterlized by property, plant and equipment.
(6) RELATED PARTY TRANSACTIONS
During the first nine months in 1994 and 1993, IGC paid or accrued $56,000
and $72,000, respectively, to reimburse the managing general partner for
director's meeting fees and expenses. At September 30, 1994 and 1993, $56,000
and $276,000, respectively, of directors fees were accrued and unpaid.
IGC and IBC, an entity primarily owned by James J. Wilson (Chairman of the
Board of Directors for IGC's managing general partner) and his family, own the
general partnership interest in Chastleton, a partnership owning a rental
apartment project of 300 units in the District of Columbia. During the first
quarter of 1990, IBC (1) assumed IGC's obligation to provide future funding of
operating advances, (2) indemnified IGC against any liability resulting from
certain letters of credit and liabilities regarding Chastleton and (3)
purchased from IGC for $1.9 million receivables of $2.1 million due from
Chastleton. Of the $1.9 million, IBC paid IGC $300,000 in cash, $404,000 in
mortgage receivables, and the balance by a demand note. The outstanding
balance, including interest accrued on the demand note secured by certain real
estate parcels, was $699,000 and $680,000 at September 30, 1994 and December
31, 1993, respectively, of which $336,000 and $317,000, respectively, are
reserved until paid. In addition, as part of IBC's purchase, IGC and IBC
agreed that IGC would continue to manage the project and subordinate 50% of its
management fees until IBC collects its working capital advances to Chastleton.
In October 1992, IBC, as general partner of Chastleton, arranged the
refinancing of certain tax-exempt housing bonds issued in 1985. As part of
this refinancing, IGC agreed to defer collection of all of its management fees
until Chastleton has sufficient cash flow after debt service and other
operating expenses to pay the fees. As of January 1, 1993, the Board of
Directors approved a reduction of Chastleton's management fees from 5% to 2.5%
while the project is operating at a cash flow deficit. At September 30, 1994
and December 31, 1993, Chastleton owed approximately $358,000 and $311,000,
respectively of management fees and other receivables, which $261,000 and
$211,000, respectively, are reserved. IGC is also contingently liable under
$4.6 million in letters of credit issued by NationsBank which secure additional
bonds issued for Chastleton.
IBC owned two commercial properties in Puerto Rico which it contributed to
two Puerto Rico special partnerships, Santa Maria Associates S.E. ("Santa
Maria") formed December 1990, and El Monte Properties S.E., which owns a
shopping center and office building, the Doral Building, formed December 1992,
in exchange for 99% partnership interests in each. IGC is a 1% managing
partner and provides property management services under the same terms as
previously provided to IBC, including management fees which are 3.5% of rental
income. During the nine months ended September 30, 1994 and 1993, property
management fees for these affiliates were approximately $114,000 and $107,000,
respectively. During the nine months ended September 30, 1994 and 1993, IGC
earned $0 and $135,000, respectively, from IBC for development fees for the
Doral Building and the Santa Maria expansion project which were under
construction in Puerto Rico. IGC's Puerto Rico executive office has
<PAGE>22
been located in the Doral Building since November 1991 under a five-year lease
providing for a first-year payment of rent of approximately $187,000 and
certain escalations for CPI and pro-rata share of operating expenses in years
two through five. Rental expense for the executive office and certain other
property leased from affiliates in Puerto Rico was $154,000 during the nine
months ended September 30, 1994 and 1993. All leases with affiliated persons
are on terms at least as favorable to IGC as that generally available from
unaffiliated persons for comparable property.
IGC has a property management agreement with Capitol Park Associates
("CP"), a third-party partnership that owns 937 apartment units in Washington,
D.C. In 1984, this partnership purchased these apartment units from a company
controlled by James J. Wilson, certain other stockholders of IBC's predecessor
and third parties. In May 1994, this partnership refinanced a substantial
portion of its debt and executed a new property management agreement with IGC.
The initial term of the agreement is two years, and provides for fees of 3.5%
of annual gross collections, plus $6,000 monthly to cover documented expenses
incurred in the management of the project. IGC also simultaneously entered
into a consulting agreement with CP obligating IGC to pay a monthly fee equal
to 1% of gross collections. As of September 30, 1994 and 1993, IGC earned fees
of approximately $212,000 and $178,000, respectively. As of September 30,
1994, $28,000 of these fees, and other reimbursements of allocated costs were
owed by CP.
IGC and IBC formed Coachman's Limited Partnership, which owns a 104-unit
apartment complex in St. Charles, Maryland. IGC contributed its 99% interest
in the land and IBC contributed its 1% interest in the land and $218,000 in
cash. IBC is obligated to fund any operating deficits; however, IGC has
provided these funds. Both partners retain a 1% general partner and 49%
limited partner interest in the cash flow, and IGC provides management services
for this property. As of September 30, 1994 and 1993, IGC earned fees of
approximately $18,000 and $17,000, respectively. At September 30, 1994, unpaid
management fees and operating deficit loans due IGC were $453,000 of which
$305,000 is reserved.
IBC and its affiliates own certain U.S. commercial properties and
apartment projects in the U.S. for which IGC provides property management
services for fees of 2.5% to 4.5% of rental income. Effective January 1993,
the Board of Directors approved a reduction in the management fees for one of
these projects from 4.5% to 2.5% until the project has cash flow sufficient to
bring the unpaid fees up to date and pay the 4.5% fee. During the nine months
ended September 30, 1994 and 1993, property management fee income from these
affiliates was approximately $149,000 and $134,000, respectively. During the
nine months ended September 30, 1994 and 1993, IGC earned $85,000 and $0,
respectively, from IBC for development fees for the Village Lake Apartment
project. As of September 30, 1994, $362,000 of management fees and other
allocated costs were unpaid by these affiliates of which $357,000 was reserved.
IGC and affiliates lease 23,400 square feet of office space for its
executive office from Smallwood Village Associates Limited Partnership ("SVA"),
which owns one of IBC's commercial properties, for approximately $282,000 per
year (subject to adjustment for inflation). The lease expires in the year
2001. During the nine months ended September 30, 1994 and 1993, IGC's annual
rent for its share of the leases were approximately $148,000 and $143,000,
respectively.
<PAGE>23
American Family Homes, a wholly owned subsidiary of IGC, leases from IBC
3,000 square feet of commercial office space for one of its sales centers. The
term of the lease is for six months beginning August 1, 1994 at $39,000 per
year.
As of September 30, 1991, IGC sold a 31% interest (38.75% of its ownership
interest) in HDA to IBC, reducing IGC's 80% partnership interest in HDA to 49%.
An unaffiliated partner continued to hold the remaining 20% interest. As a
result of this transaction, the assets and liabilities of HDA ceased to be
consolidated with those of IGC. The purchase price consisted of a $10,000 cash
payment, a $121,000 note payable by IBC out of distributions from HDA and
certain covenants of IBC. In April 1994, $103,000 of the outstanding balance
was collected. In August 1994, the remaining balance was offset against IBC's
contribution of its ownership in Equus. (See Note 4 to Financial Statements.)
In September 1993, IGC and IBC formed Equus Gaming Company ("Equus), a
general partnership. On August 2, 1994, IBC transferred its entire 26.35%
interest in HDA and IGC transferred a 40.65% profits interest in HDA to Equus.
Equus was reorganized as a limited partnership between IGC as a 99% partner and
EMC, a wholly owned subsidiary, as a 1% partner. IBC contributed its 38%
interest in Equus to IGC at its book value.
IGC and IBC have also engaged in property sales and certain other related
party transactions. During 1989, IBC purchased 5.01 acres of commercial land
for the development of an apartment complex for the appraised value of $1
million ($218,000 cash down payment and a five-year note of $874,000 requiring
quarterly payments of $22,000 and a balloon payment of the balance on September
28, 1994). The past due principal and interest as of September 30, 1994 was
$380,000. This note was originally secured by the 5.01-acre site. In 1992,
the Company pledged this note to a vendor as collateral for outstanding
payables. To permit the construction of the Village Lake Apartments to
proceed, the vendor and the Company's Board of Directors approved the release
of 3.78 of the 5.01 acres, without payment, in exchange for an assignment of
IBC's 99% interest in Village Lake L.P. and Santa Maria and a mortgage on an
additional real estate parcel which subsequently was sold.
