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 JUNE 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.
10,119,460 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 Six Months Ended June 30, 1994 and
1993. (Unaudited) 3
Consolidated Statements of Income for
the Three Months Ended June 30, 1994 and
1993. (Unaudited) 5
Consolidated Balance Sheets at June 30, 1994
(Unaudited) and December 31, 1993. 6
Consolidated Statements of Changes in
Partners' Capital for the Six
Months Ended June 30, 1994.
(Unaudited) 9
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 1994 and 1993.
(Unaudited) 10
Consolidated Statements of Cash Flow for the
Three Months Ended June 30, 1994 and 1993.
(Unaudited) 11
Notes to Consolidated Financial Statements. 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Six
and Three Months Ended June 30, 1994 and 1993. 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings 39
Item 5. Other Information 40
Item 6. Exhibits and Reports on Form 8-K 41
Signatures 42
<PAGE>
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
REVENUES:
Homebuilding - home sales $ 10,005 $ 10,798
Community development - lot sales 16,719 7,137
Revenues from investment properties -
Investment in partnerships 4,255 1,425
Equity in income of
Housing Development Associates S.E. ("HDA") -- 1,436
Apartment rental income 2,158 408
Management fees, substantially all
from related entities 1,876 2,063
Interest and other income 187 300
---------- ----------
Total revenues 35,200 23,567
---------- ----------
EXPENSES:
Cost of home sales 9,073 9,305
Cost of lot sales 10,671 5,018
Selling and marketing 680 571
General and administrative 3,903 4,091
Rental apartment expense 2,173 441
Depreciation and amortization 307 280
Interest expense 1,093 983
---------- ----------
Total expenses 27,900 20,689
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,300 2,878
---------- ----------
PROVISION FOR INCOME TAXES:
Current 2,002 10
Deferred 833 510
---------- ----------
Total taxes 2,835 520
---------- ----------
INCOME BEFORE MINORITY INTERESTS 4,465 2,358
Minority interest in
Land Development Associates S.E. ("LDA") 700 41
---------- ----------
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 3,765 2,317
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- 1,500
---------- ----------
NET INCOME $ 3,765 $ 3,817
========== ==========
<PAGE>
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (continued)
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
PER UNIT AMOUNTS--
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ .37 $ .23
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- .14
---------- ----------
NET INCOME PER UNIT $ .37 $ .37
========== ==========
NET INCOME
GENERAL PARTNERS $ 38 $ 38
LIMITED PARTNERS 3,727 3,779
---------- ----------
$ 3,765 $ 3,817
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,085 10,079
========== ==========
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 JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1994 1993
----------- ------------
REVENUES:
Homebuilding - home sales $ 5,056 $ 6,263
Community development - lot sales 14,676 4,741
Revenues from investment properties -
Investment in partnerships 797 574
Equity in income of
Housing Development Associates S.E. -- 601
Apartment rental income 1,107 408
Management fees, substantially all
from related entities 907 1,019
Interest and other income 88 138
---------- ----------
Total revenues 22,631 13,744
---------- ----------
EXPENSES:
Cost of home sales 4,784 5,444
Cost of lot sales 9,445 3,142
Selling and marketing 396 319
General and administrative 1,998 2,055
Rental apartment expense 1,053 441
Depreciation and amortization 162 125
Interest expense 628 475
---------- ----------
Total expenses 18,466 12,001
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,165 1,743
---------- ----------
PROVISION FOR INCOME TAXES:
Current 886 --
Deferred 929 224
---------- ----------
Total taxes 1,815 224
---------- ----------
INCOME BEFORE MINORITY INTERESTS 2,350 1,519
Minority interest in LDA 678 20
---------- ----------
NET INCOME $ 1,672 $ 1,499
========== ==========
NET INCOME PER UNIT $ .16 $ .15
========== ==========
NET INCOME
GENERAL PARTNERS $ 17 $ 15
LIMITED PARTNERS 1,655 1,484
---------- ----------
$ 1,672 $ 1,499
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,088 10,079
========== ==========
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
June 30, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
including restricted cash of $8,492
and $2,587 at June 30, 1994 and
December 31, 1993, respectively $ 10,183 $ 4,596
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
St. Charles, Maryland 26,387 26,683
Puerto Rico 24,607 31,389
Other United States locations 18,107 18,660
Notes receivable on lot sales, net of
reserves of $310 and $230
as of June 30, 1994 and
December 31, 1993, respectively 1,596 1,785
Other 281 359
-------- --------
70,978 78,876
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 5,892 6,645
Mortgages receivable 230 396
Receivables on home sales 663 405
Other 123 120
-------- --------
6,908 7,566
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment in residential rental
partnerships, net of deferred income and
reserves of $4,795 and $5,054 at June 30,
1994 and December 31, 1993, respectively 10,782 14,953
Investment properties, net of accumulated
depreciation and amortization of
$4,419 and $4,106 as of June 30,
1994 and December 31, 1993, respectively 24,215 24,551
Other receivables, net of reserves of
$2,918 and $2,800 as of June 30,
1994 and December 31, 1993, respectively 2,298 2,610
Other 1,202 593
-------- --------
38,497 42,707
-------- --------
<PAGE>
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S (continued)
June 30, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
OTHER ASSETS
Property, plant and equipment, less
accumulated depreciation of $1,857
and $1,837 as of June 30, 1994 and
December 31, 1993, respectively 1,591 1,704
Costs in excess of net assets acquired,
less accumulated amortization of
$660 and $584 as of June 30,
1994 and December 31, 1993, respectively 2,374 2,450
Deferred costs regarding waste technology
and other 2,037 2,415
-------- --------
6,002 6,569
-------- --------
$132,568 $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
June 30, December 31,
1994 1993
------------ ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued
liabilities $ 4,184 $ 3,661
Mortgages and notes payable 412 428
Accrued income tax liability
Current 2,392 390
Deferred 1,822 989
-------- --------
8,810 5,468
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 37,510 50,137
Non-recourse debt 2,464 2,762
Loan payable to HDA 13,296 12,684
Accounts payable and accrued liabilities 2,006 2,553
Deferred income 171 199
-------- --------
55,447 68,335
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 3,016 3,320
Accounts payable and accrued liabilities 3,438 4,231
-------- --------
6,454 7,551
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,742 1,857
Non-recourse debt 22,400 22,457
Accounts payable, accrued liabilities
and deferred income 2,140 2,401
-------- --------
26,282 26,715
-------- --------
Total Liabilities 96,993 108,069
-------- --------
PARTNERS' CAPITAL
General partners' capital 193 155
Limited partners' capital-10,098,960 Units
issued and outstanding as of June 30, 1994
and 10,081,810 as of December 31, 1993 35,382 32,090
-------- --------
Total partners' capital 35,575 32,245
-------- --------
$132,568 $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 SIX MONTHS ENDED JUNE 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 three
months ended March 31, 1994 21 2,072 2,093
Employee Unit option exercised -- 2 2
------- ------- -------
Balances, March 31, 1994 $ 176 $34,164 $34,340
Net income for the three months
ended June 30, 1994 17 1,655 1,672
Employee/Director Unit option exercised -- 67 67
Cash distributions to partners -- (504) (504)
------- ------- -------
Balances, June 30, 1994 $ 193 $35,382 $35,575
======= ======= =======
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 SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,765 $3,818
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 307 390
Investment properties 313 --
Provision for income taxes
Current 2,002 10
Deferred 833 510
Equity in earnings of partnerships (932) (1,995)
Increase in sponsor and developer fees
from partnerships and other (162) (168)
Cumulative effect of accounting change -- (1,500)
(Decrease) in
Accounts payable and accrued liabilities (812) (561)
Deferred income (28) (16)
Decrease (increase) in
Receivables 355 1,305
Homebuilding assets 492 702
Community development assets 7,679 1,352
Restricted cash (5,905) (192)
------- -------
Net cash provided by operating activities 7,907 3,655
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in assets related to investment properties 4,668 2,054
Reductions (additions) to other assets 289 (579)
------- -------
Net cash provided by investing activities 4,957 1,475
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA 613 --
Cash proceeds from debt financing 2,238 3,724
Payment of debt (15,598) (10,370)
Employee/Director Unit options exercised 69 --
Cash distributions to partners (504) --
------- -------
Net cash used in financing activities (13,182) (6,646)
------- -------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (318) (1,516)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 2,009 2,263
------- -------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 1,691 $ 747
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount capitalized) 2,121 1,767
Income taxes paid -- --
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>11
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,672 $1,498
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Corporate 144 220
Investment properties 156 --
Provision for income taxes
Current 886 --
Deferred 929 224
Equity in earnings of partnerships (265) (839)
Increase in sponsor and developer fees
from partnerships and other (81) (56)
Increase (decrease) in
Accounts payable and accrued liabilities 815 (451)
Deferred income -- (431)
Decrease (increase) in
Receivables 40 1,760
Homebuilding assets 103 245
Community development assets 7,524 1,677
Restricted cash (6,376) (35)
------- -------
Net cash provided by operating activities 5,547 3,812
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase (decrease) in assets related
to investment properties (853) 517
Reductions (additions) to other assets 480 (423)
------- -------
Net cash (used) provided by investing activities (373) 94
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from HDA 344 --
Cash proceeds from debt financing 1,186 2,138
Payment of debt (6,166) (7,076)
Employee/Director Unit options exercised 67 --
Cash distributions to partners (504) --
------- -------
Net cash used in financing activities (5,073) (4,938)
------- -------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 101 (1,032)
CASH AND SHORT-TERM INVESTMENTS, MARCH 31 1,590 1,779
------- -------
CASH AND SHORT-TERM INVESTMENTS, JUNE 30 $ 1,691 $ 747
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount capitalized) 1,059 1,497
Income taxes paid -- --
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>12
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six months ended June 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.
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 restructuring. 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. Signet Bank is considering the Company's proposal to reduce the
collateral release prices in exchange for additional land as collateral. Based
on discussions with the bank, management expects the loan to be extended to
December 31, 1995, but the documents for the extension and modification of the
release prices will not be executed by the August 13, 1994 maturity date.
<PAGE>13
Working capital for overhead and other cash needs in 1994 is expected to
be met through property management fees, current sales proceeds in excess of
release payments on debt and the additional proceeds to be available under the
proposed Signet modification.
If IGC's pending request for an extension and modification of the Signet
bank debt is granted, and IGC continues to generate lot sales consistent with
or in excess of 1993 levels, the proceeds of financing together with cash from
operations will, in the opinion of IGC management, be adequate to meet IGC's
liquidity requirements.
Additional potential sources of liquidity include cash that could be
generated in 1995 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 in HUD's
low income housing program. Management believes that the economic benefit to
the Company and the partners will be greater from a sale of the projects, in
which case the Company will endeavor to retain the right to manage the
properties. It is anticipated that any closing pursuant to LIHPRHA will be
accomplished in 1995 and the Company would expect to receive approximately
$10.0 million, net of taxes. These distributions are assigned to the FDIC for
debt of $9.3 million and then to NationsBank.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of June 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 various 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 residential rental
partnerships:
June 30, December 31,
1994 1993
----------- -----------
(Unaudited) (Audited)
(In thousands)
Long-term receivables, net of deferred
income of $3,939 and $4,101 at
June 30, 1994 and December 31, 1993,
respectively $ 3,011 $ 4,255
Other receivables, net of reserves of
$856 as of June 30, 1994 and $953
as of December 31, 1993 1,245 1,377
Investment in partnerships 6,526 9,321
------- -------
$10,782 $14,953
======= =======
<PAGE>
<PAGE>14
The combined condensed statements of income and the combined condensed
statements of cash flow for the six month period ended June 30, 1994 and 1993,
and the combined condensed balance sheets as of June 30, 1994 and December 31,
1993 are shown below for the partnerships owning residential rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30,
----------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $20,989 $22,097
------- -------
Operating expenses
Depreciation 3,223 3,393
Other 16,981 18,499
------- -------
20,204 21,892
------- -------
Net income $ 785 $ 205
======= =======
(1) The income and expenses of Fox Chase Apartments General Partnership
("Fox Chase") and New Forest Apartments General Partnership ("New
Forest") for the six months ended June 30, 1993 are included above.
The operations of these partnerships for the six months ended June
30, 1994 are consolidated with the Company's other operations in
IGC's consolidated Statement of Income.
<PAGE>
<PAGE>15
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
June 30, December 31,
1994 1993
----------- -----------
(In thousands)
Rental apartments, at cost $241,164 $240,554
Accumulated depreciation (78,662) (75,493)
-------- --------
162,502 165,061
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 6,063 18,781
Replacement reserves and escrows 9,760 10,320
-------- --------
Total restricted cash and marketable securities 15,823 29,101
Cash and certificates of deposit 4,154 18,862
-------- --------
Total cash and marketable securities 19,977 47,963
-------- --------
Other assets 4,491 4,084
-------- --------
Total assets $186,970 $217,108
======== ========
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
1994 1993
----------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $172,947 $185,099
Loans and interest payable to the Company 18,511 19,660
Other liabilities 3,449 3,949
-------- --------
Total liabilities 194,907 208,708
-------- --------
Partners' capital
Capital contributions, net of distributions 786 17,908
Accumulated deficit (8,723) (9,508)
-------- --------
Total partners' capital (7,937) 8,400
-------- --------
Total liabilities and partners' capital $186,970 $217,108
======== ========
<PAGE>16
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
1994 1993 (1)
----------- -----------
(In thousands)
Revenues $20,989 $22,097
------- -------
Cash expenditures
Total expenses 20,204 21,892
Less - Depreciation (3,223) (3,393)
Other non-cash expenses (251) (405)
------- -------
16,730 18,094
Mortgage principal 1,269 760
Capital additions 356 605
------- -------
Total cash expenditures 18,355 19,459
------- -------
Cash flow before distributions $ 2,634 $ 2,638
======= =======
(1) The cash flow activity for Fox Chase and New Forest for the six
months ended June 30, 1993 are included above. These activities for
the six months ended June 30, 1994 are reflected in IGC's
Consolidated Statement of Cash Flow.
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 before distributions to partners are permitted. 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
As of June 30, 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 race track facilities are leased to ECOC,
which as of June 30, 1994, was an effectively 29.4% owned non-consolidated
affiliate of IGC.
<PAGE>
<PAGE>17
In December 1992, IGC announced plans to distribute to its public
unitholders all or a substantial portion of its interest in HDA (the "Proposed
Distribution"). The announcement also provided that the interests in HDA owned
by IGC and IBC would be distributed pro rata to IGC unitholders.
In September 1993, IGC and IBC formed a general partnership, Equus Gaming
Company ("Equus") to hold their interests in HDA and to organize and to hold
the stock of Virginia Jockey Club, Inc. ("VJC"). IBC is the managing general
partner of Equus. IGC and IBC each contributed $100 in exchange for ownership
interests of approximately 62% and 38% respectively. In October 1993, VJC
(100% owned by Equus) submitted an application to the Virginia State Racing
Commission to construct and operate a thoroughbred horse racing facility in
Virginia. IGC's Board of Directors has authorized IGC to provide up to
$1,250,000 to cover VJC's costs. Deferred costs regarding VJC totalled
$1,202,000 and $593,000 as of June 30, 1994 and December 31, 1993,
respectively.
Equus, including its investment in VJC, 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. Also, the Company has announced the
Proposed Distribution of its interest in HDA to its unitholders. As a result
of the deficit position in HDA and the Proposed Distribution, IGC did not
recognize earnings from HDA during the first half of 1994 and does not expect
to recognize any earnings in the future.
Subsequent to June 30, 1994, IGC has completed a series of intermediary
transactions to the Proposed Distribution. 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 interest
in HDA were diluted to 41.65%, 26.35%, and 17%, respectively.
On August 1, 1994, ECOC was reorganized as a nonstock corporation. As a
result, IGC's ownership interest in ECOC was terminated. This transaction
resulted in no financial impact to the Company.
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 (holding 99%) and a wholly owned
subsidiary (holding 1%). IBC contributed its 38% interest in Equus to IGC.
On August 12, 1994, Equus filed a registration statement with the
Securities and Exchange Commission ("SEC") relating to the distribution by IGC
of 10,100,000 Units representing in the aggregate a 99% limited partnership
interest in Equus. IGC expects to complete the Proposed Distribution when the
Equus registration statement is declared effective by the SEC.
<PAGE>
<PAGE>18
HDA's condensed balance sheets as of June 30, 1994 and December 31, 1993
and the condensed statements of income for the six month period ended June 30,
1994 and 1993 are shown as follows:
HDA
CONDENSED BALANCE SHEET
(Unaudited)
June 30, December 31,
1994 1993
----------- -----------
(In thousands)
Assets
Cash $ 3,551 $ 1,886
Leased property, less accumulated
depreciation of $6,919 and
$6,157 at June 30, 1994 and
December 31, 1993, respectively 41,920 42,267
Receivables from LDA 13,217 12,690
Other assets 4,337 4,308
------- -------
$63,025 $61,151
======= =======
Liabilities and partners' deficit
Accounts payable and accrued liabilities $ 413 $ 669
Debt-third parties 66,028 65,960
------- -------
66,441 66,629
------- -------
Partners' deficit
Capital contribution 1,914 1,914
Accumulated deficit (2,346) (4,892)
Distributions to partners (2,984) (2,500)
------- -------
(3,416) (5,478)
------- -------
$63,025 $61,151
======= =======
<PAGE>
<PAGE>19
HDA
CONDENSED STATEMENT OF INCOME
(Unaudited)
Six Months Ended June 30,
----------------------------
1994 1993
----------- -----------
(In thousands)
Revenues
Rental income $ 7,227 $ 6,293
Equity in earnings of ECOC -- 755
Interest income 581 188
------- -------
7,808 7,236
------- -------
Expenses
General and administrative 184 364
Depreciation and amortization 1,005 877
Interest 4,073 2,792
------- -------
Total expenses 5,262 4,033
------- -------
Net income $ 2,546 $ 3,203
======= =======
The race track facilities owned by HDA are leased to ECOC, an effectively
29.4%-owned non-consolidated affiliate of IGC until August 1, 1994. The lease
agreement requires ECOC to pay annual rent 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, and 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>20
(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 June 30, December 31,
Description by Lender Date Rate 1994 1993
- - ------------------------- -------------- -------- ------------ ------------
(In thousands)
Non-recourse debt:
Purchase money Various from
mortgages (6) 10-01-94 to
05-03-97 (3) 9% $ 670 $ 670
Community Development
Administration (10) 06-01-16 10.3% 4,031 4,055
Community Development
Administration (10) 10-01-27 9.575% 6,404 6,417
Community Development
Administration (10) 10-01-28 9.875% 11,965 11,985
Supra & Co. (minority
partner in LDA) None (1) 1,794 2,092
-------- --------
Total non-recourse 24,864 25,219
-------- --------
Recourse debt:
Banco Popular de P.R. Paid Paid -- 5,420
Branch Banking & Paid Paid -- 56
Trust
1st National Paid Paid -- 150
St. Mary's
Citibank (12) Demand (2) 1,742 1,857
NationsBank (6,8,13) 05-31-95 Prime 1,133 1,353
+ 1.5%
NationsBank (6,8,13) 05-31-95 Prime 5,646 6,013
+ 1.5%
Purchase money Various from 9%-12% 2,211 2,362
mortgages (6) 09-24-95 to
04-01-98
Washington Savings (6) 12-27-95 8% 700 656
Signet Bank (7) 08-13-94 (5) Prime 8,746 11,508
+ 2%
Wachovia Bank & Trust 07-31-95 (11) Prime 347 347
(6,8) + .5%
NationsBank (6,8,13) 05-01-95 Prime 7,785 7,774
+ 1%
FDIC (6,8,13) 09-30-96 Prime 9,306 10,993
+ 1%
Banco Central
Hispano (6) 12-31-97 (4) 4,150 6,400
Wachovia Bank & Trust Various from Prime 93 95
(8) 04-26-00 to + 1%
10-25-00
<PAGE>
<PAGE>21
Stated
Maturity Interest June 30, December 31,
Description by Lender Date Rate 1994 1993
- - ------------------------- -------------- -------- ------------ ------------
Various (6,9,14) Various from Various 821 758
08-19-94 to
02-28-98
-------- --------
Total recourse 42,680 55,742
-------- --------
Total debt $ 67,544 $ 80,961
======== ========
Balance Sheet Classification
- - ----------------------------
Mortgage and notes payable - Recourse debt $ 412 $ 428
Related to community development -
Non-recourse debt 2,464 2,762
Recourse debt 37,510 50,137
Related to homebuilding projects - Recourse debt 3,016 3,320
Related to investment properties -
Recourse debt 1,742 1,857
Non-recourse debt 22,400 22,457
-------- --------
Total debt $ 67,544 $ 80,961
======== ========
(1) At June 30, 1994, the interest rate is 2.5% over the prime rate (9.75%).