The Company and IBC entered into an agreement in 1990 pursuant to which
$1.7 million of the Company's outstanding advances to IBC in 1990 were
satisfied by the conveyance by IBC to the Company of approximately $3.8 million
in receivables from SVA, in which IBC is the sole general partner and a limited
partner, together with options to purchase IBC's 1% general and 51% limited
partnership interests in SVA. As SVA has been operating at a cash deficit
since inception, none of these receivables have been collected by IGC.
Pursuant to the agreement, in order to enhance the ultimate liquidity of the
Company's receivables from SVA, the Company has had the right since December
31, 1993 to require IBC to repurchase the receivables ("SVA Repurchase") for an
amount equal to $2 million plus interest from the date of the agreement. To
date, the Company has not exercised the SVA Repurchase. The receivable was
$4.4 million including accrued interest at September 30, 1994, of which $2.5
million was reserved.
IGC provides management services to HDA pursuant to a management agreement
which has a term of 15 years ending in December 2004. The management agreement
was amended in December 1993 upon closing of a HDA refinancing to reduce the
management fee to an annual fee of $250,000, adjusted beginning in 1994 by the
percentage increase in CPI over the prior year. Prior to such amendment IGC
received a management fee equal to 5% of the HDA's rental income. The HDA
management fees earned in the first nine months of 1994 and 1993 were $193,000
and $458,000, respectively.
<PAGE>24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The real estate industry is cyclical, and is especially sensitive to
fluctuations in economic activity and movements in interest rates. Sales of
new homes are affected by market conditions for rental properties and by the
condition of the resale market for used homes, as well as the competitive
supply of other new homes for sale. An oversupply of rental real estate
depresses rents and reduces incentives for renters to purchase homes. An
oversupply of resale units depresses prices and reduces the margins available
on sales of new homes. In addition, a slowing of the economy and its impact on
consumer spending, particularly in over built markets, can adversely impact
construction activity and demand for housing. However, entry level housing has
traditionally not been as negatively influenced since financing has been
readily available to individuals with small amounts of capital.
The Company's homebuilding and community development sales are greatly
influenced by consumer confidence, housing demand, prevailing market interest
rates, movements in such rates and expectations about future rates. Even
though long-term interest rates have increased since 1993 when they declined to
their lowest level in approximately 20 years, entry-level housing remains
affordable to homebuyers. As part of the Company's restructure plan, certain
subdivision homebuilding projects were transferred to the community development
division for lot sales to other builders. As a result, the Company is
experiencing a decrease in its subdivision home sales volume.
The following discussion and analysis covers changes in the results of
operations for the nine and three months ended September 30, 1994 as compared
to the results of the nine and three months ended September 30, 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Revenues. Revenues for the nine months ended September 30, 1994 increased
39% to $51.9 million from $37.3 million in the prior comparable period
primarily due to an increase in revenues from investment properties related to
the distribution of a note receivable from HDA, an increase in commercial lot
sales and the impact of the consolidation of two partnerships owning apartment
projects.
<PAGE>
<PAGE>25
Home sales decreased 10% to $15.1 million for the nine months ended
September 30, 1994 from $16.7 million for same period of 1993. The decrease is
summarized as follows:
Nine Months Ended
September 30, 1994
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 6,386 $152 42 8
Lexington Park, MD 162 81 2 4
Montclair, VA 118 118 1 --
On Your Own Lot (excludes lots) 8,469 81 105 120
------- --- ---
$15,135 $101 150 132
======= === ===
Nine Months Ended
September 30, 1993
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $8,549 $134 64 21
Lexington Park, MD 182 91 2 1
Montclair, VA 1,404 128 11 --
On Your Own Lot (excludes lots) 6,597 76 87 154
------- --- ---
$16,732 $102 164 176
======= === ===
The decrease in the subdivision homebuilding division is primarily due to
the Company's increased focus on the "on your own lot" division and the reduced
availability of townhome lots to the Company's homebuilding division in St.
Charles and Montclair due to lot sales to third party homebuilders. In
addition to increased competition in the Company's planned communities,
competition outside of St. Charles has stiffened.
<PAGE>
<PAGE>26
Lot sales increased to $19 million for the nine months ended September 30,
1994 from $11.6 million for the same period in 1993. The increase in 1994 is
primarily attributable to the closing of the sale of a shopping center site in
Puerto Rico and an increase in single-family residential lot sales, offset in
part by a decrease in townhome lot sales in the St. Charles and Montclair
divisions. Lot sales are summarized as follows:
Nine Months Ended
September 30,
----------------------
1994 1993
---- ----
(In thousands)
Industrial/Commercial lots
Commercial/Industrial:
U.S. (10 acres in 1994, 12 acres in 1993) $ 983 $3,000
Puerto Rico (62 acres) 12,000 --
Puerto Rico
Recognition of deferred income 123 375
Residential lots
St. Charles
Single-family lots (83 in 1994, 85 in 1993) 3,803 3,856
Townhome lots (66 in 1993) -- 1,650
Montclair
Townhome lots
Developed (19 in 1994, 43 in 1993) 713 1,512
Semi-developed (44 in 1994) 484 --
Condominium lots (45 in 1993) -- 378
Westbury single-family lots (21 in 1994, 6 in 1993) 571 155
Undeveloped land
U.S. 31 687
Puerto Rico (19 acres in 1994) 250 --
------- -------
$18,958 $11,613
======= =======
Average residential lot sales price
St. Charles
Single-family lot $ 46 $ 45
Townhome lot -- 25
Montclair
Townhome lot
Developed 38 35
Semi-developed 11 --
Condominium lot -- 8
Westbury lot 27 26
<PAGE>
<PAGE>27
Revenues from investment properties, management fees and other income
increased to $17.8 million for the nine months ended September 30, 1994 from
$8.9 million in the same period of 1993. These changes are summarized below:
Nine Months Ended
September 30,
-----------------------------
1994 1993
---- ----
(In thousands)
Revenues from investment properties-
Investment in partnerships $11,564 $4,256
Management fees 2,569 3,211
Apartment rental income 3,286 1,026
Interest and other income 375 451
------- ------
$17,794 $8,944
======= ======
Revenues from investment in partnerships during the nine months ended
September 30, 1994 increased to $11.6 million from $4.3 million for the same
period in 1993 due to distributions from certain partnerships that exceeded the
Company's basis in those partnerships. Certain partnerships qualify as Puerto
Rico special partnerships and, as such, partners are not liable for losses in
excess of their capital investment. The source of these income producing
distributions were $2.6 million from a partnership that refinanced the four
apartment projects it owns and a $6.5 million note receivable from HDA. As a
result of the partners' deficit capital accounts in HDA and the Proposed
Distribution, IGC did not recognize its share of HDA earnings during the first
nine months of 1994 and does not expect to recognize any of these earnings in
the future. During the first nine months of 1993, $1.9 million of equity in
earnings of HDA was recorded.
Revenues from management fees decreased due to the reduced HDA management
fee and refinancing fees earned in the 1993 period with no similar fees earned
during the 1994 comparable period. This decrease was offset in part by
recognition of a developer's fee in the 1994 period.
During August 1993, the partnerships owning the New Forest and Fox Chase
Apartment complexes purchased the unaffiliated party's 50% partnership
interests, thereby increasing IGC's interest in these partnerships from 40% to
90%. Prior to these purchases, the Company accounted for these partnership
interests under the equity method. The Company's September 30, 1994
consolidated financial statements include the operations of New Forest and Fox
Chase, which accounts for the increase in rental income.
<PAGE>
<PAGE>28
GROSS PROFITS FROM HOMEBUILDING AND COMMUNITY DEVELOPMENT.
Gross profits from homebuilding operations for the nine months ended
September 30, 1994 and 1993 are summarized as follows:
Nine Months Ended September 30, 1994
------------------------------------
Subdivision On Your Own Lot Total
----------- --------------- ------
Home sales $ 6,666 $ 8,469 $15,135
Cost of sales excluding marketing 6,207 7,805 14,012
------- ------- -------
Gross profits before selling and
marketing costs $ 459 $ 664 $ 1,123
======= ======= =======
Gross profit margins 7% 8% 7%
Nine Months Ended September 30, 1993
------------------------------------
Subdivision On Your Own Lot Total
----------- --------------- ------
Home sales $10,135 $ 6,597 $16,732
Cost of sales excluding marketing 8,219 6,123 14,342
------- ------- -------
Gross profits before selling and
marketing costs $ 1,916 $ 474 $ 2,390
======= ======= =======
Gross profit margins 19% 7% 14%
Gross profits as a percentage of homebuilding revenues for a particular
period are a function of various factors including pricing, efficiency of
homebuilding operations, financing costs (including costs of subsidizing
customer financing, if any) and differences in gross profit margins between the
homebuilding divisions. The subdivision margin, usually higher, includes the
profit on land transferred from the community development division, whereas the
"on your own lot" sales consist solely of the homes. The lower margins in 1994
are primarily due to the change in the mix of sales between subdivision and "on
your own lot" homebuilding divisions and a write-off of unrealizable
capitalized costs.
<PAGE>
<PAGE>29
Gross profit margins from community development increased to 35% from 30%
primarily due to reduced period costs absorbed by increased lot sales. Gross
profits from community development are summarized as follows:
Nine Months Ended September 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
Commercial/Industrial:
U.S. $ 983 $ 300 $ 683 69%
Puerto Rico 12,000 7,569 4,431 37%
Puerto Rico
Recognition of deferred income 123 32 91 74%
U.S. Residential lots
St. Charles
Developed single-family lots 3,803 2,220 1,583 42%
Montclair
Townhome lots
Developed 713 640 73 10%
Semi-developed 484 440 44 9%
Westbury single-family lots 571 528 43 8%
Undeveloped land
U.S. 31 -- 31 100%
Puerto Rico 250 133 117 47%
------- ------- ------
Gross profit before period costs 18,958 11,862 7,096 37%
Period costs -- 462 (462) --
------- ------- ------
$18,958 $12,324 $6,634 35%
======= ======= ======
<PAGE>
<PAGE>30
Nine Months Ended September 30, 1993
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
U.S. $ 3,000 $1,098 $1,902 63%
Puerto Rico
Recognition of deferred income 375 60 315 84%
U.S. Residential lots
St. Charles
Developed single-family lots 3,856 2,363 1,493 39%
Developed townhome lots 1,650 1,078 572 35%
Montclair
Townhome lots - developed 1,512 1,462 50 3%
Condominium lots 378 361 17 5%
Westbury single-family lots 155 153 2 1%
U.S. undeveloped land 687 680 7 1%
------- ------ ------
Gross profit before period costs 11,613 7,255 4,358 38%
Period costs -- 846 (846) --
------- ------ ------
$11,613 $8,101 $3,512 30%
======= ====== ======
Other Expenses. The other expenses for the nine months ended September
30, 1994 and 1993 were as follows:
1994 1993
---------- ----------
Selling and marketing $ 1,076 $ 912
General and administrative 6,902 5,771
Depreciation and amortization 456 427
Interest expense 1,512 1,580
Rental apartment expense 3,336 1,065
Write-off deferred project cost 1,761 --
------- ------
$15,043 $9,755
======= ======
Selling and marketing expenses, depreciation and amortization and interest
expense during the 1994 and 1993 periods were generally comparable. General
and administrative expenses increased primarily due to additional compensation
expense resulting from the issuance of Unit Appreciation Rights pursuant to the
Company's Employees' Unit Incentive Plan and legal fees regarding pending legal
proceedings. Rental apartment expense in 1994 includes the expenses of New
Forest and Fox Chase which were not consolidated in the 1993 period. The
Company's share of these partnership losses were previously accounted for on
the equity method (see Note 3). VJC was not chosen as the recipient of the
Virginia racing license, resulting in a $1.8 million write-off of deferred
project costs.
<PAGE>31
Provision for Income Tax. The provision for Puerto Rico income taxes
during the nine months ended September 30, 1994 increased to $3 million
compared to $900,000 during the first nine months of 1993 primarily due to
taxable income resulting from distributions received from partnerships in
Puerto Rico that refinanced their apartment projects and the profits from the
sale of the shopping center site. The implementation of SFAS No. 109 generated
a $1.5 million Puerto Rico income tax benefit reported in 1993 as a cumulative
effect of accounting change.
Minority Interest. The minority partner interest increased during the
nine months ended September 30, 1994 primarily as a result of the minority
partner's 20% interest in the profit related to the settlement by LDA of the
sale of a shopping center site in Puerto Rico.
Net Income. As a result of changes in revenue and expenses discussed
above, net income for the nine months ended September 30, 1994 increased to
$6.8 million from $5.6 million. The 1994 period included a nonrecurring
distribution of a $6.5 million note receivable from HDA and the 1993 period
included a $1.5 million beneficial effect of the accounting change.
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Revenues. Revenues for the three months ended September 30, 1994
increased 22% to $16.7 million from $13.7 million in the prior comparable
period primarily due to a non-recurring distribution from HDA of a $6.5 million
note receivable in the 1994 quarter.
Home sales decreased 14% to $5.1 million for the three months ended
September 30, 1994 from $5.9 million for same period of 1993. The decrease is
summarized as follows:
Three Months Ended
September 30, 1994
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 2,525 $158 16 8
Lexington Park, MD -- -- -- 4
Montclair, VA -- -- -- --
On Your Own Lot (excludes lots) 2,605 79 33 120
------- --- ---
$ 5,130 $105 49 132
======= === ===
<PAGE>
<PAGE>32
Three Months Ended
September 30, 1993
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
Homes Sales (In thousands)
Subdivision
St. Charles, MD $ 2,866 $136 21 21
Lexington Park, MD 89 89 1 1
Montclair, VA 133 133 1 --
On Your Own Lot (excludes lots) 2,846 77 37 154
------- --- ---
$ 5,934 $99 60 176
======= === ===
The decrease in the subdivision homebuilding division is primarily due to
increased competition to the Company's increased lot sales to third party
homebuilders that resulted in less townhome lots available for the Company's
home sales, offset in part by increased sales prices.
Lot sales decreased to $2.2 million for the three months ended September
30, 1994 from $4.5 million for the same period in 1993. Westlake Village is
nearing completion and the majority of the large single-family lots are
committed under option contracts or sold. The medium size lots sell for a
lower sales price at a reduced sales pace. Lot sales are summarized as
follows:
Three Months Ended
September 30,
----------------------
1994 1993
---- ----
Industrial/Commercial lots (In thousands)
Commercial:
U.S. (2 acres in 1994, 1 in 1993) $ 184 $650
Puerto Rico
Recognition of deferred income -- 125
Residential lots
St. Charles
Single-family lots (26 in 1994, 49 in 1993) 1,119 2,194
Townhome lots (7 in 1993) -- 171
Montclair
Townhome lots - developed (10 in 1994, 20 in 1993) 378 711
Westbury single-family lots (11 in 1994, 4 in 1993) 308 100
Undeveloped land
U.S. -- 525
Puerto Rico (19 acres in 1994) 250 --
------- ------
$ 2,239 $4,476
Average residential lot sales price ======= ======
St. Charles
Single-family lot $ 43 $ 45
Townhome lot -- 24
Montclair
Townhome lot - developed 37 36
Westbury lot 28 25
<PAGE>33
Revenues from investment properties, management fees and other income
increased to $9.3 million for the three months ended September 30, 1994 from
$3.3 million in the same period of 1993. These changes are summarized below:
Three Months Ended
September 30,
-----------------------------
1994 1993
---- ----
(In thousands)
Revenues from investment properties-
Investment in partnerships $7,309 $1,395
Management fees 693 1,149
Apartment rental income 1,128 619
Interest and other income 188 150
------ ------
$9,318 $3,313
====== ======
Revenues from investment in partnerships during the three months ended
September 30, 1994 increased to $7.3 million from $1.4 million for the same
period in 1993 due to the income recognition of a distribution from HDA. HDA
qualifies as a Puerto Rico special partnership and, as such, partners are not
liable for losses in excess of their capital investment. Since HDA's partners'
capital accounts are in a deficit, the Company recognized $6.5 million of
income from its share of the LDA note receivable distributed by HDA. As a
result of the partners' deficit capital accounts in HDA and the Proposed
Distribution, IGC did not recognize its share of HDA earnings during the first
nine months of 1994 and does not expect to recognize any of these earnings in
the future. During the first nine months of 1993, $1.9 million of equity in
earnings of HDA was recorded.
Revenues from management fees decreased primarily due to the lower HDA
management fee earned in 1994 pursuant to the amended management agreement and
a decrease in incentive management fees recognized in the 1994 period as
compared to the 1993 period.
During August 1993, the partnerships owning the New Forest and Fox Chase
Apartment complexes purchased the unaffiliated party's 50% partnership
interests thereby increasing IGC's interest in these partnerships from 40% to
90%. Prior to these purchases, the Company accounted for these partnership
interests under the equity method. The Company's September 30, 1994
consolidated financial statements include the operations of New Forest and Fox
Chase.