On December 31, 1993, the interest rate was the 936 rate plus 3%
(6.321%).
(2) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 6.43% on June 30, 1994 and 5.15%
on December 31, 1993.
(3) Purchase money mortgages of $.7 million due one lender are past due and
will be satisfied by giving the note holder 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 June 30, 1994 and December 31, 1993 was 7.55% and 6.55%,
respectively.
(5) The Company was in technical default on this loan as it has not met
certain minimum sales requirements as of June 30, 1994. However, the
bank has agreed to formally waive this technial default. Based on
discussions with the bank, management expects the loan to be extended to
December 31, 1995, but the loan extension will not be executed prior to
the maturity date.
(6) Collateralized with land and improvements.
(7) Collateralized with land and housing.
(8) Collateralized with receivables.
(9) Collateralized with land and building.
<PAGE>22
(10) These loans are FHA mortgages on apartment projects.
(11) The Company's total tangible partners' capital is below the minimum limit
as specified in the financial covenants of the loan agreement.
(12) Collateralized with a letter of credit.
(13) Collateralized by investments in partnerships.
(14) Collaterlized by property, plant and equipment.
(6) RELATED PARTY TRANSACTIONS
During the first six months in 1994 and 1993, IGC paid or accrued $50,000
and $46,000, respectively, to reimburse the managing general partner for
director's meeting fees and expenses. At June 30, 1994 and 1993, $40,000 and
$250,000, 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. This transaction in 1990 resulted in a gain to IGC of $884,000,
which was equal to the collection of loans reserved in prior years by IGC. 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 $692,000 and $680,000 at June 30, 1994 and December 31, 1993,
respectively, of which $329,000 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
refunding of certain tax-exempt housing bonds issued in 1985. The refunding of
the 1985 bonds provides lower cost long-term financing and cured a Chastleton
payment default on the mortgage that secured the 1985 bonds and defaults under
the HUD regulatory agreement. 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 June 30, 1994 and December 31, 1993, Chastleton owed approximately
$336,000 and $311,000, respectively of management fees and other receivables,
which $243,000 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 the Doral Building) formed December 1992, in exchange for
99% partnership interests in each. IGC is a 1% managing partner and provides
<PAGE>23
property management services under the same terms as previously provided to
IBC, including management fees which are 3.5% of rental income. During the six
months ended June 30, 1994 and 1993, property management fees for these
affiliates were approximately $77,000 and $71,000, respectively. During the
six months ended June 30, 1994 and 1993, IGC earned $-0- and $125,000,
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 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 $103,000 and $102,000 during the six months ended June 30, 1994 and
1993, respectively. 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 June 30, 1994 and 1993, IGC earned fees of
approximately $134,000 and $111,000, respectively. As of June 30, 1994,
$29,000 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 flows, and IGC provides management
services for this property. As of June 30, 1994 and 1993, IGC earned fees of
approximately $12,000 and $11,000, respectively. At June 30, 1994, unpaid
management fees and operating deficit loans due IGC was $439,000 of which
$293,000 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 first six
months ended June 30, 1994 and 1993, property management fee income from these
affiliates was approximately $96,000 and $90,000, respectively. During the
first six months ended June 30, 1994 and 1993, IGC earned $-0- and $63,000,
respectively, from IBC for development fees for the Village Lake Apartment
project. As of June 30, 1994, $340,000 of management fees and other allocated
costs were unpaid by these affiliates of which $336,000 was reserved.
<PAGE>
<PAGE>24
IGC and affiliates lease office space from Smallwood Village Associates
Limited Partnership ("SVA"), one of IBC's commercial properties in which IGC's
principal executive offices are located. A total of 23,400 square feet of
office space is leased by IGC and affiliates at approximately $282,000 per year
(subject to adjustment for inflation). The lease expires in the year 2001.
During the first six months ended June 30, 1994 and 1993, IGC's annual rent for
its share of the leases were approximately $96,000 and $94,000, respectively.
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. 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 was collected, and in August 1994 the remaining balance was collected.
As a result of this transaction, the assets and liabilities of HDA are no
longer consolidated with those of IGC. Effective July 21, 1994, IBC's and
IGC's interests in HDA were diluted to 26.35% and 41.65%, respectively. (See
Note 4 to Financial Statements.)
In September 1993, IGC and IBC formed Equus Gaming Company ("Equus), a
general partnership that through its wholly-owned subsidiary, Virginia Jockey
Club, Inc. ("VJC"), has applied for a license to construct and operate a
thoroughbred racing facility in Virginia, and IGC's Board of Directors has
authorized IGC to fund up to $1,250,000 of VJC's costs. Deferred costs
regarding VJC as of June 30, 1994 totaled approximately $1,202,000. 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 (holding 99%) and a wholly owned subsidiary (holding
1%). IBC contributed its 38% interest in Equus to IGC.
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 outstanding balance of the note and interest as of June 30,
1994 was $516,000. 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., Santa Maria and a mortgage on an
additional real estate parcel.
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
$4.3 million including accrued interest at June 30, 1994, of which $2.5 million
was reserved.
<PAGE>25
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 six months of 1994 and 1993 were $128,000
and $315,000, respectively.
<PAGE>
<PAGE>26
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, including foreclosed homes in
certain cities 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, the 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 the long-term interest rates have increased slightly 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 experienced increased lot sales and a decrease in subdivision home
sales.
The following discussion and analysis covers changes in the results of
operations for the six and three months ended June 30, 1994 as compared to the
results of the six and three months ended June 30, 1993.
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
Revenues. Revenues for the six months ended June 30, 1994 increased 49%
to $35.2 million from $23.6 million in the prior comparable period primarily
due to an increase in commercial lot sales, increase in revenues from
investment properties and the impact of the consolidation of two apartment
project partnerships.
<PAGE>
<PAGE>27
Lot sales increased to $16.7 million for the six months ended June 30,
1994 from $7.1 million for the same period in 1993. The increase in 1994 is
primarily attributable to the settlement 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. Lot sales are summarized as follows:
Six Months Ended
June 30,
----------------------
1994 1993
---- ----
(In thousands)
Industrial/Commercial lots
Commercial:
U.S. (8 acres in 1994, 11 acres in 1993) $ 799 $2,350
Puerto Rico (62 acres) 12,000 --
Puerto Rico
Recognition of deferred income 123 250
Residential lots
St. Charles
Single-family lots (57 in 1994, 36 in 1993) 2,683 1,662
Townhome lots (59 in 1993) -- 1,479
Montclair
Townhome lots
Developed (9 in 1994, 23 in 1993) 335 801
Semi-developed (44 in 1994) 485 --
Condominium lots (45 in 1993) -- 378
Westbury single-family lots (10 in 1994, 2 in 1993) 263 55
U.S. undeveloped land 31 162
------- ------
$16,719 $7,137
======= ======
Average residential lot sales price
St. Charles
Single-family lot $ 47 $ 46
Townhome lot -- 25
Montclair
Townhome lot
Developed 37 35
Semi-developed 11 --
Condominium lot -- 8
Westbury lot 26 28
<PAGE>
<PAGE>28
Home sales decreased 7.4% to $10.0 million for the six months ended June
30, 1994 from $10.8 million for same period of 1993. The decrease is
summarized as follows:
Six Months Ended June 30, 1994
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 3,860 $148 26 20
Lexington Park, MD 162 81 2 --
Montclair, VA 118 118 1 --
Scatter-Site (excludes lots) 5,865 81 72 132
------- --- ---
$10,005 $ 99 101 152
======= === ===
Six Months Ended June 30, 1993
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 5,683 $132 43 26
Lexington Park, MD 93 93 1 1
Montclair, VA 1,271 127 10 4
Scatter-Site (excludes lots) 3,751 75 50 140
------- --- ---
$10,798 $104 104 171
======= === ===
The decrease in the subdivision homebuilding division is primarily due to
the Company's increased lot sale efforts that reduced the product available for
sale and to increased competition. This decrease was substantially offset by
the increased scatter-site sales that were a result of the Company's expansion
into new geographic locations.
<PAGE>
<PAGE>29
Revenues from investment properties, management fees and other income
increased to $8.4 million for the six months ended June 30, 1994 from $5.6
million in the same period of 1993. These changes are summarized below:
Six Months Ended
June 30,
-----------------------------
1994 1993
---- ----
(In thousands)
Revenues from investment properties-
Investment in partnerships $4,255 $1,425
Equity in income of HDA -- 1,436
Management fees 1,876 2,063
Apartment rental income 2,158 408
Interest and other income 187 300
------ ------
$8,476 $5,632
====== ======
Revenues from investment in partnerships during the six months ended June
30, 1994 increased to $4.3 million from $1.4 million for the same period in
1993 primarily due to distributions received from a partnership owning four
Puerto Rico apartment projects that were refinanced. This partnership
qualifies as a Puerto Rico special partnership and, as such, partners are not
liable for losses in excess of their capital investment. Cash flow
distributions received on this investment reduced the carrying value to zero
and additional distributions have been recognized as revenue.
HDA is also a special partnership and therefore IGC is not liable for
losses in excess of its capital investment. Due to the costs related to the
refinancing of HDA debt in 1993 and HDA cash distributions, the partners'
capital accounts are in a deficit position. Also, the Company has announced
the Proposed Distribution of its interest in HDA to its unitholders. As a
result of the deficit position of HDA and the Proposed Distribution, IGC did
not recognize earnings from HDA during the first six months of 1994 and does
not expect to recognize any earnings in the future. During the first six
months of 1993, $1.4 million of equity in earnings of HDA was recorded.
Revenues from management fees decreased due to the reduced HDA management
fee and decreased refinance fees earned in the 1993 period with no similar fee
earned during the 1994 comparable period. This decrease was offset in part by
recognition of a developers 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 June 30, 1994 consolidated
financial statements include the operations of New Forest and Fox Chase.
<PAGE>
<PAGE>30
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profit margins from community development increased to 36% from 30%
primarily due to reduced period costs absorbed by increased lot sales. Gross
profits from community development are summarized as follows:
Six Months Ended June 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
Commercial:
U.S. $ 799 $ 238 $ 561 70%
Puerto Rico 12,000 7,581 4,419 37%
Puerto Rico
Recognition of deferred income 123 20 103 84%
U.S. Residential lots
St. Charles
Developed single-family lots 2,683 1,488 1,195 45%
Montclair
Townhome lots
Developed 335 301 34 10%
Semi-developed 485 431 54 11%
Westbury single-family lots 263 249 14 5%
U.S. undeveloped land 31 -- 31 100%
------- ------- ------
Gross profit before period costs 16,719 10,308 6,411 38%
Period costs -- 363 (363) --
------- ------- ------
$16,719 $10,671 $6,048 36%
======= ======= ======
<PAGE>
<PAGE>31
Six Months Ended June 30, 1993
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
U.S. $2,350 $ 978 $1,372 58%
Puerto Rico
Recognition of deferred income 250 40 210 84%
U.S. Residential lots
St. Charles
Developed single-family lots 1,662 1,019 643 39%
Developed townhome lots 1,479 965 514 35%
Montclair
Townhome lots - developed 801 773 28 4%
Condominium lots 378 361 17 5%
Westbury single-family lots 55 53 2 4%
U.S. undeveloped land 162 162 -- --
------ ------ ------
Gross profit before period cots 7,137 4,351 2,786 39%
Period costs -- 667 (667) --
------ ------ ------
$7,137 $5,018 $2,119 30%
====== ====== ======
Gross profits from homebuilding operations for the six months ended June
30, 1994 and 1993 are summarized as follows:
Six Months Ended June 30, 1994
------------------------------------
Subdivision Scatter-Site Total
----------- ------------ ------
Home sales $ 4,140 $ 5,865 $10,005
Cost of sales excluding marketing 3,647 5,426 9,073
------- ------- -------
Gross profits before selling and
marketing costs $ 493 $ 439 $ 932
======= ======= =======
Gross profit margins 12% 7% 9%
<PAGE>
<PAGE>32
Six Months Ended June 30, 1993
------------------------------------
Subdivision Scatter-Site Total
----------- ------------ ------
Home sales $ 7,047 $ 3,751 $10,798
Cost of sales excluding marketing 5,812 3,493 9,305
------- ------- -------
Gross profits before selling and
marketing costs $ 1,235 $ 258 $ 1,493
======= ======= =======
Gross profit margins 18% 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 lower margins in 1994 are primarily due to
increased direct costs without a proportionate increase in sales prices and the
change in the mix of sales between subdivision and scatter-site homebuilding
divisions. The subdivision margin, usually higher, includes profit on land
with a below market basis previously held in the community development
inventory, whereas the scatter-site sales consist solely of the homes.
Other Expenses. The other expenses for the six months ended June 30, 1994
and 1993 were as follows:
1994 1993
---------- ----------
Selling and marketing $ 680 $ 571
General and administrative 3,903 4,091
Depreciation and amortization 307 280
Interest expense 1,093 983
Rental apartment expense 2,173 441
------ ------
$8,156 $6,366
====== ======
Selling and marketing expenses, general and administrative expense,
depreciation and amortization and interest expense during the 1994 and 1993
periods were generally comparable. 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).
Provision for Income Tax. The provision for Puerto Rico income taxes
during the six months ended June 30, 1994 increased to $2.8 million compared to
$.5 million during the first six 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 six
months ended June 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.
<PAGE>33
Net Income. As a result of changes in revenue and expenses discussed
above, net income for the six months ended June 30, 1994 increased to $3.8
million from $2.3 million before the $1.5 million beneficial effect of the
accounting change during the comparable period of 1993.
THREE MONTHS ENDED JUNE 30, 1994 AND 1993
Revenues. Revenues for the three months ended June 30, 1994 increased 65%
to $22.6 million from $13.7 million in the prior comparable period primarily
due to an increase in commercial lot sales and the impact of the consolidation
of two apartment project partnerships reflected in the 1994 quarter.
Lot sales increased to $14.7 million for the three months ended June 30,
1994 from $4.7 million for the same period in 1993. The increase in 1994 is
primarily attributable to the settlement 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 and U.S. commercial lot sales. Lot
sales are summarized as follows:
Three Months Ended
June 30,
----------------------
1994 1993
---- ----
(In thousands)
Industrial/Commercial lots
Commercial:
U.S. (1 acre in 1994, 11 in 1993) $ 175 $2,350
Puerto Rico (62 acres in 1994) 12,000 --
Puerto Rico
Recognition of deferred income -- 125
Residential lots
St. Charles
Single-family lots (41 in 1994, 23 in 1993) 1,924 1,071
Townhome lots (10 in 1993) -- 258
Montclair
Townhome lots - developed (9 in 1994, 16 in 1993) 335 559
Condominium lots (45 in 1993) -- 378
Westbury single-family lots (8 in 1994) 211 --
U.S. undeveloped land 31 --
------- ------
$14,676 $4,741
======= ======
Average residential lot sales price
St. Charles
Single-family lot $ 47 $ 47
Townhome lot -- 26
Montclair
Townhome lot - developed 37 35
Condominium lot -- 8
Westbury lot 26 --
<PAGE>
<PAGE>34
Home sales decreased 19% to $5.1 million for the three months ended June
30, 1994 from $6.3 million for same period of 1993. The decrease is summarized
as follows:
Three Months Ended June 30, 1994
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 2,028 $145 14 20
Lexington Park, MD 162 81 2 --
Montclair, VA 118 118 1 --
Scatter-Site (excludes lots) 2,748 86 32 132
------- --- ---
$ 5,056 $103 49 152
======= === ===
Three Months Ended June 30, 1993
----------------------------------
Average
Sales Sales Units
Revenue Prices Closed Backlog
------- ------- ------ -------
(In thousands)
Home Sales
Subdivision
St. Charles, MD $ 3,113 $130 24 26
Lexington Park, MD 93 93 1 1
Montclair, VA 750 125 6 4
Scatter-Site (excludes lots) 2,307 74 31 140
------- --- ---
$ 6,263 $101 62 171
======= === ===
The decrease in the subdivision homebuilding division is primarily due to
the Company's increased lot sale efforts that reduced the Company's product
available for sale and to increased competition.
<PAGE>
<PAGE>35
Revenues from investment properties, management fees and other income
increased to $2.9 million for the three months ended June 30, 1994 from $2.7
million in the same period of 1993. These changes are summarized below:
Three Months Ended
June 30,
-----------------------------
1994 1993
---- ----
(In thousands)
Revenues from investment properties-
Investment in partnerships $ 797 $ 574
Equity in income of HDA -- 601
Management fees 907 1,019
Apartment rental income 1,107 408
Interest and other income 88 138
------ ------
$2,899 $2,740
====== ======
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 June 30, 1994 consolidated
financial statements include the operations of New Forest and Fox Chase.
Because of HDA's status as a special partnership under Puerto Rico law,
IGC is not liable for losses in excess of its capital investment. Due to the
costs related to the refinancing of HDA debt in 1993 and HDA cash
distributions, the partners' capital accounts are in a deficit position. Also,
the Company has announced the Proposed Distribution of its interest in HDA to
its unitholders. As a result of the deficit position of HDA and the Proposed
Distribution, IGC did not recognize earnings from HDA during the three months
ended June 30, 1994 and does not expect to recognize any earnings in the
future. During the three months ended June 30, 1993, $.6 million of equity in
earnings of HDA was recorded.
Revenues from management fees decreased due to the reduced HDA management
fee in 1994 and a decrease in developer fees recognized in the 1994 period as
compared to the 1993 period.