<PAGE>
<PAGE>34
GROSS PROFITS FROM HOMEBUILDING AND COMMUNITY DEVELOPMENT.
Gross profits from homebuilding operations for the three months ended
September 30, 1994 and 1993 are summarized as follows:
Three Months Ended September 30, 1994
-------------------------------------
Subdivision On Your Own Lot Total
----------- --------------- -----
Home sales $ 2,525 $ 2,605 $ 5,130
Cost of sales excluding marketing 2,559 2,380 4,939
------- ------- -------
Gross profits before selling and
marketing costs $ (34) $ 225 $ 191
======= ======= =======
Gross profit margins (1)% 9% 4%
Three Months Ended September 30, 1993
-------------------------------------
Subdivision On Your Own Lot Total
----------- --------------- -----
Home sales $ 3,088 $ 2,846 $ 5,934
Cost of sales excluding marketing 2,407 2,630 5,037
------- ------- -------
Gross profits before selling and
marketing costs $ 681 $ 216 $ 897
======= ======= =======
Gross profit margins 22% 8% 15%
The lower margins in 1994 are primarily due to increased direct and
indirect costs without a proportionate increase in sales price, the write-off
of unrealizable capitalized costs and the change in the mix of sales between
subdivision and "on your own lot" homebuilding divisions. The subdivision
margin, usually higher than the margins produced by the "on your own lot"
division, includes profit on land previously held in the Company's community
development inventory which has a below market basis whereas the "on your own
lot" sales consist solely of the homes.
<PAGE>
<PAGE>35
Gross profits from community development decreased to 26% from 31%
primarily due to a decrease in residential lot sales and period costs being
absorbed by fewer lot sales. In addition, the average sales price of the
commercial site and the single-family lots sold in 1994 were lower than the
1993 period due to size and location. Gross profits from community development
are summarized as follows:
Three Months Ended September 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
Commercial/Industrial:
U.S. $ 184 $ 50 $ 134 73%
Puerto Rico -- -- -- --
U.S. Residential lots
St. Charles
Developed single-family lots 1,119 693 426 38%
Montclair
Townhome lots - developed 378 336 42 11%
Westbury single-family lots 308 274 34 11%
Undeveloped land
U.S. -- -- -- --
Puerto Rico 250 132 118 47%
------- ------ ------
Gross profit before period costs 2,239 1,485 754 34%
Period costs -- 168 (168) --
------- ------ ------
$ 2,239 $1,653 $ 586 26%
======= ====== ======
<PAGE>
<PAGE>36
Three Months Ended September 30, 1993
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
U.S. $ 650 $ 120 $ 530 82%
Puerto Rico
Recognition of deferred income 125 20 105 84%
U.S. Residential lots
St. Charles
Developed single-family lots 2,194 1,344 850 39%
Developed townhome lots 171 113 58 34%
Montclair
Townhome lots - developed 711 689 22 3%
Westbury single-family lots 100 100 -- --
Undeveloped land 525 518 7 1%
------ ------ ------
Gross profit before period costs 4,476 2,904 1,572 35%
Period costs -- 179 (179) --
------ ------ ------
$4,476 $3,083 $1,393 31%
====== ====== ======
Other Expenses. The other expenses for the three months ended September
30, 1994 and 1993 were as follows:
1994 1993
---------- ----------
Selling and marketing $ 396 $ 341
General and administrative 2,999 1,680
Depreciation and amortization 149 147
Interest expense 419 598
Rental apartment expense 1,163 624
------ ------
$4,719 $3,390
====== ======
Selling and marketing expense and depreciation and amortization during the
1994 and 1993 periods were generally comparable. General and administrative
expenses increased primarily due to additional compensation expense resulting
from the issuance of Unit Appreciation Rights pursuant to the Company's
Employees' Unit Incentive Plan and accrued legal fees regarding pending legal
proceedings. Rental apartment expense in 1994 includes the expenses of New
Forest and Fox Chase which were consolidated for 50 days of the 1993 period.
The Company's share of these partnership losses were previously accounted for
on the equity method (see Note 3). Interest expense decreased due to debt
reduction.
Provision for Income Tax. The provision for income taxes during the three
months ended September 30, 1994 decreased to $185,000 compared to $380,000 in
the three months ended September 30, 1993.
<PAGE>37
Net Income. As a result of changes in revenue and expenses discussed
above, net income for the three months ended September 30, 1994 increased to
$3.1 million from $1.8 million during the comparable 1993 period. The 1994
period included a nonrecurring distribution of a $6.5 million notes receivable
from HDA.
FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements principally
from cash flow generated from home and lot sales, property management fees, and
from bank financing providing funds for development and working capital. In
response to the decline in the real estate markets and the decline in the
availability of financing, the Company undertook a financial restructuring in
1992. During 1994, the Company continued to make progress in completing the
objectives it set forth in its 1992 restructuring plan. New or amended loan
agreements have been executed for all loans which required restructuring.
Under the terms of IGC's loans, most of the cash flow generated by U.S. home
and lot sales and distributions from partnerships, including distributions from
partnership refinancings, will be used to further reduce bank loans and meet
debt service requirements. As a result, the Company's ability to generate cash
for overhead, development and other uses is limited, therefore, it may become
necessary for the Company to negotiate with its lenders to reschedule future
payments. In addition, project financing will be necessary to commence the
development of needed inventory. Debt curtailments during the nine months
ended September 30, 1994 totaled $19,094,000.
One of the Company's principal lenders, Signet Bank, has agreed to reduce
the collateral release prices and extend the terms of its $7.4 million loan to
September 1, 1995 in exchange for additional collateral. Documents reflecting
these changes are being prepared and management expects them to be executed
prior to November 30, 1994.
In addition to its traditional sources of liquidity, the Company is
currently pursuing a line of credit and investigating opportunities in the
capital markets for longer term financings.
A potential source of liquidity in late 1995 includes cash from four
partnerships in Puerto Rico which applied in March 1993 for economic incentives
under the 1990 Low-Income Housing Preservation and Resident Homeownership Act
("LIHPRHA"). Under LIHPRHA the partnerships have the option of obtaining
additional HUD insured financing and additional subsidy funds, and distributing
net refinancing proceeds to partners, or selling the projects to non-profit
organizations which would continue the projects under HUD's low income housing
program. The economic benefit to the Company and the partners will be greater
from a sale of the projects, and management has identified a potential non-
profit organization to purchase the projects. The Company expects to retain
the right to manage the properties. It is anticipated that any closing
pursuant to LIHPRHA will be accomplished in the fourth quarter of 1995 in which
event the Company expects that its share of the proceeds will be approximately
$10.0 million, net of taxes. These distributions are assigned to the FDIC and
then to NationsBank for the payment of debt. As of September 30, 1994, debt
payable to the FDIC and NationsBank was $8.9 million and $14.6 million,
respectively.
<PAGE>
<PAGE>38
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 22, 1993, the Company filed suit against the County
Commissioners of Charles County, Maryland in the Circuit Court for Charles
County seeking compensation for a school site that it had deeded to the County
on June 26, 1990. The Company seeks a minimum of $3.2 million, equal to the
fair market value of the school site. The action seeks to enforce an agreement
settling litigation between the parties that was entered into in 1989. Under
the terms of that agreement, the County agreed to credit the Company for school
sites contributed and also agreed to refund to the Company any excess school
impact fees paid. The County Commissioners and IGC requested a partial summary
judgment and the hearing was held on September 17, 1993. The Circuit Court
granted the County's partial summary judgment motion and directed the Company
to file its suit for compensation in the Maryland Tax Court. The Company has
appealed that decision in the Court of Special Appeals of Maryland and filed
for relief in the Maryland Tax Court. The Court of Special Appeals has
affirmed the Circuit Court's decision. The Company is considering whether to
seek further appellate review or to pursue relief in the Tax Court.
In a separate proceeding, the Company filed suit in 1990 against the
County Commissioners in the Circuit Court for Charles County to enforce a
related settlement agreement that required the County to conduct an appropriate
water and sewer connection fee study. On June 22, 1992, judgment was rendered
in favor of the Company. The judgment required the County to conduct the
appropriate water and sewer connection fee study and set fees for St. Charles
in accordance with that study. The County has appealed the judgment to the
Court of Special Appeals of Maryland, and has also sought reconsideration of
the judgment from the Circuit Court. On April 26, 1994, the Circuit Court for
Charles County, Maryland denied the County's Motion to Alter or Amend the
Judgment. The County has appealed that decision in the Court of Special
Appeals of Maryland.
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five-acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site. The Company took the position that a prohibition of development on the
entire Site would constitute a governmental taking for which the Company would
be entitled to compensation. In November 1993, the Company believed it had an
agreement in principle with the Corps that would permit commercial development
of a portion of the Site. However, in early 1994, the Company became aware
that this matter had been referred to the U.S. Attorney for the District of
Maryland who has convened a grand jury and is now conducting an investigation
of the Company's wetlands practices in St. Charles including the Site. The
investigation is in a preliminary stage and the Company is not in a position to
determine whether it will be charged with a violation of the Clean Water Act or
other laws or, if charged, what the outcome will be.
ITEM 2. CHANGES IN SECURITIES
None.
<PAGE>39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
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(a) Employment Agreement with John E. Filed herewith
Hans dated September 1, 1994
(b) None.
<PAGE>
<PAGE>40
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.
INTERSTATE GENERAL COMPANY L.P.
-------------------------------
(Registrant)
By: Interstate General Management
Corporation
Managing General Partner
Dated: November 14, 1994 By: /s/ James J. Wilson
----------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: November 14, 1994 By: /s/ John E. Hans
----------------- -----------------------------
John E. Hans
Senior Vice President and
Chief Financial Officer
<PAGE>
<PAGE>41
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- - - ------- -------
10(a) Employment Agreement with John E. Hans dated September 1,
1994.
<PAGE>1
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 1, 1994, among and between Interstate
General Company L.P., a Delaware limited partnership (the "Company"),
and John E. Hans (the "Executive").
WHEREAS, the Company and the Executive desire to provide for the
Executive's employment by the Company on the terms and conditions herein
provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties contained herein, the
parties hereto hereby agree as follows:
1. Employment. The Company shall employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein. The Executive represents and warrants that neither the execution
by him of this Agreement nor the performance by him of his duties and
obligations hereunder will violate any agreement or other legal obligation of
any kind to which he is a party or by which he is bound.
2. Term. The Company shall employ the Executive and the terms and
conditions of this Agreement shall extend for an initial one-year term
commencing on September 1, 1994 and expiring on August 31, 1995, and thereafter
for successive one-year terms; provided, however, that either party may
terminate this Agreement sixty (60) days after such party has delivered written
notice to the other party of its intent so to terminate this Agreement.
3. Position and Duties.
(a) The Executive shall serve as Senior Vice President and
Chief Financial Officer of the Company, reporting to the President and Chief
Operating Officer of the Company (the "President/COO"). The Executive shall
assist the President/COO in the President/COO's general management and
operation of the Company and of any of the Company's Affiliates (which term
shall have the same meaning in this Agreement as set forth in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended) and shall have such other
powers and duties as may from time to time be prescribed by the Board of
Directors (the "Board") of the Company's managing general partner, Interstate
General Management Corporation. The Executive shall have such authority and
responsibilities as are set forth in Exhibit A, attached hereto and captioned
"Job Description" and "Delegation of Authority", as the same may be amended
from time to time by the President/COO or the Board.
(b) The Executive shall devote substantially all his working
time and efforts to the business and affairs of the Company and the Company's
Affiliates. The Company is aware that the Executive serves as a member of the
board of directors of NB Engineering and acknowledges and agrees that minimal
amounts of time spent by the Executive in performing the duties of such office
shall not be deemed to be inconsistent with the performance by the Executive of
his duties and obligations hereunder.
4. Place of Performance. In connection with this employment by the
Company, the Executive shall be based at the Company's principal executive
offices which, as of the date of this Agreement, are located in St. Charles,
Maryland.
<PAGE>2
5. Compensation.
(a) Base Salary. The Executive shall receive a Base Salary
commencing on the date he commences employment in accordance with Section 2
hereof, at the rate of $190,000 per year, payable in substantially equal semi-
monthly installments. The Executive's compensation will be reviewed for
modification during the first calendar quarter of 1995 and no less frequently
than annually thereafter.
(b) Initial Payment. In addition to any other payments that may be
due hereunder, including pursuant to Section 5(a), the Company shall pay to the
Executive on or prior to the thirtieth day following the day on which the
Executive commences employment in accordance with Section 2 hereof the sum of
$10,000.
(c) Benefit Plans. The Executive shall be eligible to participate
in such bonus and benefit plans as may be established from time to time by the
Company on the same basis as comparable senior executive employees of the
Company. Any discretionary benefits under such plans shall be at the full
discretion and determination of the Board. It is acknowledged and agreed by
the Company and the Executive that the Executive's participation in the
Company's profit sharing plan shall commence with calendar year 1995.
(d) Expenses. During the term of his employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with the policies and procedures
presently in effect for the Company's senior executive officers) in connection
with his services herein. The Executive shall account to the Company for such
expenses in accordance with Company policy.
(e) Vacations. The Executive shall be entitled to the number of
paid vacation days determined by the Company for its senior executive officers,
but not less than twenty (20) days per year. The Executive shall also be
entitled to all paid holidays given to the Company's senior executive officers.
(f) Automobile Benefit. In addition to benefits to which the
Executive is eligible under subsection (c) of this section, during the term of
his employment hereunder, the Company shall provide for the Executive's use a
middle-of-the-line automobile, such as a Ford Taurus SHO, Oldsmobile 88, etc.
(the "Automobile Benefit").
6. Withholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by the Company hereunder to
the Executive or his estate or beneficiaries, including, without limitation,
the payment to be made to the Executive pursuant to Section 5(b), shall be
subject to the withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provisions for payment of
taxes and withholdings as required by law, provided it is satisfied that all
requirements of law affecting its responsibilities to withhold compensation
have been satisfied.
7. Unauthorized Disclosure. During the period of his employment
hereunder, and for a period of three (3) years thereafter, the Executive shall
not, without the written consent of the Board or a person authorized by the
Board, disclose to any person other than as required by law or court order, or
other than to an authorized employee of the Company or its Affiliates, or to a
<PAGE>3
person to whom disclosure is necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company
(e.g., disclosure to the Company's or its Affiliates' outside accountants or
bankers of financial data properly requested by such persons and approved by an
authorized officer of the Company), any confidential information obtained by
him while in the employ of the Company with respect to any of the Company's or
the Company's Affiliates' products, services, customers, suppliers, marketing
techniques, methods or future plans; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive) or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that conducted by the Company.
The Executive shall be allowed to disclose confidential information to his
attorney solely for the purpose of ascertaining whether such information is
confidential within the intent of this Agreement; provided, however, that the
Executive (a) discloses to his attorney the provisions of this Section 7 and
(b) agrees not to waive the attorney-client privilege with respect thereto.
8. Non-Competition.
(a) While the Executive is employed by the Company hereunder, the
Executive shall use his best efforts to make available to the Company business
opportunities that come to his attention or to the attention of persons (other
than natural persons) under his control.
(b) While the Executive is employed by the Company hereunder and for
a period of two (2) years thereafter (the "Non-Compete Period"), the Executive
agrees that he shall not compete with the Company or any of its Affiliates
without the prior written consent of the Board. For purposes of this
Agreement, the term "compete" shall mean (i) participating as a more than five
(5%) percent stockholder, an officer, a director, an employee, a partner, an
agent, a consultant, or in any other individual or representative capacity in
any business entity engaged in the business of land development and custom-
crafted premium site home building in any metropolitan statistical area or
rural statistical area in which the Company or any of its Affiliates is engaged
in such business during the Non-Compete Period (unless the Executive's duties,
responsibilities, and activities, including supervisory activities, for or on
behalf of such business are not related to such "competitive activity"); or
(ii) employing or soliciting for employment any employees of the Company or any
of its Affiliates.
(c) In the event the restrictions against engaging in a competitive
activity contained in this Section 8 shall be determined by any court of
competent jurisdiction to be unenforceable by reason of their extending for too
great a period of time or over too great a geographical area or by reason of
their being too extensive in any other respect, this Section 8 shall be
interpreted to extend only over the maximum period of time for which it may be
enforceable and over the maximum geographical area as to which it may be
enforceable and to the maximum extent in all other respects as to which it may
be enforceable, all as determined by such court in such action.