<PAGE>
<PAGE>36
GROSS PROFITS FROM COMMUNITY DEVELOPMENT AND HOMEBUILDING.
Gross profits from community development increased to 36% from 34%
primarily due to a greater percentage of the lot sales during the three months
ended June 30, 1993 from U.S. commercial lots which typically produce a higher
gross margin, offset in part by reduced period costs in 1994 period absorbed by
increased lot sales. Gross profits from community development are summarized
as follows:
Three Months Ended June 30, 1994
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
Commercial:
U.S. $ 175 $ 57 $ 118 67%
Puerto Rico 12,000 7,581 4,419 37%
U.S. Residential lots
St. Charles
Developed single-family lots 1,924 1,104 820 43%
Montclair
Townhome lots - developed 335 301 34 10%
Westbury single-family lots 211 199 12 6%
U.S. undeveloped land 31 -- 31 100%
------- ------ ------
Gross profit before period costs 14,676 9,242 5,434 37%
Period costs -- 203 (203) --
------- ------ ------
$14,676 $9,445 $5,231 36%
======= ====== ======
<PAGE>
<PAGE>37
Three Months Ended June 30, 1993
---------------------------------------
Gross
Cost of Gross Profit
Sales Sales Profit Margins
----- ------- ------ -------
(In thousands)
Industrial/Commercial lots
U.S. $2,350 $ 978 $1,372 58%
Puerto Rico
Recognition of deferred income 125 20 105 84%
U.S. Residential lots
St. Charles
Developed single-family lots 1,071 700 372 35%
Developed townhome lots 258 171 87 34%
Montclair
Townhome lots - developed 559 538 21 4%
Condominium lots 378 361 17 5%
------ ------ ------
Gross profit before period costs 4,741 2,768 1,974 42%
Period costs -- 374 (374) --
------ ------ ------
$4,741 $3,142 $1,600 34%
====== ====== ======
Gross profits from homebuilding operations for the three months ended June
30, 1994 and 1993 are summarized as follows:
Three Months Ended June 30, 1994
------------------------------------
Subdivision Scatter-Site Total
----------- ------------ ------
Home sales $ 2,308 $ 2,748 $ 5,056
Cost of sales excluding marketing 2,184 2,600 4,784
------- ------- -------
Gross profits before selling and
marketing costs $ 124 $ 148 $ 272
======= ======= =======
Gross profit margins 5% 5% 5%
Three Months Ended June 30, 1993
------------------------------------
Subdivision Scatter-Site Total
----------- ------------ ------
Home sales $ 3,956 $ 2,307 $ 6,263
Cost of sales excluding marketing 3,312 2,132 5,444
------- ------- -------
Gross profits before selling and
marketing costs $ 644 $ 175 $ 819
======= ======= =======
Gross profit margins 16% 8% 13%
<PAGE>38
The lower margins in 1994 are primarily due to increased direct and
indirect costs without a proportionate increase in sales price, warranty work
performed on a closed project in Puerto Rico and the change in the mix of sales
between subdivision and scatter-site homebuilding divisions. The subdivision
margin, usually higher, includes profit on land with a below market basis
previously held in the community development inventory, whereas the scatter-
site sales consist solely of the homes.
Other Expenses. The other expenses for the three months ended June 30,
1994 and 1993 were as follows:
1994 1993
---------- ----------
Selling and marketing $ 396 $ 319
General and administrative 1,998 2,055
Depreciation and amortization 162 125
Interest expense 628 475
Rental apartment expense 1,053 441
------ ------
$4,237 $3,415
====== ======
Selling and marketing expense, general and administrative expenses,
depreciation and amortization and interest expense during the 1994 and 1993
periods were generally comparable. 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).
Provision for Income Tax. The provision for income taxes during the three
months ended June 30, 1994 increased to $1.8 million compared to $.2 million in
the three months ended June 30, 1993 due to taxable income resulting primarily
from the profit earned on the shopping center site sale in Puerto Rico.
Minority Interest. The minority partner interest increased during the
three months ended June 30, 1994 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 three months ended June 30, 1994 increased to $1.7
million from $1.5 million during the comparable 1993 period.
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 restructuring. 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
<PAGE>39
requirements. Signet Bank is considering the Company's proposal to reduce the
collateral release prices in exchange for additional land as collateral. Based
on discussions with the bank, management expects the loan to be extended to
December 31, 1995, but the documents for the extension and modification of the
release prices will not be executed by the August 13, 1994 maturity date.
Working capital for overhead and other cash needs in 1994 is expected to
be met through property management fees, current sales proceeds in excess of
release payments on debt and the additional proceeds to be available under the
proposed Signet modification.
If IGC's pending request for an extension and modification of the Signet
bank debt is granted, and IGC continues to generate lot sales consistent with
or in excess of 1993 levels, the proceeds of financing together with cash from
operations will, in the opinion of IGC management, be adequate to meet IGC's
liquidity requirements.
Additional potential sources of liquidity include cash that could be
generated in 1995 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 in HUD's
low income housing program. Management believes that the economic benefit to
the Company and the partners will be greater from a sale of the projects, in
which case the Company will endeavor to retain the right to manage the
properties. It is anticipated that any closing pursuant to LIHPRHA will be
accomplished in 1995 and the Company would expect to receive approximately
$10.0 million, net of taxes. These distributions are assigned to the FDIC for
debt of $9.3 million and then to NationsBank.
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 Court recently
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.
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
<PAGE>40
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 relating to wetlands preservation or, if charged, what the outcome
will be.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
<PAGE>41
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 Edwin L. Filed herewith
Kelly dated May 20, 1994
10(b) Fourth Amended and Restated Filed herewith
Partnership Agreement of Housing
Development Associates S.E. dated as
of July 21, 1994
10(c) Fifth Amended and Restated Filed herewith
Partnership Agreement of Housing
Development Associates S.E. dated
August 1, 1994
10(d) Limited Partnership Agreement of Filed herewith
Equus Gaming Company L.P. dated
August 1, 1994
10(e) First Amendment to the Limited Filed herewith
Partnership Agreement of Equus Gaming
Company L.P. dated August 1, 1994
10(f) Second Amendment to the Limited Filed herewith
Partnership Agreement of Equus Gaming
Company L.P. dated August 1, 1994
(b) Reports on Form 8-K
Form 8-K filed June 2, 1994 reporting the agreement between the
Registrant and NationsBank to restructure two of the Registrant's
loans and the reissuance of Arthur Andersen & Co.'s report, dated May
23, 1994, with respect to Notes 2 and 8 to the Registrant's Financial
Statements for the Years Ended December 31, 1993, 1992 and 1991.
<PAGE>
<PAGE>42
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: August 12, 1994 By: /s/ James J. Wilson
--------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: August 12, 1994 By: /s/ Donald G. Blakeman
--------------- -----------------------------
Donald G. Blakeman
Executive Vice President
<PAGE>
<PAGE>43
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
10(a) Employment Agreement with Edwin L. Kelly dated May 20,
1994.
10(b) Fourth Amended and Restated Partnership Agreement of
Housing Development Associates S.E. dated as of July 21,
1994
10(c) Fifth Amended and Restated Partnership Agreement of Housing
Development Associates S.E. dated August 1, 1994
10(d) Limited Partnership Agreement of Equus Gaming Company L.P.
dated August 1, 1994
10(e) First Amendment to the Limited Partnership Agreement of
Equus Gaming Company L.P. dated August 1, 1994
10(f) Second Amendment to the Limited Partnership Agreement of
Equus Gaming Company L.P. dated August 1, 1994
<PAGE>1
EXHIBIT 10(a)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 20, 1994, among and between Interstate
General Company L.P., a Delaware limited partnership (the "Company")
and Edwin L. Kelly (the "Executive"), a resident of LaPlata, Maryland.
WHEREAS, the Company has employed the Executive pursuant to the terms
of that certain Employment Agreement dated as of February, 1987, by and between
the Company and the Executive (the "Original Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Original
Agreement and to continue 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 foregoing and of the respective
covenants and agreements of the parties contained herein, the parties hereto
hereby amend and restate the Original Agreement in its entirety 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 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 April 1, 1994 and expiring on March 30, 1995, and thereafter for
successive one-year terms provided, however, that either party may terminate
this Agreement ninety (90) days after such party has delivered written notice
to the other party of its intent so to terminate this Agreement.
3. Position and Duties. The Executive shall serve as President of
American Family Homes Inc. ("AFH") and as Senior Vice President of the Company,
reporting to the President of the Company. In addition to serving as President
of AFH, the Executive shall assist the President of the Company in the
President'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. The Executive shall have such authority and
responsibilities as shall be set forth in Exhibit A attached hereto captioned
"Job Description and Delegation of Authority" as the same may be amended from
time to time by the President or the Board of Directors (the "Board") of
Interstate General Management Corporation. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company and the Company's Affiliates.
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>
<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 $173,000 per year, payable in substantially equal semi-
monthly installments.
(b) 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.
(c) 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.
(d) 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.
(e) Certain Specified Benefits. In addition to benefits to which
the Executive is eligible under subsection (b) of this section, during the term
of his employment hereunder, the Company shall provide for the Executive's
business use a suitable automobile and shall pay the Executive's membership
dues in the Hawthorne Country Club and membership dues and semiannual meeting
expenses for the Executive's participation in the Urban Land Institute
(collectively the "Specified Benefits").
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 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
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
<PAGE>3
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 scattered 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
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 by the Executive, whether
voluntarily or due to the Executive's death or disability, the Executive, or
his estate, shall continue to receive his Base Salary and benefits (excluding
<PAGE>4
the Specified Benefits) for which the Executive would remain 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 six months
following the Termination Date;
(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 18 months following the
Termination Date;
(c) 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 (1) willful, reckless or
negligent inattention to the welfare of the Company, (2) unethical conduct,
(3) repeated disregard of the Company's written rules, policies and
regulations, (4) conviction of a felony or other criminal offense relating to
fraud or theft or (5) failure or refusal by the Executive to perform his
obligations under this Agreement, including any lawful directive of the Board,
Chairman of the Board or President 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
If to the Executive:
Mr. Edwin L. Kelly
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.
11. Entire Agreement. This Agreement constitutes 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.
<PAGE>
<PAGE>5
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. Miscellaneous. 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 so chosen.
16. Arbitration.
(a) Any dispute or controversy arising between the Executive and the
Company relating to this Agreement shall be submitted to private, binding
arbitration, upon the written request of either the Executive or the Company,
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,
and 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.
(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.
<PAGE>
<PAGE>6
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
INTERSTATE GENERAL COMPANY L.P. INTERSTATE GENERAL COMPANY L.P.
By: Interstate General Management By: Interstate General Management
Corporation, Its Managing Corporation, Its Managing
General Partner General Partner
By: /s/ Gregory G. Kreizenbeck By: /s/ James J. Wilson
----------------------------- -----------------------------
Gregory G. Kreizenbeck James J. Wilson
Executive Vice President President
EDWIN L. KELLY
/s/ Edwin L. Kelly
----------------------------------
<PAGE>
<PAGE>7
SUMMARY OF DELEGATION OF AUTHORITY
Name: Edwin L. Kelly
Company: Interstate General Company L.P.
Position: President
Location: St. Charles, Maryland
Effective Date: March 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
----------- ------------ ------------ ------------ ------------
Budget + Under Under
$50,000 Budget + 10% Budget $1,000,000 $40,000
($150,000)
in the
aggregate)
Consulting
Industrial Services
Relations Accounting NOS (Per
(Compensation and Finance Year Per Legal
Per New Hire) (Receivables) Consultant) Services
------------- ------------- ----------- --------
N/A N/A Budget + $10,000
$50,000 Unlimited
($150,000
in the
aggregate)
<PAGE>
<PAGE>8
INTERSTATE GENERAL COMPANY L.P. (the "Company")
REAL ESTATE GROUP
DELEGATION OF AUTHORITY TO THE
PRESIDENT OF AMERICAN FAMILY HOMES, INC. ("AFH")
EDWIN L. KELLY
1. Real Estate Development Applications.
Edwin L. Kelly, President-AFH (the "President"), may execute applications
and any other documents necessary and appropriate for filing with governmental
or quasi-governmental bodies and agencies for licenses, permits, or any
approvals required in connection with the conduct of the real estate business
of AFH including applications for declarations of covenants, conditions, and
restrictions, homeowners' association documents, applications for zoning and
zoning variations and changes, and applications for parcel and subdivision
maps.
2. Planning.
The mission and objectives of AFH shall be determined by the President and
Chief Operating Officer (the "COO"). The President shall be responsible for
the development of strategies and tactics. Implementation of the final plans
shall be the President's responsibility.
3. Professional Services for Real Estate Development.
The President may enter into, execute, or amend contracts for
architectural, engineering, marketing, advertising, and promotional services
pursuant to the approved budget. If not in the approved budget, then the
President may enter into, execute, or amend contracts up to $50,000 per year
per consultant and $150,000 per year in the aggregate. All other contracts in
excess of $50,000 and not in the budget must be approved by the COO or CEO of
the Company.
4. Operating Expenditures.
(a) The President 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 COO or CEO of the
Company.
(b) For purchase contracts less than or equal to $75,000, the President
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.
<PAGE>
<PAGE>9
5. Capital and Other Development Expenditures.
(a) The President may negotiate, enter into, execute, or amend agreements
that involve capital and/or other development 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 President 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.
6. Sales Agreements, Recording Documents, Closing Documents,
and Deeds.
The President may negotiate sales agreements with respect to all AFH real
estate or home transactions; provided, that, any such transaction or series of
related transactions having a market value in excess of $100,000 shall be
subject to the following limitations:
(1) All sales agreements shall be approved by the CEO and Board of
Directors of Interstate General Management Company (the "Board of Directors").
(2) All sales agreements shall be reviewed by legal counsel prior to
execution.
(3) All sales agreements will be executed by the President.
(4) All recording documents, closing documents, and deeds shall be
executed by an authorized officer of AFH.
7. Real Estate Acquisitions.
The President will submit to the Board of Directors a business plan for
the acquisition of real estate, operating divisions of companies, and/or entire
companies, etc., that may be undertaken by AFH. The purchase of real estate,
operating divisions, and/or companies, etc., for project or operating unit
purposes may be initiated after submission to and approval by the COO or CEO
and the Board of Directors.
8. 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 President'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 AFH over $40,000
annual compensation under the President'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.
<PAGE>10
(d) The President 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.
(e) The President 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 President
or any other officer of the Company. All new hires that the President elects
to employ with an annual total compensation in excess of $50,000 shall require
the approval of the Board of Directors.
9. Accounting and Finance.
(a) The President shall be operationally responsible for accounting and
financial functions of AFH e.g. invoicing, sales and receivables collection,
payables, preparing the appropriate general ledger accounts, developing an
annual budget, and variance reporting.
The fiscal and financial decisions of the AFH will be made by the Board of
Directors. The President shall operationally carry out such fiscal and
financial policy decisions through the Chief Financial Officer of the Company
("CFO"). The President 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 President 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.
10. General Consulting Services Other Than Professional Services
for Real Estate Development.
The President 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 President
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.
11. Legal Services by Approved Counsel.
The President may authorize legal counsel approved by the COO or CEO or
the Board of Directors to undertake any and all legal services required for AFH
up to $10,000.
12. General Limitations.
(a) The foregoing authority shall be subject to the following general
limitations:
(1) Authority is delegated only in connection with the assets and
affairs of AFH.
<PAGE>11
(2) Whenever approval is required, said approval shall be evidenced
by a properly executed signature of the appropriate corporate officer or board
resolution.
(3) The President may enter into any partnerships or joint ventures
with the written approval of the Board of Directors.
(b) The President may delegate to members of his staff as much of the
foregoing power and authority as the President deems necessary or prudent;
provided, however, that the President remains responsible for the exercise of
such powers.
13. 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
President's employment with the Company is terminated.
<PAGE>
<PAGE>12
AMERICAN FAMILY HOMES, INC.
PRESIDENT
JOB DESCRIPTION
POSITION: President - American Family Homes, Inc.
("AFH" or the "Operating Unit")
REPORTS TO: President/Chief Operating Officer of
Interstate General Company L.P. (the "Company")
GENERAL DESCRIPTION OF THE BASIC FUNCTION:
Provide the leadership necessary to help the operating unit
accomplish the mission and objectives set forth in its business
plan.
PURPOSE OF THE JOB DESCRIPTION:
1. To establish a framework in which the tasks of the President-AFH are
communicated.
2. To create a standard of performance by which the President-AFH can be
evaluated.
JOB OBJECTIVES:
1. Strategic Planning
A. Initiate the shaping and direct the preparation of all of the short
term and long term plans necessary to meet the operating unit's
objectives.
B. Supervise the documentation, the request for approval, and the
communication of these plans.
C. Spearhead the implementation and the follow-up on execution of the
operating unit's short and long term plans.
2. Organization
A. Supervise within the operating unit.
- the recruitment, development, transfer, and termination of key
personnel
- the review and maintenance of an adequate reward system which
operates within the Company's policies and procedures
- the training and development of the appropriate personnel
- the review and maintenance of an effective organizational
structure
- the evaluation of all personnel on a periodic basis
<PAGE>
<PAGE>13
B. Where appropriate, utilize the staff services of the Company's
headquarters personnel.
3. Delegation of Functional Work and Corresponding Duties
A. Functional Work
- Product & Market Feasibility
- Architecture, Engineering, Design & Construction
- Marketing
- Sales & Leasing
- Legal
- Property Management
- Accounting & Finance
B. Corresponding Duties
- Supervise the creation of an operating plan for each function
- Review the organization of each function
- Monitor the performance of each function
- Follow up on the material variances from each functional plan
4. Profits and Budgets
A. Direct the operating unit to maximize profits and the return on
invested capital.
B. Supervise the control of all activities so as to meet the profit
targets.
C. Supervise the maintenance of an effective budget system in order to
keep operational activities within approved limits.
5. Acquisitions and Joint Venture
A. Within the Company's budget guidelines, direct the operating unit's
acquisitions and joint venture endeavors so as to meet its
objectives.
6. Policies
A. Implement and monitor the application of all Company policies within
the operating unit.
B. Direct the creation and implementation of any additional operating
unit policies necessary to aid in the achievement of its mission and
objectives.
7. Communication - Inside and Outside
A. Direct the development of an environment and systems that will keep
the operating unit's team well informed.
B. Personally inculcate the message about the operating unit's mission,
objectives and plans.
<PAGE>14
C. Represent the operating unit as appropriate in its relationships with
major customers, suppliers, partners, bankers, accountants,
government agencies, and professional societies.
8. Ethics
A. Sustain by personal example the high standards of legal, moral,
ethical, and work conduct required by the Company.
9. Human and Physical Environment
A. Maintain an environment where there is respect for the individual and
where there is an opportunity to develop and apply talents.
B. Structure and maintain a team working environment.
C. Within the Company's policy and operating unit profit objectives,
ensure that the physical environment for all employees is as
aesthetically appealing as possible.
DUTIES/RESPONSIBILITIES:
1. It is the duty and responsibility of the operating unit's President to
provide the general direction necessary for the operating unit to
accomplish its mission and achieve its objectives.
2. The operating unit's President has the duty and responsibility to achieve
his or her job objectives. This shall include acquiring, developing,
producing, promoting, and disposing of assets.
3. The President of the operating unit is the steward of all of the operating
unit's assets. It is his or her duty and responsibility to care for these
assets with the highest integrity. The President has a fiduciary
obligation to the operating unit and the Company, and he or she should
always use the "reasonable man" rule.
4. Except for the financial liabilities incurred pursuant to the operating
unit's business plan, the operating unit's President has the duty and
responsibility to minimize all operating unit's past, present and future
direct or implied liabilities.
AUTHORITY:
1. The operating unit's President can utilize all of the powers granted in
his or her "Delegation of Authority" document.
2. The President of the operating unit recommends and seeks approval of all
strategic and tactical matters that exceed the approved limits of the
"Delegation of Authority" document.
STANDARDS USED TO MEASURE PERFORMANCE:
1. The degree to which the operating unit achieves its mission and
objectives.
2. The extent to which the operating unit's President produces significant
accomplishments in his or her job objectives.
<PAGE>15
SKILL REQUIREMENTS:
1. Education
Business degree, MBA or equivalent (C.P.A. etc.) preferred, continued
education training is desired.
2. Experience
A. Minimum of ten years in the same line of business.
B. Minimum of five years of profit and loss responsibility in the same
line of business or equivalent.
C. Minimum of five years of direct marketing responsibility in the same
line of business.
D. Minimum of five years of supervisory responsibility for over thirty
people.
PROBLEM SOLVING:
Verifiable track record of accomplishments.
DECISION MAKING:
Credible history of making the correct, key judgments.
COMMUNICATION:
Above average written and oral ability.
<PAGE>1
EXHIBIT 10(b)
FOURTH AMENDED AND RESTATED PARTNERSHIP AGREEMENT
HOUSING DEVELOPMENT ASSOCIATES, S.E.
Dated: July 21, 1994
<PAGE>
<PAGE>2
This amended and restated partnership agreement (hereinafter referred to
as the "Agreement") is made effective as of the Twenty First day of July, 1994,
by and between INTERSTATE GENERAL PROPERTIES LIMITED PARTNERSHIP S.E., a
limited partnership duly organized and existing under the laws of the State of
Maryland (hereinafter referred to as "IGP"), and SUPRA AND COMPANY S.E., a
special partnership organized and existing under the laws of the Commonwealth
of Puerto Rico (hereinafter referred to as "SUPRA") and INTERSTATE BUSINESS
CORPORATION, a corporation organized and existing under the laws of the State
of Delaware (hereinafter referred to as "IBC") and HDA MANAGEMENT CORPORATION,
a corporation organized and existing under the laws of the State of Delaware
(hereinafter referred to as "HDAMC") and constitutes a restatement of the Deed
of Constitution of Special Partnership executed by said parties as of the 14th
day of February, 1989, including any amendments thereof (hereinafter referred
to as the "Deed").
WHEREAS
As of February 14, 1989, IGP and SUPRA (collectively the "Initial
Partners") executed a Deed of Constitution of Special Partnership whereby they
formed a special partnership (hereinafter the "Partnership") for the purpose of
conducting the business of land development in general, building and sale of
residential and/or commercial properties, the ownership of a race track, and
the leasing of buildings and structures.
As of April 15, 1992, IGP, SUPRA and IBC subscribed a "Second Amended and
Restated Partnership Agreement" whereby IBC was admitted to the Partnership
with a thirty-one percent (31%) ownership interest as of September 30, 1991.
As of December 15, 1993, IGP, SUPRA, IBC and HDAMC subscribed a "Third
Amendment and Restated Partnership Agreement" whereby HDAMC was admitted to the
Partnership with a one-percent (1%) interest.
On July 21, 1994, the Puerto Rico Racing Board approved HDAMC's
acquisition of a fifteen percent (15%) interest.
Now the Initial Partners, IBC and HDAMC (collectively the "Partners" and
individually a "Partner") desire to amend the Third Amended and Restated
Partnership Agreement and to set forth the rights and obligations of the
Partners in connection with the Partnership, their participation in any profits
or liabilities derived therefrom, and their participation in any loss that may
arise from such venture. Accordingly, the Partners agree herein as follows:
One: Constitution of Partnership. The Partners hereby associate
themselves as a partnership under the laws of the Commonwealth of Puerto Rico
and have elected to be treated as a Special Partnership in accordance with the
provisions of the Puerto Rico Income Tax Act of 1954, as amended (the "ITA")
and Act Number 3 of September 27, 1985, amending Article 1589 of the Civil Code
of Puerto Rico, for the purpose of engaging in the business of land development
in general, the building and sale of residential and/or commercial properties,
owning of a race track, leasing of buildings and structures, and performing any
and all acts and services necessary or desirable in connection with the
foregoing, including but not limited to the purchase, lease or otherwise the
acquisition and use of real or personal property, entering into, making,
performing and carrying out of contracts, borrowing money for the purposes of
the Partnership and securing any such borrowing through the issuance of
<PAGE>
<PAGE>3
required loan documents, collateral agreements, securities and other guarantees
proper or necessary to secure repayment thereof, and in general to do and
perform any and all acts authorized to be done by partnerships under the laws
of the Commonwealth of Puerto Rico.
Two: Name and Principal Office of Partnership. The name of the
Partnership shall be HOUSING DEVELOPMENT ASSOCIATES S.E., and the principal
offices of the Partnership shall be located at 650 Munoz Rivera Avenue, Doral
Building, Seventh Floor, Hato Rey, Puerto Rico 00918; postal address shall be
G.P.O. Box 363908, San Juan, Puerto Rico 00936-3908, which location may be
changed by the Managing Partners of the Partnership from time to time.
Three: Term of Partnership: The term of the Partnership shall commence
as of the date of execution of the Deed and shall continue for a period of 50
years from the date thereof, unless sooner terminated as provided in Section 22
hereof, and may be extended and continued for such additional periods as the
Partners may agree.
Four: Adjustment to HDAMC's Interest. On December 15, 1993, HDAMC
contributed Two Million Forty Thousand Dollars ($2,040,000.00) in exchange for
a fifteen percent (15%) Partnership interest, subject to the approval of the
Puerto Rico Racing Board (the "Contingent Contribution"). On July 21, 1994,
the Racing Board approved the increase in HDAMC's interest. Therefore, HDAMC's
interest in the Partnership is now fifteen percent (15%) (the "Adjustment") and
the contingency on the Contingent Contribution has lapsed.
Five: Limited Purpose. The relationship between the Partners shall be
limited to the performance of the specific purposes and objectives of the
Partnership as set forth in this Agreement. Nothing herein shall be construed
to create a general purpose partnership between the Partners; nor to authorize
any Partner to act as general agent for any other; nor to confirm or grant to
any Partner any proprietary interest in, or to subject any Partner to any
liabilities for or in respect of, the business, assets, profits or obligations
of any other Partner, except only to the extent and for the business
contemplated by this Agreement.
Six: Management of the Partnership. The business and affairs of the
Partnership shall be supervised and controlled exclusively by the managing
partners, IGP and HDAMC (collectively the "Managing Partners" and individually
a "Managing Partner"). Except as provided in any management agreement between
the Managing Partner(s) and the Partnership, each Managing Partner shall have
the power and authority to act on behalf of the Partnership in all acts and
contracts, and, among others, to apply for and obtain loans, to approve the
execution of contracts, execution of deeds, granting of mortgages over its real
and personal properties and acquisition of assets and real property deemed by
it necessary or convenient for its business, either by lease or outright
purchase, to apply for and obtain any required license, permit or governmental
authorization, and to perform any other act which the Partnership is authorized
to do pursuant to the terms hereof as well as under the laws of the
Commonwealth of Puerto Rico. Without the approval or authorization of the
Managing Partners, no party (including no Partner) may act on behalf of the
Partnership and no Partner shall be considered to be the agent of another.
Notwithstanding the foregoing, the Managing Partners may appoint officers of
the Partnership and delegate to such officers such powers, duties and authority
as it shall deem appropriate. Except as provided in any management agreement
between the Managing Partner(s) and the Partnership, the actions of the
Managing Partners require no ratification by any other Partners. The Managing
Partners shall be the agents of the Partnership for the conduct of the
<PAGE>4
Partnership's business. In consideration for IGP performing any and all acts
for the Partnership, the Partnership shall pay IGP an annual fee of Two Hundred
Fifty Thousand Dollars ($250,000), adjusted annually after 1993 by the
percentage increase in the United States Department of Labor national average
Consumer Price Index for all Urban Consumers for all items (or a similar index)
("CPI") for the calendar year most recently ended over the CPI for the
immediately preceding calendar year. The Partnership shall reimburse HDAMC for
all reasonable out-of-pocket expenses incurred by HDAMC in connection with
management of the Partnership, including reasonable directors' fees for
directors who are not then existing officers or employees of the Partnership or
any Managing Partner, and the reasonable cost of directors' and officers'
liability insurance.
Seven: Percentage Interests. Except as provided otherwise in this
Agreement, the Percentage Partnership Interests of IGP, IBC, SUPRA and HDAMC
shall be, respectively, Forty-One and Sixty Five One Hundredths percent
(41.65%), Twenty Six and Thirty Five One Hundredths percent (26.35%), Seventeen
percent (17%) and Fifteen percent (15%).
Eight: Loans by Partners.
(a)(i) If at any time prior to and including the date of closing of the
purchase of the El Comandante Race Track and certain real property (the "Race
Track") pursuant to an agreement by and between San Juan Racing Association,
Inc. and the Partnership dated as of February 15, 1989, the cash available to
the Partnership is insufficient to (i) meet required debt service of the
Partnership, (ii) fund any capital expenditures, (iii) acquire the Race Track,
or (iv) meet any other obligations of the Partnership as and when they fall
due, then the Partnership shall attempt to borrow additional funds, if
possible, or, if not possible, the Initial Partners shall advance funds (the
"Pre-Closing Advance") to the Partnership at the request of IGP, to cover such
cash requirements in proportion to the Percentage Partnership Interest at the
time of such Pre-Closing Advances. The Pre-Closing Advances shall constitute
loans to the Partnership and shall be made by the Initial Partners not later
than fifteen (15) days from the date fixed by IGP as the date on which any such
advance is to be made. In addition to the amounts treated as Pre-Closing
Advances pursuant to the first sentence of this Section 8(a)(i), Pre-Closing
Advances of IGP to the Partnership shall include, for all purposes of this
Agreement, all costs and expenses incurred by IGP, or its parent, Interstate
General Company L.P., a Delaware limited partnership, relating to the (A) the
organization of this Partnership, (B) the negotiations relating to the
acquisition of the Race Track, and (C) all other matters relating to the entry
into and consummation of the agreement by and between San Juan Racing
Association, Inc. and the Partnership dated February 14, 1989. Amounts treated
as Pre-Closing Advances pursuant to the first preceding sentence shall be
deemed to have been advanced as of the later of (D) the date such costs and
expenses were, or are incurred, or (E) February 14, 1989.
(ii) If a Pre-Closing Advance is made by IGP from funds (the "Loan")
it has borrowed from a bona fide third party lender, such Pre-Closing Advance
and any Pre-Closing Advance made by SUPRA in response to the same request for
funds by IGP (the "Borrowed Pre-Closing Advances") shall bear interest at the
rate IGP certifies to the Partnership it is charged by the third-party lender
for the Loan. Fees shall be charged the Partnership for the Partners'
commitment to make Pre-Closing Advances. The fee paid to IGP (the "IGP Fee")
shall equal the amount it certifies to the Partnership it has paid in Fees to
(1) the third-party lender for the Loan, (2) for commitments for loans obtained
in contemplation of such Pre-Closing Advances, and (3) for any legal and other
<PAGE>5
third-party costs incurred in connection with the Loan. The fee paid to SUPRA
(the "SUPRA Fee") shall equal the amount that bears the same ratio to the IGP
Fee that the Pre-Closing Advances made by IGP in response to request for funds
by IGP. The certification called for by this Section 8(a)(ii) shall be made
and all fees shall accrue on the first to occur of the (i) the date of the Pre-
Closing Advance or (ii) the Closing. Fees shall bear interest from the date of
accrual to date of payment at the rate and in the manner specified for Pre-
Closing Advances and for this purpose shall be treated as Pre-Closing Advances.
(iii) The Partnership agrees to issue to IGP and SUPRA a promissory
note or notes (the "Pre-Closing Notes") for, in the case of IGP, the sum of any
Pre-Closing Advances made by IGP and the IGP Fee, and in the case of SUPRA, the
sum of any Pre-Closing Advances made by SUPRA and the SUPRA Fee. The Pre-
Closing Notes shall set forth the terms of payment by the Partnership of the
Pre-Closing Advances and Fees as described in this Section 8. The Partnership
may pledge as collateral for a Pre-Closing Note any promissory notes from third
parties representing their obligation to make capital contributions to the
Partnership.
(iv) If IGP does not borrow money in order to make a Pre-Closing
Advance or fails to certify as provided in Section 8(a)(ii) of this Agreement,
such Pre-Closing Advance and any Pre-Closing Advance made by SUPRA in response
to the same request for funds by IGP shall bear interest at two hundred basis
points over and above the "Prime Rate" of Citibank, N.A. (the "Applicable
Rate"), as the same may be announced from time to time. The Applicable Rate
shall be adjusted, without notice to the Partnership, on the effective date of
any change in the Prime Rate.
(v) If an Initial Partner (the "Pre-Closing Defaulting Partner")
fails to make a Pre-Closing Advance as requested by IGP pursuant to Section
8(a)(i) of this Agreement, then the other Initial Partner (the "Pre-Closing
Non-Defaulting Partner") may elect to withdraw any funds it advanced pursuant
to such request. Such Pre-Closing Non-Defaulting Partner may also elect to
advance an additional amount to the Partnership equal to the amount not
advanced by the Pre-Closing Defaulting Partner. Such additional amount shall
also be considered to be a Pre-Closing Advance for purposes of this Section.
Upon the failure of a Pre-Closing Defaulting Partner to make a Pre-Closing
Advance, the Percentage Partnership Interest of each Partner in the Partnership
shall be adjusted such that it is equal to the percentage that the sum of the
capital contributions and Pre-Closing Advances made (and not withdrawn) by such
Initial Partner bears to the sum of the total capital contributions and Pre-
Closing Advances made by all the Initial Partners to the Partnership.
(b) Interest shall be due and payable quarterly on Pre-Closing Notes.
Pre-Closing Notes shall be payable out of (a) capital contributions made to the
Partnership net of any offering costs and (b) income from operations that is
not required for the operations or capital of the Partnership as determined by
the Managing Partners, but in all events at the end of ten (10) years. Payment
shall be made to IGP and SUPRA in repayment of the Pre-Closing Notes in
proportion to the principal amount of such Notes held by each.
(c) The provisions of this Agreement requiring the Initial Partners to
advance funds to the Partnership are solely for the benefit of the Initial
Partners and the Partnership and are not intended to confer any benefit on IBC,
HDAMC or other persons not party to this Agreement or on creditors of the
Partnership.
<PAGE>
<PAGE>6
Nine: Appointment of Manager. The Managing Partners shall have authority
to appoint and employ such managers, employees, consultants and agents for the
Partnership, as they shall deem appropriate, and may delegate to such managers,
employees, consultants and agents any and all offices, powers and authority
hereunder.
Ten: Limited Responsibility. The Partners shall not be personally liable
for the debts, liabilities or obligations of the Partnership. Each Partner's
liability and obligations with regards to the Partnership, shall be limited to
the capital contribution actually made by such Partner to the Partnership.
Eleven: Books and records. The Partnership shall maintain at its
principal office full and proper records and books of account based upon
generally accepted accounting principles, consistently applied. The fiscal
year of the Partnership shall be the calendar year, or such other fiscal year
as shall be determined by the Managing Partners and permitted by law.
Twelve: Inspection of Books, Appointment of Accountants. Each of the
Partners shall have the right at all reasonable times to have any and all of
the Partnership's records and books of account inspected at its own expense by
its own employees, attorneys or accountants.
The Managing Partners shall at all times name and appoint such independent
nationally recognized accounting and auditing firm (the "Partnership
Accountants") as in their sole discretion shall be determined.
Thirteen: Bank Account. The Partnership shall maintain such bank
accounts as shall be approved by the Managing Partners.
The Managing Partners shall determine the individuals authorized to draw
checks against the Partnership bank accounts. Such drawings shall require not
less than two (2) signatures.
Fourteen: Profits, Losses, and Tax Allocations.
(a) The net income or net loss, respectively, for federal and Puerto Rico
tax purposes shall be determined annually by the Partnership Accountants. The
Partnership Accountants shall prepare the income tax returns for the
Partnership as soon as possible after the end of each of the Partnership's
fiscal years.
(b) For purposes of this Agreement the terms "Profits" and "Losses" mean
the income or loss of the Partnership for "book" purposes under Treas. Reg.
Section 1.704-1(b)(2)(iv). In particular, and without limitation, the terms
"Profits" and "Losses" mean, for any fiscal year, the net income or net loss,
respectively, of the Partnership as reported by the Partnership for federal
income tax purposes, except that (i) items of income, gain, loss, and deduction
relating to property contributed to the Partnership shall be computed as if the
basis of the property to the Partnership at the time of contribution were equal
to its fair market value on that date (for purposes of this clause (i), (A) the
amount of any depreciation, amortization, or other cost recovery deduction
allowable for any period with respect to property contributed to the
Partnership shall be an amount that bears the same ratio to the fair market
value of the property on the date of contribution as the federal income tax
depreciation, amortization, or other cost recovery deduction bears to the
adjusted tax basis of the property on the date of contribution; provided,
however, that if the adjusted tax basis of the property on the date of
contribution is zero, depreciation, amortization, or other cost recovery
deduction shall be determined with reference to the fair market value of the
<PAGE>7
property on the date of contribution using any reasonable method selected by
the Managing Partners and (B) gain or loss resulting from any disposition of
such property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed under this sentence as if such property
had an adjusted basis on the date of contribution equal to its fair market
value on such date and all subsequent adjustments were made in accordance with
subclause (A) of this clause (i)), (ii) any income of the Partnership that is
exempt from federal income tax and not otherwise taken into account in
computing Profits or Losses shall be added to such taxable income or loss, and
any related expenses not allowed as a deduction pursuant to Section 265 of the
Internal Revenue Code of 1986 (hereinafter referred to as "Code") shall be
subtracted from such taxable income or loss, (iii) any expenditures of the
Partnership described in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Treas. Reg. Section 1.704-1(b) and not
otherwise taken into account under this Section 14(b) shall be subtracted from
such income or loss, and (iv) if there has been an adjustment to the Partners'
capital accounts pursuant to Section 17(d) to reflect the unrealized income,
gain, loss, or deduction inherent in Partnership property: (A) depreciation,
amortization, or other cost recovery deductions with respect to such property
for each fiscal year or other period shall equal an amount which bears the same
ratio to the fair market value of such property on the date of such adjustment
as the federal income tax depreciation, amortization, or other cost recovery
deductions for such year or other period bears to the adjusted tax basis of
such property on such date (provided, however, that if the adjusted tax basis
of the property on the date of such adjustment is zero, depreciation,
amortization, or other cost recovery deduction shall be determined with
reference to the fair market value of the property on the date of adjustment
using any reasonable method selected by the Managing Partners); and (B) gain or
loss resulting from any disposition of such property with respect to which gain
or loss is recognized for federal income tax purposes shall be computed under
this sentence as if such property had an adjusted basis on the date of such
adjustment equal to its fair market value on such date and all subsequent
adjustments for depreciation, amortization, or other cost recovery deductions
were made in accordance with subclause (A) of this clause (iv). The term
"Profits" means a net positive amount and the term "Losses" means a net
negative amount for the Partnership fiscal year determined after making the
adjustments described in this Section 14(b) and after removing any amounts of
income or gain allocated under Sections 16(a), 16(b), or 16(c) of this
Agreement. For Partnership fiscal years ending after HDAMC is admitted as a
Partner, the term "LDA Profits" shall mean the net positive amount and the term
"LDA Losses" shall mean the net negative amount of items entering into the
computation of Profits and Losses for such Partnership fiscal year that are
attributable to the receivable from Land Development Associates S.E. ("LDA").