(d) The Executive acknowledges that a breach of the restrictions
against engaging in a competitive activity contained in this Section 8 will
cause irreparable damage to the Company or its Affiliates, the exact amount of
which will be difficult to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly, the Executive and the Company agree
that if the Executive breaches the restrictions against engaging in a
competitive activity contained in this Section 8, then the Company or its
<PAGE>4
Affiliates shall be entitled to equitable relief, including but not limited to
injunctive relief, without posting bond or other security.
9. Severance. Upon termination of the Executive's employment
hereunder, all payment and benefit obligations of the Company hereunder shall
immediately terminate except as follows:
(a) In the event of a termination of the Executive's employment due
to the Executive's death or disability, the Executive, or his estate, shall
continue to receive his Base Salary and benefits (excluding the Automobile
Benefit) for which the Executive remains eligible under the terms of the
Company's benefit plans (collectively "Severance Compensation") for a period
commencing on the effective date of the Executive's termination determined by
the Board (the "Termination Date") and ending ninety (90) days following the
Termination Date; and
(b) In the event of a Qualifying Termination (defined below) by the
Company, the Executive shall receive Severance Compensation for a period
commencing on the Termination Date and ending ninety (90) days following the
Termination Date.
For purposes of this Agreement, "Qualifying Termination" shall mean any
termination of the Executive by the Company other than a termination approved
by the Board arising from the Executive's (a) willful, reckless or negligent
inattention to the welfare of the Company, (b) unethical conduct, (c) repeated
disregard of the Company's written rules, policies and regulations, (d)
conviction of a felony or other criminal offense relating to fraud or theft, or
(e) failure or refusal by the Executive to perform his obligations under this
Agreement, including any lawful directive of the Board, the Chairman of the
Board of the Company, or the President/COO relating to the business of the
Company or its Affiliates.
10. Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or facsimile transmission
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Interstate General Company L.P.
222 Smallwood Village Center
St. Charles Maryland 20602
Attn: President and Chief Operating Officer
If to the Executive:
Mr. John E. Hans
c/o Interstate General Company L.P.
222 Smallwood Village Center
St. Charles, Maryland 20602
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
<PAGE>5
11. Entire Agreement. Except for the Unit Appreciation Rights
Agreement of even date herewith, this Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein, and supersedes all prior oral or written agreements,
commitments or understandings with respect to the matters provided for herein.
12. Headings. Article and section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way define
or affect the meaning, construction or scope of any of the provisions hereof.
13. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
14. Governing Law. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of Delaware
(excluding the choice-of-law rules thereof).
15. Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or director as
may be specifically designated by the Board. No waiver by either party hereto
at any time of any breach by the other party shall operate as a waiver of any
future or different breach.
16. Arbitration.
(a) Any dispute or controversy arising between the Executive and the
Company relating to this Agreement shall, upon the written request of either
the Executive or the Company, be submitted to private, binding arbitration
before a panel of three arbitrators under the auspices of and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). In the event of such dispute or controversy, the Company and the
Executive shall independently and simultaneously select one arbitrator each,
both of whom must have no past or present familial or business relationships
with the parties and must possess expertise in the area of compensation of
senior management employees. These two arbitrators shall jointly agree upon
and select a third arbitrator who also possesses such credentials. These three
arbitrators shall hear and decide the dispute or controversy by majority vote,
and their decision and award shall be final and conclusive upon the parties,
their heirs, administrators, executors, successors, and assigns. The
arbitrators shall have no power or authority to add to, subtract from, or
otherwise modify the terms of this Agreement. Wherever the Commercial
Arbitration Rules of the AAA conflict with the procedures set forth in this
section, the terms of this section shall govern. The Executive and the Company
agree that the arbitration must be initiated by personally delivering a
statement of claim to the AAA and to the party against whom the claim is
asserted no later than ninety (90) days after the basis of the claim becomes
known, or reasonably should have been known or discovered, by the party
asserting the claim. In the event arbitration is not initiated within such
ninety (90) day period, such claim, dispute, or controversy shall be
irrevocably time-barred. A judgment based upon such arbitration award may be
entered in any court having jurisdiction thereof.
<PAGE>6
(b) Notwithstanding the foregoing, any action brought by the Company
seeking a temporary restraining order, temporary and/or permanent injunction,
and/or a decree of specific performance of the terms of this Agreement may be
brought in a court of competent jurisdiction without the obligation to proceed
first to arbitration.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
INTERSTATE GENERAL COMPANY L.P.
By: Interstate General Management
Corporation, Its Managing
General Partner
By: /s/ James J. Wilson
-----------------------------
James J. Wilson
President
EXECUTIVE
/s/ John E. Hans
----------------------------------
John E. Hans
<PAGE>
<PAGE>7
Exhibit A
INTERSTATE GENERAL COMPANY L.P.
JOB DESCRIPTION
Position: Senior Vice President and Chief Financial Officer
Reports to: Directly: President and Chief Operating Officer
Indirectly: The Board of Directors of Interstate General
Management Corporation
Supervises: Vice President and Controller and Assistant Vice President
and Treasurer, St. Charles, Maryland and San Juan, Puerto Rico
Main Objectives: Responsible for obtaining and managing IGC's financing
requirements including bond, equity, note and bank
financing. Secondarily, oversees analysis and forecasting,
cash management, financial reporting and budgeting.
DUTIES/RESPONSIBILITIES:
1. Finance functions
A. Administrate all banking relationships.
B. Negotiate and monitor compliance of all loan covenants.
C. In compliance with the parameters of the approved Business Plan,
provide placement of financing for the organization and its projects.
Financing shall include but not be limited to:
* Working Capital Lines
* Acquisition and Development Capital
* Construction/Mini-perm/Permanent Loans
* Equipment Leasing
D. Be responsible for proposing alternative financing strategies.
E. Oversee development and maintenance of new banking relationships.
F. Oversee preparation of offerings and loan request packages.
2. Analysis and Forecasting
A. Oversee the preparation of all financial feasibility analysis.
B. Manage and coordinate the financial aspects of potential project
developments.
C. Oversee the preparation of cash forecasts, income and balance sheet
proformas.
D. Participate on the Project Evaluation Team to evaluate and analyze
the financial viability of new and existing projects. Ultimately, be
responsible for financing all projects.
3. Treasury/Cash Management
A. Administer the application and use of cash funds.
B. Participate in planning the use of cash/assets owned by IGC.
C. Be responsible for reporting the use of credit lines to management.
D. Supervise the investment of cash funds.
E. Be responsible for proposing alternate investment strategies for
cash/assets.
<PAGE>8
F. Counsel with management regarding legal procedures required for
financial protection.
G. Continuously review programs for compliance and updating of legal and
corporate regulations.
H. Review and coordinate records and reports showing financial liquidity
position of funds, at all times, so that financial flexibility can be
maintained.
4. Accounting Functions
Oversee accounting functions for all divisions and related IGC companies:
* Reporting and interpreting the results of operations at all levels of
the business
* Protecting of cash/assets by a system of internal control
* Tax issues and other compliance or reporting issues as required
* Preparation and review of the monthly, quarterly and annual financial
reports
* Development of budgets and budget control standards
5. Administration
A. Be responsible for the organization chart, job descriptions, policies
and procedures for all positions reporting to the Senior Vice
President and Chief Financial Officer.
B. Coordinate the audit, tax, and review services of Arthur Andersen &
Co.
C. Oversee the information systems through the use of personal
computers, networking, current hardware and software.
REQUIREMENTS:
1. Education: BA Finance/Accounting, MBA Finance preferred. Continuing
Education required.
2. Experience: A. 7-10 years experience as a CFO in a publicly held
company. Real estate industry background preferred.
Proven track record in execution with financing
resources, e.g. Wall Street bond, note and equity
offerings; banks; HUD; real estate partnerships &
syndications, etc.
B. Have currently positive relationships with financial
resources
C. Working knowledge of partnership accounting and
finance
D. Credible history of making the correct, key judgments
E. Verifiable track record of accomplishments
3. Skills: A. Possess above average oral and written communication
skills
B. Ability to work within a team environment is essential
C. History of honesty
D. Have ability to structure and place financing within
sophisticated transactions
AUTHORITY:
The Senior Vice President and Chief Financial Officer can utilize all the
powers granted in his "Delegation of Authority" document.
<PAGE>9
SUMMARY OF DELEGATION OF AUTHORITY
Name: John E. Hans
Company: Interstate General Company L.P.