For Partnership fiscal years ending after HDAMC is admitted as a Partner, the
term "General Profits" shall mean the net positive amount and the term "General
Losses" shall mean the net negative amount of items entering into the
computation of Profits and Losses for such Partnership fiscal year other than
those items that are attributable to the LDA Receivable. For purposes of this
Agreement, the term "attributable to the LDA receivable" shall mean items
entering into the computation of Profits and Losses, cash or any tax item that,
in the good faith opinion of the Managing Partners, are attributable to the LDA
receivable (including items that constitute, or result from, the accrual of
interest with respect to the LDA receivable, payments of principal on the LDA
receivable, gain or loss from the disposition of the LDA receivable, the
utilization of any of the interest payments, principal payments and disposition
proceeds thereafter, and associated expenses).
<PAGE>
<PAGE>8
(c) In the event of any changes in any Partner's Percentage Partnership
Interest during the fiscal year, then for purposes of this Agreement, the
Managing Partners shall take into account the requirements of Code Section
706(d) and shall have the right to select any reasonable method of determining
the varying interests of the Partners during the year which satisfies Code
Section 706(d).
(d) All items of income, gain, loss, and deduction, and all tax
preferences, depreciation, accelerated cost recovery system deduction and
investment interest and other tax items of the Partnership for each fiscal year
(collectively referred to as "Partnership Tax Items") shall be allocated for
federal tax purposes to the Partners in accordance with this Section 14(d).
(i) Except as provided in Sections 14(d)(ii) and (iii), Partnership
Tax Items shall be allocated for tax purposes in accordance with the
allocations of Profits, Losses, LDA Profits, LDA Losses, General Profits,
General Losses or other items under Sections 15 and 16 hereof. For purposes of
the preceding sentence, an allocation to a Partner of a share of Profits,
Losses, LDA Profits, LDA Losses, General Profits or General Losses shall be
treated as an allocation to such Partner of the same share of each Partnership
Tax Item that is taken into account in computing such Profits, Losses, LDA
Profits, LDA Losses, General Profits or General Losses.
(ii) Gain or loss upon sale or other disposition of any property
contributed to the Partnership or any depreciation, amortization, or other cost
recovery deduction allowable with respect to the basis of property contributed
to the Partnership shall be allocated for tax purposes among the contributing
and non-contributing Partners so as to take into account the difference between
the adjusted tax basis and the fair market value of the property on the date of
its contribution to the extent permitted by Treas. Reg. Section 1.704-1(c)(2)
or such superseding regulations as may be promulgated in accordance with Code
Section 704(c). In making allocations pursuant to the preceding sentence, the
Managing Partners are authorized to apply any method or convention required or
permitted by Code Section 704(c); provided, however, that the Managing Partners
shall select such method or convention as, in their opinion, will take such
variation fully into account. In applying the preceding sentence the Managing
Partners shall, to the extent allowable under applicable Treasury Regulations,
select a method of applying Code Section 704(c) that results in allocations of
Partnership Tax Items to noncontributing Partners that are no less favorable
than that which would be allocated to such Partners but for the application of
the "ceiling" rule described in Treas. Reg. Section 1.704-1(c)(2).
(iii) If there has been an adjustment to the Partners' capital
accounts pursuant to Section 17(d) to reflect the unrealized income, gain, loss
or deduction inherent in Partnership property, then Partnership Tax Items with
respect to such property and, if necessary, other property, shall be allocated
to the Partners for federal income tax purposes so as to take into account the
difference between the adjusted tax basis of such property and the value at
which it is reflected in the Partners' capital accounts. In making allocations
pursuant to the preceding sentence, the Managing Partners are authorized to
apply any method or convention required or permitted by Code Section 704(c);
provided, however, that the Managing Partners shall select such method or
convention as, in their opinion, will take such variation fully into account.
Notwithstanding any other provision of this Section 14(d), the Managing
Partners shall apply Code Section 704(c) in respect of the Adjustment in a
manner that, to the greatest extent possible, results in the allocation of
Partnership Tax Items to HDAMC in each fiscal year in amounts no less favorable
<PAGE>9
than the allocations of General Profits or General Losses (or items thereof) to
HDAMC in such fiscal year. Further, if interests in the Partnership are
transferred to Equus (as that term is defined in Section 20(g)) and Equus is
treated as a partnership for federal income tax purposes, then the Partners
shall cause tax items of Equus to be allocated in a manner that preserves the
effect of the application of Code Section 704(c) described in the preceding
sentence. The allocations under this Section 14(d)(iii) are intended to comply
with paragraphs (b)(2)(iv)(f)(4) and (b)(4)(i) of Treas. Reg. Section 1.704-1
and shall be interpreted consistently with such regulation to effectuate such
intent.
(iv) In making the allocation among the Partners of gain or Profit,
the ordinary income portion, if any, of such gain or Profit caused by the
recapture of cost recovery or any other deductions shall be allocated among
those Partners who were previously allocated the cost recovery or any other
deductions in proportion to the amount of such deductions previously allocated
to them. It is intended that the Partners, as between themselves, shall bear
the burden of recapture caused by cost recovery or other deductions which were
previously allocated to them, in proportion to the amount of such deductions
which have been allocated to them, notwithstanding that a Partner's share of
Profits, Losses or liabilities may increase or decrease from time to time.
This Section 14(d)(iv) is intended to govern solely the character of certain
items allocated to a Partner for federal tax purposes and nothing contained in
this Section 14(d)(iv) is intended to change the amount of income (or other tax
items) allocated to any Partner.
Fifteen: Allocation of Losses. Losses of the Partnership shall be
allocated to the Partners in accordance with the provisions of this Section 15.
(a) Losses allocable to periods prior to September 30, 1991, shall be
allocated eighty percent (80%) to IGP and twenty percent (20%) to SUPRA.
(b) Losses allocable to periods after September 30, 1991, and prior to
December 15, 1993, shall be allocated forty-nine percent (49%) to IGP, thirty-
one percent (31%) to IBC and twenty percent (20%) to SUPRA.
(c) LDA Losses allocable to periods after December 15, 1993, shall be
allocated forty-nine percent (49%) to IGP, thirty-one percent (31%) to IBC and
twenty percent (20%) to SUPRA.
(d) General Losses allocable to periods after December 15, 1993, and
prior to July 21, 1994, shall be allocated forty-eight percent (48%) to IGP,
thirty-one percent (31%) to IBC, twenty percent (20%) to SUPRA and one percent
(1%) to HDAMC.
(e) General Losses allocable to periods after July 21, 1994, shall be
allocated among the Partners in proportion to their Percentage Partnership
Interests. Notwithstanding the preceding sentence, General Losses (i) that are
allocable to periods after July 21, 1994, (ii) that otherwise would be
allocated to Partners other than HDAMC under the preceding sentence, and (iii)
that are equal in an aggregate amount to fourteen percent (14%) of the General
Losses, if any, allocable to periods after December 15, 1993, and prior to July
21, 1994, shall be allocated to HDAMC. In applying the second sentence of this
Section 15(e), General Losses shall first be allocated among the Partners under
the first sentence of this Section 15(e) and any amounts allocated to HDAMC
under the second sentence shall be subtracted from the amounts of General
Losses allocated to Partners other than HDAMC under the first sentence in
proportion to the amounts otherwise allocated to such Partners. The Managing
<PAGE>10
Partners may make appropriate adjustments in allocating General Losses (or
items entering into the computation of General Losses) under this Section 15(e)
in the case where General Profits allocable to periods after December 15, 1993
and prior to July 21, 1994, are unlikely to be offset properly by allocations
to HDAMC of General Profits allocable to periods after July 21, 1994, under the
second and third sentences of Section 16(h).
(f) For purposes of this Section 15:
(i) The term "Losses allocable to periods prior to September 30,
1991" shall mean: (A) in the case of Partnership fiscal years ending on or
before September 30, 1991, the Losses for such fiscal year; and (B) in the case
of the Partnership fiscal year beginning before September 30, 1991, and ending
after September 30, 1991, the Losses for such fiscal year computed as if such
fiscal year ended on September 30, 1991.
(ii) The term "Losses allocable to periods after September 30, 1991,
and prior to December 15, 1993" shall mean: (A) in the case of the Partnership
fiscal year beginning before September 30, 1991, and ending after September 30,
1991, the Losses for such fiscal year computed as if such fiscal year began on
October 1, 1991; (B) in the case of Partnership fiscal years beginning after
September 30, 1991, and ending on or before December 15, 1993, the Losses for
such fiscal year; and (C) in the case of the Partnership fiscal year beginning
before December 15, 1993, and ending after December 15, 1993, the Losses for
such fiscal year multiplied by the percentage of such fiscal year prior to the
admission of HDAMC as a partner.
(iii) The term "LDA Losses allocable to periods after December 15,
1993" shall mean: (A) in the case of the Partnership fiscal year beginning
before December 15, 1993, and ending on or after December 15, 1993, the LDA
Losses for such fiscal year multiplied by the percentage of such fiscal year
after the admission of HDAMC as a partner; and (B) in the case of Partnership
fiscal years beginning on or after December 15, 1993, the LDA Losses for such
fiscal year.
(iv) The term "General Losses allocable to periods after December
15, 1993, and prior to July 21, 1994," shall mean: (A) in the case of the
Partnership fiscal year beginning before December 15, 1993, and ending on or
after December 15, 1993, the General Losses for such fiscal year multiplied by
the percentage of such fiscal year after the admission of HDAMC as a partner;
and (B) in the case of the Partnership fiscal year beginning before July 21,
1994 and ending on or after July 21, 1994, the General Losses for such year
multiplied by the percentage of such fiscal year prior to July 21, 1994.
(v) The term "General Losses allocable to periods after July 21,
1994," shall mean: (A) in the case of the Partnership fiscal year beginning
before July 21, 1994, and ending on or after July 21, 1994, the General Losses
for such fiscal year multiplied by the percentage of such fiscal year after
July 21, 1994; and (B) in the case of Partnership fiscal years beginning on or
after July 21, 1994, the General Losses for such fiscal year.
(g) Notwithstanding the other provisions of this Section 15, to the
greatest extent possible, the Managing Partners shall make such allocations of
Losses, LDA Losses, General Losses, or items of loss or deduction in accordance
with Section 19 as are necessary to implement the basic economic arrangement of
the Partners as described in Section 19.
<PAGE>
<PAGE>11
Sixteen: Special Allocations and Allocation of Profits. Certain items of
income or gain required to be allocated to a Partner under federal income tax
regulations and the Profits of the Partnership shall be allocated to the
Partners in accordance with the provisions of this Section 16.
(a) If there is a net decrease during a Partnership fiscal year in
Partnership Minimum Gain then, to the extent required by Treas. Reg. Section
1.704-2(f), each Partner shall be allocated items of Partnership income and
gain for that year (and, if necessary, for succeeding years) equal to that
Partner's share of the net decrease in Partnership Minimum Gain (within the
meaning of Treas. Reg. Section 1.704-2(g)(2)). It is the intent of the
Partners that this Section 16(a) constitute a Partnership Minimum Gain
Chargeback provision under Treas. Reg. Section 1.704-2(f) and be interpreted
consistently with such regulation to effectuate such intent.
(b) If there is a net decrease during a Partnership fiscal year in
Partner Nonrecourse Debt Minimum Gain then, to the extent required by Treas.
Reg. Section 1.704-2(i)(4), any Partner with a share of that Partner
Nonrecourse Debt Minimum Gain (as determined under Treas. Reg. Section
1.704-2(i)(5)) at the beginning of such fiscal year shall be allocated items of
Partnership income and gain for such fiscal year (and, if necessary, for
succeeding years) equal to that Partner's share of the net decrease in the
Partner Nonrecourse Debt Minimum Gain (within the meaning of Treas. Reg.
Section 1.704-2(i)(4)). It is the intent of the Partners that this Section
16(b) constitute a Partner Nonrecourse Debt Minimum Gain chargeback provision
under Treas. Reg. Section 1.704-2(i)(4) and be interpreted consistently with
such regulation to effectuate such intent.
(c) If any Partner unexpectedly receives an adjustment, allocation, or
distribution of the type contemplated by Treas. Reg. Section
1.704-1(b)(2)(ii)(d)(4), (5), or (6) that causes or increases a deficit in such
Partner's Adjusted Capital Account Balance items of Partnership income and gain
shall be allocated to all such Partners in proportion to such deficits being
offset to eliminate such deficits as quickly as possible. It is the intent of
the Partners that this Section 16(c) constitute a qualified income offset
provision under Treas. Reg. Section 1.704-1(b)(2)(ii)(d) and be interpreted
consistently with such regulation to effectuate such intent.
(d) Profits allocable to periods prior to September 30, 1991, shall be
allocated eighty percent (80%) to IGP and twenty percent (20%) to SUPRA.
(e) Profits allocable to periods after September 30, 1991, and prior to
December 15, 1993, shall be allocated forty-nine percent (49%) to IGP, thirty-
one percent (31%) to IBC and twenty percent (20%) to SUPRA.
(f) LDA Profits allocable to periods after December 15, 1993, shall be
allocated forty-nine percent (49%) to IGP, thirty-one percent (31%) to IBC and
twenty percent (20%) to SUPRA.
(g) General Profits allocable to periods after December 15, 1993, and
prior to July 21, 1994, shall be allocated forty-eight percent (48%) to IGP,
thirty-one percent (31%) to IBC, twenty percent (20%) to SUPRA and one percent
(1%) to HDAMC.
<PAGE>
<PAGE>12
(h) General Profits allocable to periods after July 21, 1994, shall be
allocated among the Partners in proportion to their Percentage Partnership
Interests. Notwithstanding the preceding sentence, General Profits (i) that
are allocable to periods after July 21, 1994, (ii) that otherwise would be
allocated to Partners other than HDAMC under the preceding sentence, and (iii)
that are equal in an aggregate amount to fourteen percent (14%) of the General
Profits, if any, allocable to periods after December 15, 1993, and prior to
July 21, 1994, shall be allocated to HDAMC. In applying the second sentence of
this Section 16(h), General Profits shall first be allocated among the Partners
under the first sentence of this Section 16(h) and any amounts allocated to
HDAMC under the second sentence shall be subtracted from the amounts of General
Profits allocated to Partners other than HDAMC under the first sentence in
proportion to the amounts otherwise allocated to such Partners. The Managing
Partners may make appropriate adjustments in allocating General Profits (or
items entering into the computation of General Profits) under this Section
16(h) in the case where General Losses allocable to periods after December 15,
1993 and prior to July 21, 1994, are unlikely to be offset properly by
allocations to HDAMC of General Losses allocable to periods after July 21,
1994, under the second and third sentences of Section 15(e).
(i) For purposes of this Section 16:
(i) The term "Adjusted Capital Account Balance" means a Partner's
capital account balance (a) increased by any amount that such Partner is
obligated to restore under Treas. Reg. Section 1.704-1(b)(2)(ii)(c) (including
any addition thereto pursuant to the next to last sentences of Treas. Reg.
Section 1.704-2(g)(1) and (i)(5) after taking into account thereunder any
changes during such fiscal year in Partnership Minimum Gain and in Partner
Nonrecourse Debt Minimum Gain) and (b) decreased by any adjustments,
allocations, and distributions specified in Treas. Reg. Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6) as are reasonably expected to be made to
such Partner. A distribution or allocation will result in a Partner having a
deficit Adjusted Capital Account Balance to the extent such distribution or
allocation either will create or increase a deficit balance in such Partner's
capital account after making the adjustments described in the preceding
sentence.
(ii) The terms "Partnership Minimum Gain" and "Partner Nonrecourse
Debt Minimum Gain" shall have the meaning set forth in Treas. Reg. Section
1.704-2(d) and (i)(3), respectively.
(iii) The term "Profits allocable to periods prior to September 30,
1991" shall mean: (A) in the case of Partnership fiscal years ending on or
before September 30, 1991, the Profits for such fiscal year; and (B) in the
case of the Partnership fiscal year beginning before September 30, 1991, and
ending after September 30, 1991, the Profits for such fiscal year computed as
if such fiscal year ended on September 30, 1991.
(iv) The term "Profits allocable to periods after September 30, 1991,
and prior to December 15, 1993" shall mean: (A) in the case of the Partnership
fiscal year beginning before September 30, 1991, and ending after September 30,
1991, the Profits for such fiscal year computed as if such fiscal year began on
October 1, 1991; (B) in the case of Partnership fiscal years beginning after
September 30, 1991, and ending on or before December 15, 1993, the Profits for
such fiscal year; and (C) in the case of the Partnership fiscal year beginning
before December 15, 1993, and ending after December 15, 1993, the Profits for
such fiscal year multiplied by the percentage of such fiscal year prior to the
admission of HDAMC as a partner.
<PAGE>13
(v) The term "LDA Profits allocable to periods after December 15,
1993" shall mean: (A) in the case of the Partnership fiscal year beginning
before December 15, 1993, and ending on or after December 15, 1993, the LDA
Profits for such fiscal year multiplied by the percentage of such fiscal year
after the admission of HDAMC as a partner; and (B) in the case of Partnership
fiscal years beginning on or after December 15, 1993, the LDA Profits for such
fiscal year.
(vi) The term "General Profits allocable to periods after December
15, 1993, and prior to July 21, 1994," shall mean: (A) in the case of the
Partnership fiscal year beginning before December 15, 1993, and ending on or
after December 15, 1993, the General Profits for such fiscal year multiplied by
the percentage of such fiscal year after the admission of HDAMC as a partner;
and (B) in the case of the Partnership fiscal year beginning prior to July 21,
1994, and ending on or after July 21, 1994, the General Profits for such fiscal
year multiplied by the percentage of such fiscal year prior to July 21, 1994.
(vii) The term "General Profits allocable to periods after July 21,
1994," shall mean: (A) in the case of the Partnership fiscal year beginning
before July 21, 1994, and ending on or after July 21, 1994, the General Profits
for such fiscal year multiplied by the percentage of such fiscal year after
July 21, 1994; and (B) in the case of Partnership fiscal years beginning on or
after July 21, 1994, the General Profits for such fiscal year.
(j) Notwithstanding the other provisions of this Section 16, to the
greatest extent possible, the Managing Partners shall make such allocations of
Profits, LDA Profits, General Profits or items of income or gain in accordance
with Section 19 as are necessary to implement the basic economic arrangement of
the Partners as described in Section 19.
Seventeen: Capital Accounts. Separate capital accounts shall be
maintained for each Partner. All allocations of Partnership income, gain,
Profit and Loss and all capital contributions by and all distributions to the
Partners shall be credited or charged, as the case may be, to the separate
capital accounts of the Partners in accordance with this Section 17.
(a) The capital accounts of each Partner shall be increased by:
(i) The amount of any cash contributed to the Partnership by or on
behalf of such Partner (including the Contingent Contribution);
(ii) The fair market value of any property other than cash
contributed to the Partnership by or on behalf of such Partner; and
(iii) The amount of any Profits, LDA Profits, General Profits or
items of income or gain allocated to such Partner under Section 16 of this
Agreement or to such Partner under a similar provision in a predecessor
Partnership agreement of the Partners.
(b) The capital accounts of each Partner shall be reduced by:
(i) The amount of any cash distributed to such Partner,
(ii) The fair market value of any property other than cash
distributed to such Partner; and
<PAGE>
<PAGE>14
(iii) The amount of any Losses, LDA Losses, General Losses or items
of deduction or loss allocated to such Partner under Section 15 of this
Agreement or to such Partner under a similar provision in a predecessor
Partnership agreement of the Partners.
(c) If any property other than cash is distributed to a Partner, the
capital accounts of the Partners shall be adjusted to reflect the manner in
which gain or loss that has not previously been reflected in the capital
accounts would be allocated among the Partners under Sections 15 and 16 of this
Agreement if the distributed property had been sold by the Partnership for a
price equal to its fair market value on the date of distribution.
(d) The Managing Partners may, upon the occurrence of one of the events
described in Section 17(d)(ii), increase or decrease the capital accounts of
the Partners in accordance with Section 17(d)(i) to reflect a revaluation of
Partnership property.
(i) Any adjustments made under this Section 17(d) shall reflect the
manner in which the unrealized income, gain, loss, or deduction inherent in
Partnership property (to the extent that it has not been reflected in the
capital accounts previously) would be allocated among the Partners under
Sections 15 and 16 if the Partnership had sold all of its property for its fair
market value on the date of adjustment. The adjustments described in this
Section 17(d)(i) shall be based on the fair market value of Partnership
property on the date of adjustment.
(ii) The Managing Partners may make the capital account adjustments
described in this Section 17(d) upon the occurrence of the following events:
(A) a contribution of money or other property (other than a de minimis amount)
to the Partnership by a new or existing Partner as consideration for an
interest in the Partnership; (B) a distribution of money or other property
(other than a de minimis amount) by the Partnership to a retiring or continuing
Partner as consideration for an interest in the Partnership; or (C) the
liquidation of the Partnership.
(iii) The adjustments described in this Section 17(d) are intended
to comply with Treas. Reg. Section 1.704-1(b)(2)(iv)(f) and shall be
interpreted consistently with such regulation to effectuate such intent. See
Section 14(b)(iv) for special rules for the computation of Profits and Losses
in the case of an Adjustment under this Section 17(d).
(iv) The Adjustment constitutes an event described in Section
17(d)(ii)(A) and the Managing Partners shall make the adjustments described in
Section 17(d)(i) as of July 21, 1994. It is anticipated that the capital
account of each Partner, after taking into account (1) any adjustments to the
capital account under Sections 17(a)(iii) and 17(b)(iii) to be made in order to
reflect Partnership operations up to and including the Adjustment, as well as
future allocations of LDA Profits, LDA Losses, General Profits (but only until
the allocations made under the second sentence of Section 16(h) have been given
full effect), and General Losses (but only until the allocations made under the
second sentence of Section 15(e) have been given full effect), (2) the
adjustments described in Section 17(d)(i), (3) the adjustments under Section
17(a)(i) to reflect the Contingent Contribution, and (4) prior and future
adjustments under Sections 17(b)(i) and 17(b)(ii) that have been or are
expected to be made in order to reflect any distribution described in Sections
18(b) 18(c), 18(d), and 18(e), shall be in proportion to such Partner's
Percentage Partnership Interest immediately after the Adjustment. In
accordance with Section 19, the Managing Partner shall take such steps as are
<PAGE>15
necessary, consistent with Treas. Reg. Section 1.704-1(b)(2)(iv)(f), to achieve
the anticipated result specified in the preceding sentence, including
correcting the aggregate adjustment under Section 17(d)(i) and making special
allocations of items of income, gain, loss, or deduction among the Partners
under Section 19 in order to reflect properly the basic economic arrangement of
the Partners as described in Section 19.
(e) The Managing Partners shall have the authority to make such changes
in the allocations of Profits or Losses to the Partners under Sections 15 and
16 of this Agreement, and to make such adjustments to the capital accounts of
IGP, IBC and HDAMC as is necessary in order that the allocations of Profits or
Losses to IGP, IBC and HDAMC have substantial economic effect (or are otherwise
recognized for United States federal tax purposes) and are consistent with the
economic arrangement of the Partners. The allocations set forth in Sections
16(a), 16(b), and 16(c), and such part of the allocations under Section 15 that
constitute Nonrecourse Deductions and Partner Nonrecourse Deductions (within
the meaning of Treas. Reg. Section 1.704-2(c) and (i)(2), respectively),
together with allocations made under similar provisions in a predecessor
Partnership agreement of the Partners (collectively referred to as the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations promulgated under Code Section 704(b). It is the
intent of the Partners that, to the greatest extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 17(e). Therefore, notwithstanding any other
provisions of Sections 15 and 16 (other than the Regulatory Allocations), the
Managing Partners shall make such offsetting special allocations of income,
gain, loss, or deductions in whatever manner they determine appropriate so
that, after the Regulatory Allocations and such offsetting allocations are
made, each Partner's capital account balance is, to the greatest extent
possible, equal to the capital account balance such Partner would have had if
the Regulatory Allocations were not part of the Partnership Agreement and all
Partnership items were allocated pursuant to Sections 15 and 16 (without regard
to the Regulatory Allocations). In exercising its discretion under this
Section 17(e) the Managing Partners shall take into account future Regulatory
Allocations that, although not yet made, are likely to offset other Regulatory
Allocations previously made to the extent that taking into account such future
Regulatory Allocations would not affect the economic arrangement of the
Partners. The preceding two sentences are intended to eliminate, to the
greatest extent possible, any economic distortions which may result from
application of the Regulatory Allocations and shall be interpreted in a manner
consistent therewith.
(f) Notwithstanding anything herein to the contrary, it is the
understanding and intent of the Partners that none of the provisions described
in Sections 14, 15, 16, 17, 18, 19, 23(c) and 24 hereof relating to the
determination, recognition, definition and allocation of income, gain, profits,
losses, deductions, capital accounts, basis, distributions, and other economic
interests for federal income tax purposes (including, but not limited to,
allocations made to comply with Treas. Reg. Section 1.704-1 and 1.704-2 and
allocations made to minimize any economic distortions arising therefrom) shall:
(1) affect the otherwise applicable rules and regulations to SUPRA under the
laws of Puerto Rico; (2) adversely affect any allocation of income, gain,
profits, losses, deductions, capital accounts, basis, distributions and other
economic interests that SUPRA is entitled to receive under the laws of Puerto
Rico; or (3) subject SUPRA to any liabilities for federal income taxes; and in
order to comply with this subsection (f), the Managing Partners shall take all
<PAGE>16
necessary actions and make any necessary adjustment and allocation to the
Partnership accounts as are necessary to implement and comply with the terms of
this subsection (f) and to reflect properly the implementation of this
subsection (f). It is the intent of the Partners that this subsection (f)
clarifies that SUPRA's economic interest in the Partnership, as determined by
the basic economic arrangement of the Partners, will not be affected by any
provision related to federal income taxes.
The Partnership Accountants shall annually provide SUPRA, together with a
copy of the annual financial statement for each fiscal year, a statement
certifying any allocation and adjustment made at year end to SUPRA's interest
and account in the Partnership which were necessary to reflect, and conform
such interest and account with, the full implementation of this subsection (f),
pursuant to the laws of Puerto Rico, to SUPRA's interest and accounts,
including the year-end balances of such accounts and SUPRA's capital account as
a result thereof.
Eighteen: Cash Distributions.
(a) To the extent permitted by the Annual Tax Payment Agreement as
defined in that certain indenture by and among the Partnership, the
Partnership's subsidiary, El Comandante Capital Corp., and Banco Popular de
Puerto Rico, as Trustee, dated as of December 15, 1993, (the "Indenture"),
during the period beginning seventy-five (75) days after the beginning of each
fiscal year of the Partnership and ending seventy-five (75) days after the end
of such fiscal year, the Partnership shall distribute to the Partners an amount
equal to the product of (i) the Partnership's net income for such fiscal year
determined in accordance with generally accepted accounting principles,
consistently applied, and (ii) the highest of the then applicable highest
United States federal or Puerto Rico personal or corporate income tax rate (the
"Highest Tax Rate"). Any such distribution shall be made in proportion to
their Percentage Partnership Interest; provided, however, that appropriate
adjustments will be made to reflect the fact that HDAMC does not share in the
LDA Losses and LDA Profits and the special allocation of General Profits under
the second sentence of Section 16(h) and General Losses under the second
sentence of Section 15(e).
(b) As soon as practicable after the date of this Agreement, the
Partnership shall make a distribution to HDAMC in an aggregate amount equal to
the amount in the Hold-Back Account as defined in Section 18(g) below.
(c) To the extent permitted by the Indenture, the Partnership shall make
distributions of funds attributable to the LDA receivable (to the extent that
such funds have not been distributed under Section 18(a)) to IGP, IBC and SUPRA
in such amounts and at such times as shall be determined by IGP; provided,
however, that (i) no distribution shall be made under this Section 18(c) until
all advances made by the Partners pursuant to Section 8 of this Agreement,
together with any interest accrued thereon, shall have been paid and (ii) all
distributions under this Section 18(c) shall be made forty-nine percent (49%)
to IGP, thirty-one percent (31%) to IBC and twenty percent (20%) to SUPRA. For
purposes of the preceding sentence, a distribution of the LDA receivable or a
portion thereof shall be treated as a distribution of funds attributable to the
LDA receivable.
(d) To the extent permitted by the Indenture, the Partnership shall make
a distribution out of the proceeds from the loan issued by El Comandante
Capital Corp. to the Partnership in connection with the issuance of the El
Comandante Capital Corp. 11.75% First Mortgage Notes (the "Notes"), forty-nine
<PAGE>17
percent (49%) to IGP, thirty-one percent (31%) to IBC and twenty percent (20%)
to SUPRA (the "Closing Distribution").
(e) To the extent permitted by the Indenture, after HDAMC is admitted to
the Partnership and prior to the Adjustment, the Partnership shall make cash
distributions of funds that are not attributable to the LDA receivable (to the
extent that such funds have not been distributed under Section 18(a)) to the
Partners in such amounts and at such times as shall be determined by the
Managing Partners; provided, however, that (i) no distribution shall be made
under this Section 18(e) until all advances made by the Partners pursuant to
Section 8 of this Agreement, together with any interest accrued thereon shall
have been paid, and (ii) all distributions under this Section 18(e) shall be
made to the Partners in proportion to their Percentage Partnership Interests
under the Third Amended and Restated Partnership Agreement.
(f) To the extent permitted by the Indenture, after the Adjustment, the
Partnership shall make cash distributions of funds that are not attributable to
the LDA receivable (to the extent that such funds have not been distributed
under Sections 18(a) or (e)) to the Partners in such amounts and at such times
as shall be determined by the Managing Partners; provided, however, that (i) no
distribution shall be made under this Section 18(f) until all advances made by
the Partners pursuant to Section 8 of this Agreement, together with any
interest accrued thereon, shall have been paid, and (ii) all distributions
under this Section 18(f) shall be made to the Partners in proportion to their
Percentage Partnership Interests. In any year in which there has been a change
in the Percentage Partnership Interests of the Partners (other than changes
made by the Adjustment), distributions shall be made under this Section 18(f)
to reflect properly such change.
(g) In determining the amount available under Sections 18(e) or (f) for
distribution to the Partners in respect to a fiscal year, the Managing Partners
shall take into consideration the anticipated needs of the Partnership for
working capital and future expansion, amounts needed to pay or reserve against
existing and anticipated operating expenses and obligations, and such other
factors as the Managing Partners deem relevant, including the reserve for
contingencies. Until the Racing Board has approved or denied the Adjustment,
the Managing Partners shall hold an amount equal to fifteen percent (15%) of
the amount otherwise available for distribution under Section 18(e) in a
separate account (the "Hold-Back Account") and shall not distribute the funds
in the Hold-Back Account until the Racing Board approves or denies the
Adjustment.
Nineteen: Economic Arrangement of the Partners. It is the intent of the
Partners that all distributions of cash or other property, including amounts
distributed upon liquidation of the Partnership, shall be made in accordance
with the basic economic arrangement of the Partners. The basic economic
arrangement of the Partners is as follows: (i) the distribution of all funds
attributable to the LDA receivable shall be made in accordance with Section
18(c); (ii) the Closing Distribution shall be made in accordance with Section
18(d); and (iii) the Net Distributions (as defined in the next sentence) shall
be made in proportion to each Partner's Percentage Partnership Interests
immediately after the Adjustment (or, if the Adjustment does not occur, in
proportion to each Partner's Percentage Partnership Interests immediately after
HDAMC is admitted to the Partnership). For purposes of the preceding sentence,
the term "Net Distributions" at any time shall mean the net amount of all
distributions that have been made or are expected to be made after HDAMC is
admitted to the Partnership (including distributions to be made in liquidation
of the Partnership) other than those specified in clauses (i) and (ii) of this
<PAGE>18
Section 19. In order to reflect properly the basic economic arrangement of the
Partners, the Managing Partners shall, to the extent possible, make special
allocations of Profits, Losses, LDA Profits, LDA Losses, General Profits,
General Losses, and items of income, deduction, gain, or loss under Sections
15(g) and 16(j) as are necessary to properly reflect the basic economic
arrangement of the Partners as described in clauses (i), (ii), and (iii) of
this Section 19. In applying the preceding sentence the Managing Partners
shall take into account the requirement under Section 23(c) that liquidating
distributions are to be made in accordance with capital account balances and
the adjustments that are to be made to the capital accounts under Section 17,
including adjustments to be made under Section 17(d) and the adjustments to be
made under Sections 17(a) and 17(b) to reflect contributions, distributions and
the allocations of items under Sections 15 and 16 (including those made under
Sections 15(g) and 16(j) pursuant to this Section 19).
Twenty: Transfer of Interests.
(a) Except as provided in this Section, the Partners may transfer their
Partnership Interests subject to a right of first refusal exercisable by the
Partnership. The transferring Partner is required to advise the Partnership by
written notice of the price, terms and conditions of a third-party bona fide
written offer to purchase any Partnership Interest at least sixty (60) days
prior to the proposed transfer. Said right of first refusal shall be
exercisable by the Partnership at the price and on the terms and conditions set
forth in such written offer and the Partnership must notify the transferring
Partner of its intention to purchase its Partnership Interest at least thirty
(30) days prior to the proposed date of transfer. In the case of a gratuitous
transfer of a Partnership Interest, said right of first refusal shall be at
fair market value as determined by an independent appraisal. Until admitted to
the Partnership as a Partner, a transferee of an interest in the Partnership
pursuant to this Section 20 shall be entitled to receive the distributions from
this Partnership to which the transferor would otherwise be entitled but shall
not become entitled to exercise any rights of a Partner. However, in the case
of any purported transfer not permitted under any other subsection of this
Section 20, the purported transfer shall be void and the purported transferee
shall not receive any distribution. Notwithstanding any other provision of
this Section 20, a transferee of an interest in this Partnership shall be
admitted as a Partner only with the consent of both Managing Partners, which
consent may be given or withheld in the sole and absolute discretion of the
Managing Partners. A Partner shall cease to be a Partner upon the transfer of
all of its interest in the Partnership.
(b) Unless both Managing Partners consent to the transfer, no Partner
shall transfer a Partnership Interest to any other person to the extent that
such transfer, if effected, would cause a termination of the Partnership for
federal income tax purposes under Code Section 708(b). Unless both Managing
Partners consent to the transfer, any attempt to transfer a Partnership
Interest that, if effected, would cause a termination of the Partnership is not
effective to transfer the Partnership Interest to the purported transferee
thereof and the purported transferee shall not be entitled to any rights as a
Partner of the Partnership.
(c) IGP and IBC may not transfer, in the aggregate, more than a forty-one
and one-half percent (41-1/2%) interest in the Partnership prior to the first
anniversary of the closing of the offering of the Notes (the "Closing"). HDAMC
may not transfer any of its interest prior to the first anniversary of the
Closing. After the first anniversary of the Closing, IGP, IBC and HDAMC may
not transfer an interest in the Partnership (hereinafter referred to as the
<PAGE>19
"Interstate Subject Transfer") if such interest when combined with all other
interests transferred by IGP, IBC or HDAMC within one (1) year of such
Interstate Subject Transfer would exceed a forty-one and one-half percent (41-
1/2%) interest in the Partnership in the aggregate. If, as permitted under the
Third Amended and Restated Partnership Agreement, Supra has transferred more
than an eight-percent (8%) interest in Partnership prior to the first
anniversary of the Closing, then (i) IGP and IBC may not transfer more than a
forty and one-half percent (40-1/2%) interest prior to the first anniversary of
the Closing, (ii) IGP, IBC and HDAMC may transfer a thirty-nine and one-half
percent (39-1/2%) interest after the expiration of one (1) year from the
transfer of the forty and one-half percent (40-1/2%) interest; and (iii) IGP,
IBC and HDAMC may transfer an additional three-percent (3%) interest upon the
expiration of one (1) year from first date on which Supra has transferred since
the Closing a three-percent (3%) interest.
(d) SUPRA may not transfer more than an eight-percent (8%) interest in
the Partnership prior to the first anniversary of the Closing. After the first
anniversary, SUPRA may not transfer any interest in the Partnership
(hereinafter referred to as the "Supra Subject Transfer") if such interest when
combined with all other interests transferred by SUPRA within one (1) year of
such Supra Subject Transfer would exceed an eight-percent (8%) interest in the
Partnership in the aggregate. If, as permitted under the Third Amended and
Restated Partnership Agreement, Supra transfers more than an eight-percent (8%)
interest in the Partnership prior to the first anniversary of the Closing,
Supra may not transfer any interest in the Partnership (hereinafter referred to
as the "Alternative Supra Subject Transfer") if such interests when combined
with all other interest transferred by Supra within one (1) year of such
Alternative Supra Subject Transfer would exceed a six-percent (6%) interest in
the Partnership in the aggregate.