Position: Senior Vice President and Chief Financial Officer
Location: St. Charles, Maryland
Effective Date: September 1, 1994
Professional
Services for Routine
Real Estate Operating Budgeted
Development Expenditures Capital and Sales
(Per Year (Except Other Agreements Annual
Per Insurance Development (No Compensation
Consultant) and Leases) Expenditures Limitations) Review
----------- ------------ ------------ ------------ ------------
Under
N/A Budget + 10% Budget N/A $40,000
Consulting
Industrial Services
Relations Accounting NOS (Per
(Compensation and Finance Year Per Legal
Per New Hire) (Receivables) Consultant) Services
------------- ------------- ----------- --------
Under Under Budget + $10,000
$50,000 $100,000 $50,000 Unlimited
($150,000
in the
aggregate)
<PAGE>
<PAGE>10
INTERSTATE GENERAL COMPANY L.P. (the "Company")
DELEGATION OF AUTHORITY TO THE
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
JOHN E. HANS ("Executive")
1. Operating Expenditures.
(a) The Executive may authorize the expenditure of operating funds on all
budgeted items. This shall include the execution or amendment of contracts, as
well as the initiation of purchase orders. Any expenditure which exceeds the
approved budgeted line item by 10% must be approved by the Chief Operating
Officer ("COO") or Chief Executive Officer ("CEO") of the Company.
(b) For purchase contracts less than or equal to $75,000, the Executive
shall determine if the document should be reviewed by legal counsel. As a
general rule, non-standard contracts often require more technical scrutiny by
legal counsel.
2. Capital and Other Development Expenditures.
(a) The Executive may negotiate, enter into, execute, or amend agreements
that involve capital expenditures allowed by the approved budget. Any other
such expenditures shall require an Authorization For Expenditure ("AFE")
approved by the COO or CEO of the Company.
(b) For contracts involving expenditures less than or equal to $75,000,
the Executive shall determine if the document should be reviewed by legal
counsel. As a general rule, non-standard contracts often require more
technical scrutiny by legal counsel.
3. Industrial Relations.
(a) The Company headquarters shall be responsible for issuing all general
personnel guidelines. These guidelines will be contained in the Employee
Handbook.
(b) All compensation contracts and union contracts of all employees under
the Executive's supervision shall be subject to approval by the COO or CEO.
This same procedure shall also apply to all employee benefit programs.
(c) The annual compensation review of all employees of the Company over
$40,000 annual compensation under the Executive's supervision shall be subject
to approval by the COO or CEO. All officers' compensation will be subject to
approval by the Board of Directors.
(d) The Executive shall have the authority to terminate employees under
his supervision for specific non-performance of his or her responsibilities,
violation of Company policy, and for economic layoffs.
<PAGE>11
(e) The Executive shall have the authority to hire anyone for an approved
position with an annual total compensation of less than or equal to $50,000,
provided that he or she is not directly or indirectly related to the Executive
or any other officer of the Company. All new hires that the Executive elects
to employ with an annual total compensation in excess of $50,000 shall require
the approval of the Board of Directors.
4. Accounting and Finance.
(a) The Executive shall be operationally responsible for accounting and
financial functions of the Company, e.g. invoicing, sales and receivables
collection, payables, preparing the appropriate general ledger accounts,
developing an annual budget, and variance reporting. The Executive may
negotiate discounts for early payoffs and receivables of under $100,000.
The fiscal and financial decisions of the Company will be made by the
Board of Directors. The Executive shall operationally carry out such fiscal
and financial policy decisions. The Executive will have no authority to change
or modify the accounting principles or procedures employed in maintaining the
books, preparing financial statements or modifying the fiscal/financial policy
decisions.
(b) The Executive may negotiate financing for specific real estate
development projects and general credit facilities. Approval of the terms and
conditions of any such financing, and the loan documents related to such
financing, shall be approved by the Board of Directors.
5. General Consulting Services Other Than Professional Services
for Real Estate Development.
The Executive may enter into, execute, or amend contracts for general
consulting services, which are not for real estate development purposes,
pursuant to the approved budget. If not in the approved budget, the Executive
may enter, execute, or amend contracts for such services up to $50,000 per year
per consultant and $150,000 in the aggregate. All contracts in excess of
$50,000 shall be subject to approval by the COO or CEO.
6. Legal Services by Approved Counsel.
The Executive may authorize legal counsel approved by the COO or CEO or
the Board of Directors to undertake any and all legal services required by the
Company up to $10,000.
7. General Limitations.
(a) The foregoing authority shall be subject to the following general
limitations:
(1) Whenever approval is required, said approval shall be evidenced
by a properly executed signature of the appropriate corporate officer or board
resolution.
(2) The Executive may enter into any partnerships or joint ventures
with the written approval of the Board of Directors.
<PAGE>12
(b) The Executive may delegate to members of his staff as much of the
foregoing power and authority as the Executive deems necessary or prudent;
provided, however, that the Executive remains responsible for the exercise of
such powers.
8. Duration of Authority.
This delegation of authority shall remain in full force and effect until
otherwise amended in writing by the COO or CEO or Board of Directors or the
Executive's employment with the Company is terminated.
<PAGE>
<PAGE>13
INTERSTATE GENERAL COMPANY L.P. RIGHTS AGREEMENT
Pursuant to the
EMPLOYEES' UNIT INCENTIVE PLAN
THIS AGREEMENT, dated as of September 1, 1994, by and between
Interstate General Company L.P., a Delaware limited partnership (the
"Partnership"), and John E. Hans of Gambrills, Maryland (the "Grantee").
WITNESSETH THAT:
WHEREAS, the Grantee is employed by the Partnership or an Affiliate,
and the Partnership desires to have the Grantee continue in such employ and to
provide the Grantee with inducements to do so and to contribute to the success
of the Partnership, and the Partnership desires to reward such contributions;
and
WHEREAS, the Partnership has adopted the Interstate General Company
L.P. Employees' Unit Incentive Plan (the "Plan"), authorizing the grant of
Awards by the Partnership to key Employees; and
WHEREAS, the Committee referred to in the Plan (the "Committee"),
pursuant to authority vested in it by the board of directors of Interstate
General Management Corporation ("IGMC"), has approved the granting to the
Grantee of Unit Appreciation Rights ("Rights") upon the terms and subject to
the conditions set forth hereinafter and in the Plan, and the Partnership
desires by this instrument to grant the Rights and to specify the terms and
conditions thereof,
NOW, THEREFORE; it is hereby covenanted and agreed by and between the
Partnership and the Grantee as follows:
SECTION 1; Rights
1.1 Pursuant to the Plan and this Rights Agreement (the
"Agreement"), the Partnership grants to the Grantee 40,000 Rights.
1.2 A Right, when exercised, shall entitle the Grantee to receive an
amount (to be paid in cash, in Class A Units of the Partnership ("Units"), in
other property or in a combination thereof, as determined by the Committee in
its sole discretion at any time prior to or after exercise) equal in value to
the difference between the Current Market Price and the Base Price. Except as
provided in Section 1.6, "Current Market Price" shall be equal to the average
of the closing prices for Units traded on the American Stock Exchange ("AMEX")
for the 20 trading day period beginning 10 trading days before the date of
exercise and ending on the ninth trading day following the date of exercise.
The "Base Price" shall be equal to (a) the average of the closing prices for
Units traded on the AMEX for the eleventh through the twentieth trading days
following the distribution of Equus Gaming Company to the Partnership's
unitholders minus (b) $1.00.
1.3 The date of grant of the Rights is September 1, 1994.
<PAGE>14
1.4 Subject to Section 1.5, Section 1.6 and Section 1.7 hereof, the
Rights shall be exercisable from and after each initial exercisability date set
forth below:
Number of Rights which
Initial Exercisability Date Become Exercisable on Such Date
--------------------------- -------------------------------
September 1, 1995 8,000
September 1, 1996 8,000
September 1, 1997 8,000
September 1, 1998 8,000
September 1, 1999 8,000
1.5 The Rights may be exercised in whole or in part only during the
period (the "Exercise Window") between the fifth and fifteenth day following
each quarterly earnings release by the Company or public announcement of a
Change in Control (as defined in Section 1.6); provided, however, that no
Rights may be exercised during any portion of an Exercise Window for which the
Board has determined that material, nonpublic information about the Company has
not been disclosed; and provided, further, that the minimum number of Rights
that may be exercised shall be the lesser of 8,000 or the number of exercisable
but unexercised Rights represented hereby. Rights not exercised in earlier
periods shall accumulate and be available for purchase in later periods.