(e) If, prior to the first anniversary of the Closing, SUPRA has not
transferred any interest in the Partnership and does not have a commitment from
a buyer to acquire an interest in the Partnership and IGP and IBC have
transferred a forty-one and one-half percent (41-1/2%) interest in the
Partnership, then IGP, IBC and HDAMC and SUPRA shall not be subject to the
limitations imposed by subsection (c) and (d), as the case may be, and shall be
subject to the limitations imposed by this Section 20(e). In such a
circumstance, IGP, IBC and HDAMC may transfer up to an additional eight-percent
(8%) interest in the Partnership prior to the second anniversary of the
Closing. IGP, IBC and HDAMC may not transfer any more interests in the
Partnership until one (1) year has elapsed since the transfer of the forty-one
and one-half percent (41-1/2%) interest in the Partnership. In addition, SUPRA
may not transfer an interest in the Partnership until one (1) year has elapsed
following the date on which IGP, IBC and HDAMC have transferred the additional
eight-percent interest (8%) in the Partnership. Upon the expiration of the
one-year period, SUPRA may not transfer an interest if such interest when
combined with all other interests transferred by SUPRA within one (1) year of
the transfer would exceed a sixteen-percent (16%) interest in the Partnership
in the aggregate.
(f) Subsections (c), (d) and (e), above, are not intended to waive any
other provision of this Section 20, including in particular subsection (b). To
the extent necessary to comply with subsection (b), the interests that IGP, IBC
and HDAMC may transfer in any one (1) year period may be reduced by any
interest transferred or deemed to be transferred in connection with the Closing
or Adjustment.
<PAGE>
<PAGE>20
(g) If IGP or IBC transfers an interest in the Partnership to Equus
Gaming Company, its successor or its affiliate ("Equus"), then, unless
precluded from doing so under this Section 20, HDAMC shall transfer its entire
interest at one time, and may not make a transfer of less than its entire
interest, to Equus in exchange for an equity interest in Equus with a fair
market value equal to the greater of (i) the fair market value of HDAMC's
interest in the Partnership on the date of transfer or (ii) the sum of (x) one-
half of the fair market value on the date of the transfer of the interest that
HDAMC would have received if HDAMC had transferred its entire interest in the
Partnership to Equus on the date that Equus became a Qualified Public Company
(as that term is defined in the offering memorandum issued in connection with
the Closing) and (y) one-half of the fair market value of HDAMC's interest in
the Partnership on the date of transfer. The fair market value of the
interests will be determined by an independent financial expert.
(h) Any person that acquires a Partnership interest from IGP, IBC, HDAMC
or SUPRA may not transfer such interest within two (2) years of the date on
which IGP or IBC first transfers an interest in the Partnership to Equus
without the consent of the Managing Partners.
Twenty-One: Indemnification.
The Partnership shall indemnify, to fullest extent of Puerto Rico law, the
Managing Partners and their shareholders, partners, directors, officers,
employees, and agents against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by any
of those persons in connection with any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, if such person's actions did not constitute gross negligence,
willful misconduct or fraud.
Twenty-Two: Termination of the Partnership.
(a) The Partnership may be terminated at any time by the mutual agreement
of all the Partners.
(b) The Partnership shall be terminated if a Managing Partner is
adjudicated bankrupt or insolvent, or if an assignment of its assets is made
for the benefit of its creditors, or if a trustee is appointed to take care of
its assets, or if a voluntary petition for relief in bankruptcy is filed by
such Managing Partner.
(c) Upon the termination of the Partnership on account of an event
described in subsection (b) above, a majority in interest of the Partners other
than such Managing Partner shall have a right of first refusal to purchase the
assets of the Partnership at their then fair market value as determined by
independent appraisal.
Twenty-Three: Liquidation of Partnership. Upon termination of the
Partnership for any reason, the Partnership shall continue its business solely
for the purpose of winding up its affairs and shall be liquidated as rapidly as
business judgment permits. All decisions with respect to the disposition of
the Partnership's assets, collections, or compromise of any amounts receivable
and payment or compromise of any amounts payable by the Partnership, shall be
made by the Managing Partners. The assets of the Partnership shall be applied
for the following in the following manner:
<PAGE>
<PAGE>21
(a) First, to the payment or provision for payment of all debts and
obligations of the Partnership to creditors, other than the Partners, and for
the expenses of winding up the affairs of the Partnership.
(b) Second, to the payment of all amounts payable by the Partnership to
the Partners, other than in respect to Partners' capital accounts.
(c) Third, all remaining assets of the Partnership shall be distributed
to the Partners in accordance with the positive balance in each Partner's
capital account as adjusted under Section 17 to reflect all Partnership
operations up to and including the liquidation.
Twenty-Four: Amendments.
(a) Except as provided in subsection (b) below, amendments to this
Agreement require the prior approval of all Partners.
(b) Acting jointly, the Managing Partners, after thirty (30) days notice
to the Partners and subject to subsection (c) below, may amend this Agreement,
without the approval of the other Partners: (i) to change the name of the
Partnership or its registered agent or registered office or the location of its
principal registered office; (ii) to make any change necessary or advisable in
the good faith opinion of the Managing Partners to ensure that the Partnership
will not be treated as an association taxable as a corporation for federal
income tax purposes and will remain qualified as a special partnership under
the ITA; (iii) to make any change that is necessary or desirable to satisfy any
requirements contained in any opinion, directive, order, ruling or regulation
of any federal or state agency (including the Puerto Rico Racing Board),
compliance with which the Managing Partners in their good faith judgment deem
to be in the best interests of the Partnership and the Partners; (iv) to make
any change that is required to bring the Partnership into compliance with the
Puerto Rico Racing Industry and Sport Act; (v) to make any change necessary or
desirable in the good faith opinion of the Managing Partners to facilitate the
public trading of Partnership interests including changes that may be necessary
to ensure that the Partnership interests may qualify as Listed Securities (as
that term is defined in the offering memorandum issued in connection with the
Closing) provided that any such change that has a material adverse effect on
distributions and allocations of profits and losses to HDAMC in a manner that
is inequitable or disproportionate between the Partners will require the
consent of two-thirds of the number of outstanding shares of Class A Stock of
HDAMC and shares of Class A Stock of HDAMC for which outstanding warrants are
then exercisable; (vi) to make any change to reflect the reduction of HDAMC's
interest in the Partnership as a result of the Partnership performing its
guarantee obligations under the warrant agreement between the Partnership,
HDAMC and Banco Popular de Puerto Rico as warrant agent (the "Warrant
Agreement"); (vii) to make any change that is of an inconsequential nature and
does not affect the Partners in any material respect; and (viii) to make any
other changes similar to the foregoing.
(c) Notwithstanding the foregoing, the Managing Partners may not amend
the Partnership Agreement in any manner that would disproportionately and
inequitably affect the interests of the Partners without the consent of
Partners holding seventy percent (70%) of the Percentage Interests of the
Partnership.
Twenty-Five: Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matters hereof.
<PAGE>22
Twenty-Six: Notices. Any and all notices or other communication or
deliveries required or permitted to be given pursuant to any of the provisions
of this Agreement, shall be deemed to have been duly given for all purposes to
be sent by certified or registered mail, return receipt requested, and postage
pre-paid, hand delivered or sent by telegraph or telex to the parties hereto at
the following addresses: (a) IGP: P.O. Box 363908, San Juan, Puerto Rico
00936-3908; (b) SUPRA: P.O. Box 362528, San Juan, Puerto Rico 00936-2528;
(c) IBC: 222 Smallwood Village Center, St. Charles, Maryland 20602; and HDAMC:
P.O. Box 363908, San Juan, Puerto Rico 00936-3908, or at such other address as
any Partner may have specified by notice given to the other Partners in
accordance with this section. The date of giving any such notice shall be the
date the same is deposited in the mail, as such date appears in the postage
cancellation affixed by the United States Postal Service.
Twenty-Seven: Waiver of Provisions. No waiver of the provisions hereof
shall be effective unless in writing and signed by the party to be charged with
such waiver. No waiver shall be deemed a continuing waiver or waivers in
respect of any subsequent breach or default, of either a similar or different
nature, unless expressly so stated in writing.
Twenty-Eight: Separability. Should any clause, section or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, sections or parts of this Agreement which can be affected without the
illegal clause, section or part, shall nevertheless continue in full force and
effect.
Twenty-Nine: Governing Law. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the Commonwealth of
Puerto Rico. It is the intention of the parties that the Partnership be
governed by the provisions of Special Partnerships of the Civil Code of Puerto
Rico. The Partnership shall file with the Secretary of the Treasury of the
Commonwealth of Puerto Rico its option to have the Partnership operate as a
Special Partnership under the provisions of Act Number 8 of July 1985, as may
be amended from time to time.
Thirty: Jurisdiction of Courts. Each of the parties hereto consents to
the jurisdiction of the Courts of the Commonwealth of Puerto Rico, with respect
to any matter arising under this Agreement, and shall subject itself to the
jurisdiction of such Courts and agrees that service of process upon it, may be
made in any matter permitted by the laws of the Commonwealth of Puerto Rico.
Thirty-One: Successors. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
Thirty-Two: Headings. The headings or captions under sections of this
Agreement are for convenience and reference only and do not in any way modify
or interpret or construe the intent of the parties to affect any of the
provisions of this Agreement.
Thirty-Three: Certain Terms. The use of the term Partner in this
document shall be understood to include and mean the singular and/or plural as
the identity of the parties or the situation so requires.
<PAGE>
<PAGE>23
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date and year first above written.
INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP S.E.
By: INTERSTATE GENERAL COMPANY L.P.
Its General Partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION
Its Managing General Partner
By: /s/ Donald G. Blakeman
-----------------------------
Donald G. Blakeman
Executive Vice President
SUPRA AND COMPANY S.E.
By: SUPRA DEVELOPMENT CORP.
Its Managing Partner
By: /s/ Ruben Velez Lebron
-----------------------------
Ruben Velez Lebron
President
INTERSTATE BUSINESS CORPORATION
By: /s/ Gretchen Gronau
-----------------------------
Gretchen Gronau
Assistant Treasurer
HDA MANAGEMENT CORPORATION
By: /s/ Donald G. Blakeman
-----------------------------
Donald G. Blakeman
President
<PAGE>
<PAGE>24
Affidavit No. 44
Subscribed before me by Donald G. Blakeman, of legal age, married and
resident of San Juan, Puerto Rico, in his capacity as Executive Vice President
of Interstate General Management Corporation, the Managing General Partner of
Interstate General Company L.P., the Managing General Partner of Interstate
General Properties Limited Partnership S.E., and President of HDA Management
Corporation; Gretchen Gronau, of legal age, married and resident of San Juan,
Puerto Rico, in her capacity as Assistant Treasurer of Interstate Business
Corporation, and Ruben Velez Lebron, of legal age, married and resident of
Guaynabo, Puerto Rico, in his capacity as President of SUPRA Development Corp.,
the Managing Partner of SUPRA & Company S.E., to me personally known at
Bayamon, Puerto Rico, this 1st day of August, 1994.
/s/ Armando Martinez Fernandez
-------------------------------------
NOTARY PUBLIC
<PAGE>1
EXHIBIT 10(c)
FIFTH AMENDED AND RESTATED PARTNERSHIP AGREEMENT
HOUSING DEVELOPMENT ASSOCIATES, S.E.
Dated: August 1, 1994
<PAGE>
<PAGE>2
This amended and restated partnership agreement (hereinafter referred to
as the "Agreement") is made effective as of the first day of August, 1994
(hereinafter referred to as the "Fifth Amendment Date"), by and between
INTERSTATE GENERAL PROPERTIES LIMITED PARTNERSHIP S.E., a limited partnership
duly organized and existing under the laws of the State of Maryland
(hereinafter referred to as "IGP"), and SUPRA AND COMPANY S.E., a special
partnership organized and existing under the laws of the Commonwealth of Puerto
Rico (hereinafter referred to as "SUPRA") and HDA MANAGEMENT CORPORATION, a
corporation organized and existing under the laws of the State of Delaware
(hereinafter referred to as "HDAMC") and EQUUS GAMING COMPANY L.P., a limited
partnership organized and existing under the laws of the Commonwealth of
Virginia (hereinafter referred to as "Equus") and constitutes a restatement of
the Deed of Constitution of Special Partnership executed by certain of said
parties as of the 14th day of February, 1989, including any amendments thereof
(hereinafter referred to as the "Deed").
WHEREAS
As of February 14, 1989, IGP and SUPRA (collectively the "Initial
Partners") executed a Deed of Constitution of Special Partnership whereby they
formed a special partnership (hereinafter the "Partnership") for the purpose of
conducting the business of land development in general, building and sale of
residential and/or commercial properties, the ownership of a race track, and
the leasing of buildings and structures.
As of April 15, 1992, IGP, SUPRA and Interstate Business Corporation, a
corporation organized and existing under the laws of the State of Delaware
(hereinafter referred to as "IBC") subscribed a "Second Amended and Restated
Partnership Agreement" whereby IBC was admitted to the Partnership with a
thirty-one percent (31%) ownership interest as of September 30, 1991.
As of December 15, 1993, IGP, SUPRA, IBC and HDAMC subscribed a "Third
Amended and Restated Partnership Agreement" whereby HDAMC was admitted to the
Partnership with a one-percent (1%) interest.
On July 21, 1994 (hereinafter referred to as the "Adjustment Date"), the
Puerto Rico Racing Board approved HDAMC's acquisition of a fifteen percent
(15%) interest. As of the Adjustment Date, IGP, SUPRA, IBC, and HDAMC
subscribed a "Fourth Amended and Restated Partnership Agreement" whereby
HDAMC's interest became fifteen percent (15%) (the "Adjustment").
On the Fifth Amendment Date, IBC transferred its entire ownership interest
in the Partnership to Equus, IGP transferred its entire interest in the profits
(but not its interest in the capital) of the Partnership to Equus, IBC withdrew
from the Partnership, Equus was admitted to the Partnership, and Equus was
designated a Managing Partner.
Now the Initial Partners, HDAMC, and Equus (collectively the "Partners"
and individually a "Partner") desire to amend the Fourth Amended and Restated
Partnership Agreement and to set forth the rights and obligations of the
Partners in connection with the Partnership, their participation in any profits
or liabilities derived therefrom, and their participation in any loss that may
arise from such venture. Accordingly, the Partners agree herein as follows:
One: Constitution of Partnership. The Partners hereby associate
themselves as a partnership under the laws of the Commonwealth of Puerto Rico
and have elected to be treated as a Special Partnership in accordance with the
provisions of the Puerto Rico Income Tax Act of 1954, as amended (the "ITA")
<PAGE>3
and Act Number 3 of September 27, 1985, amending Article 1589 of the Civil Code
of Puerto Rico, for the purpose of engaging in the business of land development
in general, the building and sale of residential and/or commercial properties,
owning of a race track, leasing of buildings and structures, and performing any
and all acts and services necessary or desirable in connection with the
foregoing, including but not limited to the purchase, lease or otherwise the
acquisition and use of real or personal property, entering into, making,
performing and carrying out of contracts, borrowing money for the purposes of
the Partnership and securing any such borrowing through the issuance of
required loan documents, collateral agreements, securities and other guarantees
proper or necessary to secure repayment thereof, and in general to do and
perform any and all acts authorized to be done by partnerships under the laws
of the Commonwealth of Puerto Rico.
Two: Name and Principal Office of Partnership. The name of the
Partnership shall be HOUSING DEVELOPMENT ASSOCIATES S.E., and the principal
offices of the Partnership shall be located at 650 Munoz Rivera Avenue, Doral
Building, Seventh Floor, Hato Rey, Puerto Rico 00918; postal address shall be
G.P.O. Box 363908, San Juan, Puerto Rico 00936-3908, which location may be
changed by the Managing Partners of the Partnership from time to time.
Three: Term of Partnership: The term of the Partnership shall commence
as of the date of execution of the Deed and shall continue for a period of 50
years from the date thereof, unless sooner terminated as provided in Section 22
hereof (except as otherwise provided, references to "Section" shall refer to
Sections of this Agreement), and may be extended and continued for such
additional periods as the Partners may agree.
Four: Admission of Equus and Withdrawal of IBC. The Managing Partners
hereby grant all necessary consents, approvals, and waivers as required under
this Agreement (or under similar provisions of a predecessor agreement) to
effectuate the following events that occurred on the Fifth Amendment Date:
(a) IBC transferred its entire Partnership Interest (as that term is
defined in Section 7(a)(iii)) to Equus. Pursuant to Section 7(c), Equus
succeeded to IBC's Twenty-Six and Thirty-Five One Hundredths percent (26.35%)
Percentage Partnership Interest, capital account, and shares of Partner
Nonrecourse Debt Minimum Gain and Partnership Minimum Gain (as those terms are
defined in Sections 16(h)(ii) and 17) as a result of the transfer.
(b) IBC withdrew from the Partnership.
(c) IGP transferred a Forty and Sixty-Five One Hundredths percent
(40.65%) Profits Interest (as that term is defined in Section 7(a)(v)) to
Equus. Pursuant to Section 7(d), Equus succeeded to IGP's Forty and Sixty-Five
One Hundredths percent (40.65%) Percentage Partnership Interest but did not
succeed to IGP's capital account or IGP's share of Partner Nonrecourse Debt
Minimum Gain and Partnership Minimum Gain as a result of the transfer described
in the preceding sentence.
(d) IGP retained a one percent (1%) Profits Interest and its entire
Capital Interest (as those terms are defined in Sections 7(a)(i) and 7(a)(v))
in the Partnership. As a result of the transfer described in Section 4(c)
IGP's Percentage Partnership Interest was reduced to One percent (1%). No
adjustment shall be made to IGP's capital account or its shares of Partner
Nonrecourse Debt Minimum Gain and Partnership Minimum Gain as a result of the
transfer described in Section 4(c).
<PAGE>4
(e) Equus was admitted as a substitute Partner in accordance with Section
20, with a Percentage Partnership Interest of Sixty-Seven percent (67%) and a
capital account balance and shares of Partner Nonrecourse Debt Minimum Gain and
Partnership Minimum Gain equal to such balance and such shares of IBC
immediately before the transfer described in Section 4(a).
(f) Equus was designated a Managing Partner (as that term is defined in
Section 6).
Five: Limited Purpose. The relationship between the Partners shall be
limited to the performance of the specific purposes and objectives of the
Partnership as set forth in this Agreement. Nothing herein shall be construed
to create a general purpose partnership between the Partners; nor to authorize
any Partner to act as general agent for any other; nor to confirm or grant to
any Partner any proprietary interest in, or to subject any Partner to any
liabilities for or in respect of, the business, assets, profits or obligations
of any other Partner, except only to the extent and for the business
contemplated by this Agreement.
Six: Management of the Partnership. The business and affairs of the
Partnership shall be supervised and controlled exclusively by the managing
partners, Equus and HDAMC (collectively the "Managing Partners" and
individually a "Managing Partner"). Notwithstanding the foregoing, Equus has
exclusive authority to manage the Partnership, including to retain other
persons to perform services for the Partnership, provided that approval of
HDAMC shall be required for (i) any sale or disposition (either in a single
transaction or series of related transactions) of Partnership assets having a
fair market value in excess of $500,000, (ii) the incurrence of any
indebtedness, including capitalized lease obligations, requiring aggregate
payments by the Partnership in excess of $1,000,000, (iii) any transaction with
any Partner or any affiliate of any Partner, or (iv) any amendment to this
Agreement for which HDAMC's approval is required under Section 24 hereof. In
furtherance of and subject to the foregoing, Equus shall have the power and
authority to act on behalf of the Partnership in all acts and contracts, and,
among others, to apply for and obtain loans, to approve the execution of
contracts, execution of deeds, granting of mortgages over its real and personal
properties and acquisition of assets and real property deemed by it necessary
or convenient for its business, either by lease or outright purchase, to apply
for and obtain any required license, permit or governmental authorization, and
to perform any other act which the Partnership is authorized to do pursuant to
the terms hereof as well as under the laws of the Commonwealth of Puerto Rico.
Without the approval or authorization of Equus, no party (including no Partner)
may act on behalf of the Partnership and no Partner shall be considered to be
the agent of another. Notwithstanding the foregoing, Equus may appoint
officers of the Partnership and delegate to such officers such powers, duties
and authority as it shall deem appropriate. The actions of the Managing
Partners require no ratification by any other Partners. The Managing Partners
shall be the agents of the Partnership for the conduct of the Partnership's
business. The Partnership shall reimburse Equus and HDAMC for all reasonable
out-of-pocket expenses incurred by Equus and HDAMC, respectively, in
connection with management of the Partnership, including reasonable directors'
fees for directors who are not then existing officers or employees of the
Partnership or any Managing Partner, and the reasonable cost of directors' and
officers' liability insurance.
<PAGE>
<PAGE>5
Seven: Percentage Interests, Profits Interests, and Capital Interests.
(a) For purposes of this Agreement:
(i) The term "Capital Interest" means, with respect to any Partner,
the Partner's interest in the capital, as opposed to its interest in the
profits, of the Partnership, for federal income tax purposes.
(ii) The term "Partner" includes the owner of a Capital Interest or a
Profits Interest.
(iii) The term "Partnership Interest" means, with respect to any
Partner, the Partner's ownership interest in the Partnership, including such
Partner's Capital Interest, Profits Interest, Percentage Partnership Interest,
its rights to distributions under Sections 18 and 23, and any other rights and
obligations which such Partner has under this Agreement.
(iv) The term "Percentage Partnership Interest" means, with respect
to any Partner, the percentage interest of that Partner as provided in this
Section 7.
(v) The term "Profits Interest" means, with respect to any Partner,
the Partner's interest in the profits, as opposed to its interest in the
capital, of the Partnership for federal income tax purposes.
(b) Except as provided otherwise in this Agreement, the Percentage
Partnership Interests of Equus, SUPRA, HDAMC, and IGP shall be, respectively,
Sixty-Seven percent (67%), Seventeen percent (17%), Fifteen percent (15%) and
One percent (1%).
(c) If a Partner transfers all or a portion of that Partner's Partnership
Interest (consisting of both a Profits Interest and a Capital Interest) in
accordance with Section 20, the transferee of the Partnership Interest shall
succeed to the Percentage Interest, capital account (as maintained under
Section 17), and shares of Partner Nonrecourse Debt Minimum Gain and
Partnership Minimum Gain (as those terms are defined in Section 16(h)(ii)) of
the transferor to the extent it relates to the transferred Partnership
Interest.
(d) If a Partner transfers all or a portion of that Partner's Profits
Interest (but does not transfer the corresponding Capital Interest) in
accordance with Section 20:
(i) The transferee of the Profits Interest shall succeed to the
Percentage Interest of the transferor to the extent it relates to the
transferred Profits Interest;
(ii) The transferee of the Profits Interest shall not succeed to the
capital account (as maintained under Section 17) of the transferor as a result
of the transfer of the Profits Interest; and
(iii) The transferee of the Profits Interest shall not succeed to the
transferee's share of Partner Nonrecourse Debt Minimum Gain or Partnership
Minimum Gain (as those terms are defined in Section 16(h)(ii)) as a result of
the transfer of the Profits Interest.
<PAGE>
<PAGE>6
(e) If a Partner transfers all or a portion of that Partner's Capital
Interest (but does not transfer the corresponding Profits Interest) in
accordance with Section 20:
(i) The transferee of the Capital Interest shall not succeed to the
Percentage Interest of the transferor as a result of the transfer of the
Capital Interest;
(ii) The transferee of the Capital Interest shall succeed to the
capital account (as maintained under Section 17) of the transferor to the
extent it relates to the transferred Capital Interest; and
(iii) The transferee of the Capital Interest shall succeed to the
transferee's share of Partner Nonrecourse Debt Minimum Gain and Partnership
Minimum Gain (as those terms are defined in Section 16(h)(ii)) to the extent
that it relates to the transferred Capital Interest.
Eight: [Reserved]
Nine: Appointment of Manager. The Managing Partners shall have authority
to appoint and employ such managers, employees, consultants and agents for the
Partnership, as they shall deem appropriate, and may delegate to such managers,
employees, consultants and agents any and all offices, powers and authority
hereunder.
Ten: Limited Responsibility. The Partners shall not be personally liable
for the debts, liabilities or obligations of the Partnership. Each Partner's
liability and obligations with regards to the Partnership, shall be limited to
the capital contribution actually made by such Partner to the Partnership.
Eleven: Books and records. The Partnership shall maintain at its
principal office full and proper records and books of account based upon
generally accepted accounting principles, consistently applied. The fiscal
year of the Partnership shall be the calendar year, or such other fiscal year
as shall be determined by the Managing Partners and permitted by law.
Twelve: Inspection of Books, Appointment of Accountants. Each of the
Partners shall have the right at all reasonable times to have any and all of
the Partnership's records and books of account inspected at its own expense by
its own employees, attorneys or accountants.
The Managing Partners shall at all times name and appoint such independent
nationally recognized accounting and auditing firm (the "Partnership
Accountants") as in their sole discretion shall be determined.
Thirteen: Bank Account. The Partnership shall maintain such bank
accounts as shall be approved by the Managing Partners.
The Managing Partners shall determine the individuals authorized to draw
checks against the Partnership bank accounts. Such drawings shall require not
less than two (2) signatures.
<PAGE>
<PAGE>7
Fourteen: Profits, Losses, and Tax Allocations.
(a) The net income or net loss, respectively, for federal and Puerto Rico
tax purposes shall be determined annually by the Partnership Accountants. The
Partnership Accountants shall prepare the income tax returns for the
Partnership as soon as possible after the end of each of the Partnership's
fiscal years.
(b) For purposes of this Agreement the terms "Profits" and "Losses" mean
the income or loss of the Partnership for "book" purposes under Treas. Reg.
Section 1.704-1(b)(2)(iv). In particular, and without limitation, the terms
"Profits" and "Losses" mean, for any fiscal year, the net income or net loss,
respectively, of the Partnership as reported by the Partnership for federal
income tax purposes, except that (i) items of income, gain, loss, and deduction
relating to property contributed to the Partnership shall be computed as if the
basis of the property to the Partnership at the time of contribution were equal
to its fair market value on that date (for purposes of this clause (i), (A) the
amount of any depreciation, amortization, or other cost recovery deduction
allowable for any period with respect to property contributed to the
Partnership shall be an amount that bears the same ratio to the fair market
value of the property on the date of contribution as the federal income tax
depreciation, amortization, or other cost recovery deduction bears to the
adjusted tax basis of the property on the date of contribution; provided,
however, that if the adjusted tax basis of the property on the date of
contribution is zero, depreciation, amortization, or other cost recovery
deduction shall be determined with reference to the fair market value of the
property on the date of contribution using any reasonable method selected by
the Managing Partners and (B) gain or loss resulting from any disposition of
such property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed under this sentence as if such property
had an adjusted basis on the date of contribution equal to its fair market
value on such date and all subsequent adjustments were made in accordance with
subclause (A) of this clause (i)), (ii) any income of the Partnership that is
exempt from federal income tax and not otherwise taken into account in
computing Profits or Losses shall be added to such taxable income or loss, and
any related expenses not allowed as a deduction pursuant to Section 265 of the
Internal Revenue Code of 1986 (hereinafter referred to as "Code") shall be
subtracted from such taxable income or loss, (iii) any expenditures of the
Partnership described in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Treas. Reg. Section 1.704-1(b) and not
otherwise taken into account under this Section 14(b) shall be subtracted from
such income or loss, and (iv) if there has been an adjustment to the Partners'
capital accounts pursuant to Section 17(d) to reflect the unrealized income,
gain, loss, or deduction inherent in Partnership property: (A) depreciation,
amortization, or other cost recovery deductions with respect to such property
for each fiscal year or other period shall equal an amount which bears the same
ratio to the fair market value of such property on the date of such adjustment
as the federal income tax depreciation, amortization, or other cost recovery
deductions for such year or other period bears to the adjusted tax basis of
such property on such date (provided, however, that if the adjusted tax basis
of the property on the date of such adjustment is zero, depreciation,
amortization, or other cost recovery deduction shall be determined with
reference to the fair market value of the property on the date of adjustment
using any reasonable method selected by the Managing Partners); and (B) gain or
loss resulting from any disposition of such property with respect to which gain
or loss is recognized for federal income tax purposes shall be computed under
this sentence as if such property had an adjusted basis on the date of such
adjustment equal to its fair market value on such date and all subsequent
<PAGE>8
adjustments for depreciation, amortization, or other cost recovery deductions
were made in accordance with subclause (A) of this clause (iv). The term
"Profits" means a net positive amount and the term "Losses" means a net
negative amount for the Partnership fiscal year determined after making the
adjustments described in this Section 14(b) and after removing any amounts of
income or gain allocated under Sections 16(a), 16(b), or 16(c) of this
Agreement.
For Partnership fiscal years ending after HDAMC is admitted as a
Partner, the term "LDA Profits" shall mean the net positive amount and the term
"LDA Losses" shall mean the net negative amount of items entering into the
computation of Profits and Losses for such Partnership fiscal year that are
attributable to the LDA Receivable. For Partnership fiscal years ending after
HDAMC is admitted as a Partner, the term "General Profits" shall mean the net
positive amount and the term "General Losses" shall mean the net negative
amount of items entering into the computation of Profits and Losses for such
Partnership fiscal year other than those items that are attributable to the LDA
Receivable.
For purposes of this Agreement, the term "LDA Receivable" shall mean
an approximately $13.2 million note receivable ($11.9 million principal plus
$1.3 million in accrued and unpaid interest) payable by Land Development
Associates S.E. to the Partnership. For purposes of this Agreement, the term
"attributable to the LDA Receivable" shall mean items entering into the
computation of Profits and Losses, cash or any tax item that, in the good faith
opinion of the Managing Partners, are attributable to the LDA Receivable
(including items that constitute, or result from, the accrual of interest with
respect to the LDA Receivable, payments of principal on the LDA Receivable,
gain or loss from the disposition of the LDA Receivable, the utilization of any
of the interest payments, principal payments and disposition proceeds
thereafter, and associated expenses).
(c) In the event of any changes in any Partner's Percentage Partnership
Interest during the fiscal year, then for purposes of this Agreement, the
Managing Partners shall take into account the requirements of Code Section
706(d) and shall have the right to select any reasonable method of determining
the varying interests of the Partners during the year which is consistent with
the terms of this Agreement and which satisfies Code Section 706(d).
(d) All items of income, gain, loss, and deduction, and all tax
preferences, depreciation, accelerated cost recovery system deduction and
investment interest and other tax items of the Partnership for each fiscal year
(collectively referred to as "Partnership Tax Items") shall be allocated for
federal tax purposes to the Partners in accordance with this Section 14(d).
(i) Except as provided in Sections 14(d)(ii) and (iii), Partnership
Tax Items shall be allocated for tax purposes in accordance with the
allocations of Profits, Losses, LDA Profits, LDA Losses, General Profits,
General Losses or other items under Sections 15 and 16 hereof. For purposes of
the preceding sentence, an allocation to a Partner of a share of Profits,
Losses, LDA Profits, LDA Losses, General Profits or General Losses shall be
treated as an allocation to such Partner of the same share of each Partnership
Tax Item that is taken into account in computing such Profits, Losses, LDA
Profits, LDA Losses, General Profits or General Losses.
<PAGE>
<PAGE>9
(ii) Gain or loss upon sale or other disposition of any property
contributed to the Partnership or any depreciation, amortization, or other cost
recovery deduction allowable with respect to the basis of property contributed
to the Partnership shall be allocated for tax purposes among the contributing
and non-contributing Partners so as to take into account the difference between
the adjusted tax basis and the fair market value of the property on the date of
its contribution to the extent permitted by Treas. Reg. Section 1.704-3 or such
superseding regulations as may be promulgated in accordance with Code Section
704(c). In making allocations pursuant to the preceding sentence, the Managing
Partners are authorized to apply any method or convention required or permitted
by Code Section 704(c); provided, however, that the Managing Partners shall
select such method or convention as, in their opinion, will take such variation
fully into account. In applying the preceding sentence the Managing Partners
shall, to the extent allowable under applicable Treasury Regulations, select a
method of applying Code Section 704(c) that results in allocations of
Partnership Tax Items to noncontributing Partners that are no less favorable
than that which would be allocated to such Partners but for the application of
the "ceiling" rule described in Treas. Reg. Section 1.704-3. Further, Equus
and its partners shall cause the tax items of Equus to be allocated among such
partners in a manner that preserves the effect of the application of Code
Section 704(c) described in the preceding sentence.
(iii) If there has been an adjustment to the Partners' capital
accounts pursuant to Section 17(d) to reflect the unrealized income, gain, loss
or deduction inherent in Partnership property, then Partnership Tax Items with
respect to such property and, if necessary, other property, shall be allocated
to the Partners for federal income tax purposes so as to take into account the
difference between the adjusted tax basis of such property and the value at
which it is reflected in the Partners' capital accounts. In making allocations
pursuant to the preceding sentence, the Managing Partners are authorized to
apply any method or convention required or permitted by Code Section 704(c);
provided, however, that the Managing Partners shall select such method or
convention as, in their opinion, will take such variation fully into account.
Further, Equus and its partners shall cause the tax items of Equus to be
allocated among such partners in a manner that preserves the effect of the
application of Code Section 704(c) described in the preceding sentence.
Notwithstanding any other provision of this Section 14(d), the Managing
Partners shall apply Code Section 704(c) in respect of the Adjustment in a
manner that, to the greatest extent possible, results in the allocation of
Partnership Tax Items to HDAMC in each fiscal year in amounts no less favorable
than the allocations of General Profits or General Losses (or items thereof) to
HDAMC in such fiscal year. The allocations under this Section 14(d)(iii) are
intended to comply with paragraphs (b)(2)(iv)(f)(4) and (b)(4)(i) of Treas.
Reg. Section 1.704-1 and shall be interpreted consistently with such regulation
to effectuate such intent.
(iv) In making the allocation among the Partners of gain or Profit,
the ordinary income portion, if any, of such gain or Profit caused by the
recapture of cost recovery or any other deductions shall be allocated among
those Partners who were previously allocated the cost recovery or any other
deductions in proportion to the amount of such deductions previously allocated
to them. It is intended that the Partners, as between themselves, shall bear
the burden of recapture caused by cost recovery or other deductions which were
previously allocated to them, in proportion to the amount of such deductions
which have been allocated to them, notwithstanding that a Partner's share of
Profits, Losses or liabilities may increase or decrease from time to time.
This Section 14(d)(iv) is intended to govern solely the character of certain
items allocated to a Partner for federal tax purposes and nothing contained in
<PAGE>10
this Section 14(d)(iv) is intended to change the amount of income (or other tax
items) allocated to any Partner.
Fifteen: Allocation of Losses. Losses of the Partnership shall be
allocated to the Partners in accordance with the provisions of this Section 15.
(a) LDA Losses shall be allocated forty-nine percent (49%) to IGP,
thirty-one percent (31%) to IBC and twenty percent (20%) to SUPRA.
(b) General Losses allocable to periods after December 15, 1993, and
prior to the Adjustment Date, shall be allocated forty-eight percent (48%) to
IGP, thirty-one percent (31%) to IBC, twenty percent (20%) to SUPRA and one
percent (1%) to HDAMC.
(c) General Losses allocable to periods after the Adjustment Date and
prior to the Fifth Amendment Date, shall be allocated Forty-One and Sixty-Five
One Hundredths percent (41.65%) to IGP, Twenty-Six and Thirty-Five One
Hundredths percent (26.35%) to IBC, Seventeen percent (17%) to SUPRA and
Fifteen percent (15%) to HDAMC.
(d) General Losses allocable to periods after the Fifth Amendment Date
shall be allocated among the Partners in proportion to their Percentage
Partnership Interests. Notwithstanding the preceding sentence, General Losses
(i) that are allocable to periods after the Fifth Amendment Date, (ii) that
otherwise would be allocated to Partners other than HDAMC under the preceding
sentence, and (iii) that are equal in an aggregate amount to fourteen percent
(14%) of the General Losses, if any, allocable to periods after December 15,
1993, and prior to the Adjustment Date, (whether allocated under this Agreement
or pursuant to a provision of a predecessor Partnership agreement) shall be
allocated to HDAMC. In applying the second sentence of this Section 15(d),
General Losses shall first be allocated among the Partners under the first
sentence of this Section 15(d) and any amounts allocated to HDAMC under the
second sentence shall be subtracted from the amounts of General Losses
allocated to Partners other than HDAMC under the first sentence in proportion
to the amounts otherwise allocated to such Partners. The Managing Partners may
make appropriate adjustments in allocating General Losses (or items entering
into the computation of General Losses) under this Section 15(d) in the case
where General Profits allocable to periods after December 15, 1993 and prior to
the Adjustment Date are unlikely to be offset properly by allocations to HDAMC
of General Profits allocable to periods after the Fifth Amendment Date under
the second and third sentences of Section 16(g).
(e) For purposes of this Section 15:
(i) The term "Amendment Year" shall mean the Partnership fiscal year
beginning before the Fifth Amendment Date and ending on or after the Fifth
Amendment Date.
(ii) The term "Pre-Amendment Losses" shall mean, in the case of the
Amendment Year, the General Losses for such fiscal year computed as if such
fiscal year ended on the Fifth Amendment Date.
(iii) The term "Post-Amendment Losses" shall mean, in the case of
the Amendment Year, the General Losses for such fiscal year computed as if such
fiscal year began on the day after the Fifth Amendment Date.
<PAGE>
<PAGE>11
(iv) The term "General Losses allocable to periods after December
15, 1993, and prior the Adjustment Date" shall mean, in the case of the
Amendment Year, the Pre-Amendment Losses for such year multiplied by a
fraction, the numerator of which is the number of days in the Amendment Year
that are on or before the Adjustment Date and the denominator of which is the
number of days in the Amendment Year that are on or before the Fifth Amendment
Date.
(v) The term "General Losses allocable to periods after the
Adjustment Date and prior to the