1.6 All Rights shall become exercisable in the event that there is a
public announcement of an agreement to dispose of all or substantially all of
the assets of the Partnership, or the interests therein, by means of a sale, a
reorganization, a liquidation, or otherwise (a "Change in Control").
Notwithstanding any other provision of Section 1.2, if a Right is exercised
during the Exercise Window immediately following a public announcement of a
Change in Control, the Current Market Price shall mean the average of the
closing prices for Units traded on the AMEX for the 20 trading days beginning 5
trading days before the date of exercise and ending on the 14th trading day
following the date of exercise.
1.7 The Rights shall terminate and cease to be exercisable on the
earliest of:
(a) the tenth (10th) anniversary of the date of grant of the Rights;
(b) 90 days following termination of the Grantee's employment with
the Partnership, if the Grantee leaves the Partnership's employ
for any reason other than death, provided that no additional
Rights shall become exercisable following such termination;
(c) one year following termination of the Grantee's employment with
the Partnership, if the Grantee leaves the Partnership's employ
because of the Grantee's death, provided that no additional
Rights shall become exercisable following such termination; or
(d) upon the closing contemplated by an agreement described in
Section 1.6.
<PAGE>
<PAGE>15
1.8 In no event shall any Right granted hereunder entitle the
Grantee to receive any units of, or other equity interest in, Equus Gaming
Company or otherwise participate in any increase or decrease in the value of
Equus Gaming Company or equity interests therein.
SECTION 2: Exercise and Withholding
2.1 The Grantee shall give the Partnership written notice to
exercise a Right. Such notice shall specify the number of Rights to be
exercised. The exercise shall bc deemed to occur on the date that written
notice of such exercise shall be given to the office of the President of IGMC,
or at such other location as may be established in accordance with Section 3.4
hereof.
2.2 In each case where the Grantee shall exercise a Right, the
Partnership shall notify the Grantee of the amount of withholding tax, if any,
that must be paid under federal and, where applicable, Puerto Rico, state and
local law by reason of such exercise. Whenever any portion of the payment upon
exercise of a Right is to be made in cash, the payment shall be net of an
amount sufficient to satisfy any such withholding tax requirements. If payment
upon exercise of a Right is not made in cash or the cash payment is
insufficient to satisfy such withholding tax requirements, the Grantee may
remit an amount sufficient to satisfy any such withholding tax requirements to
the Partnership. Alternatively, the Grantee and the Partnership may agree that
the Partnership or an Affiliate shall withhold such taxes from any compensation
payable to the Grantee (including the distribution of Units or other property
upon exercise of a Right). It shall be a condition to any delivery of any
payment upon exercise of a Right that provision satisfactory to the Partnership
shall have been made for payment of any taxes required to be paid or withheld
pursuant to any applicable law or regulations.
2.3 As soon as practicable after each exercise of a Right and
compliance by the Grantee with all applicable conditions, including any
payments that may be required by the Partnership pursuant to Section 2.2
hereof, the Partnership shall mail or deliver or cause to be mailed or
delivered to the Grantee payment in cash, a certificate or certificates
registered in the name of the Grantee or such other property that the Grantee
shall be entitled to receive upon such exercise under the provisions of
this Agreement.
SECTION 3: Miscellaneous
3.1 The Rights granted hereunder are exercisable only by the Grantee
and shall not be assignable or transferable by the Grantee other than by will
or the laws of descent and distribution.
3.2 The Grantee shall be entitled to the privilege of ownership only
as to such Units as are issued or delivered to the Grantee hereunder.
3.3 The Rights shall be subject to appropriate adjustments
determined by the Committee in the event of any subdivision, reclassification
or combination of outstanding Units, or reorganization, consolidation or merger
of the Partnership.
<PAGE>
<PAGE>16
3.4 Any notice to be given hereunder by the Grantee shall be either
hand-delivered to the office of the President of IGMC or sent by facsimile or
by first-class, certified mail, return receipt requested, postage prepaid, to
the Partnership in care of the President, IGMC. Any notice by the Partnership
to the Grantee shall be either sent by facsimile or by first-class, certified
mail, return receipt requested, postage prepaid, addressed to the Grantee at
the address shown on page 1 hereof or hand-delivered personally to the Grantee.
Either party may, by written notice given to the other in accordance with the
provisions of this Section, change the address to which subsequent notices
shall be sent.
3.5 The Rights are granted pursuant to the Plan. The grant of the
Rights is subject to all the terms and provisions of the Plan, which are hereby
incorporated into this Agreement by reference and are made a part of this
Agreement. For the convenience of the Grantee, certain but not all of the
provisions of the Plan are also summarized or elaborated upon in this
Agreement. Each and every provision of this Agreement shall be administered,
interpreted, and construed so that the Rights shall conform to the provisions
of the Plan. Any provisions of this Agreement that cannot be so administered,
interpreted, or construed shall be disregarded.
3.6 The Grantee hereby acknowledges receipt of a copy of the Plan
and further agrees to be bound by all of the terms and provisions thereof and
by all actions, pursuant to the Plan, of the Committee thereunder and of IGMC's
board of directors. Any capitalized terms used herein and not defined herein
have the respective meanings ascribed to them in the Plan. Whenever the word
"Grantee" is used herein in a context where the provision should logically be
construed to apply to the Grantee's Legal Representative, the word "Grantee"
shall be deemed to include such Legal Representative.
3.7 The Rights may not be exercised if the issuance of Units upon
such exercise would constitute a violation of any applicable federal, state, or
Puerto Rico securities or other law, rule, or regulation. The Grantee, as a
condition to his exercise of a Right, shall, at the time of any such exercise,
represent and warrant to the Partnership that any Units will be acquired by him
only for investment and without any present intention to sell or distribute
such Units, unless counsel for the Partnership is then of the opinion that such
a representation is not required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency. No Units
acquired hereunder shall be offered, sold, transferred, or otherwise disposed
of by the person exercising the Rights in the absence of registration, or the
availability of an exemption from registration, under the Securities Act of
1933; and no such offer, sale, transfer, or other disposition may be made in
the absence of an effective registration statement or the prior written opinion
of counsel for the Partnership that such offer, sale, transfer, or other
disposition will not violate the Securities Act of 1933 or other applicable
securities law, rule, or regulation of any jurisdiction. The Grantee hereby
agrees that the foregoing restriction may be indicated by legend on the
certificates representing such Units and that the Units acquired by him
pursuant to a Right shall be subject to the agreement and representations
contained in Section 15 of the Plan.
3.8 Any and all Units acquired pursuant to the exercise of a Right
shall be subject to such restrictions as may be contained in any agreement
previously entered into by Interstate Business Corporation, IGMC, Interstate
St. Charles, Inc., and/or the Partnership with respect to the Units and
applicable to the Units, including, without limitation, the Partnership
<PAGE>17
Agreement. The foregoing restrictions, if any, shall be indicated by legend on
the Unit certificates representing such Units.
3.9 The Agreement shall be governed by, and its provisions construed
in accordance with, the laws of Delaware, except to the extent that such laws
may be superseded by any federal law. It may not be modified orally.
IN WITNESS WHEREOF, Interstate General Company L.P. has caused this
Agreement to be executed, and the Grantee has executed the same in evidence of
the Grantee's acceptance hereof, under the terms and conditions herein set
forth, as of the day and year first above written.
INTERSTATE GENERAL COMPANY L.P.
By: /s/ James J. Wilson
-----------------------------
Title: Chairman
GRANTEE:
/s/ John E. Hans
----------------------------------
John E. Hans
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 8,998<F1>
<SECURITIES> 0
<RECEIVABLES> 4,679
<ALLOWANCES> 279
<INVENTORY> 73,995
<CURRENT-ASSETS> 0
<PP&E> 3,432
<DEPRECIATION> 1,840
<TOTAL-ASSETS> 128,316
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 38,491
<TOTAL-LIABILITY-AND-EQUITY> 128,316
<SALES> 34,093
<TOTAL-REVENUES> 51,887
<CGS> 26,336
<TOTAL-COSTS> 30,748
<OTHER-EXPENSES> 9,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,512
<INCOME-PRETAX> 10,508
<INCOME-TAX> 3,020
<INCOME-CONTINUING> 6,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,829
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<FN>
<F1>Balance includes $8,099 of restricted cash.
</FN>
</TABLE>
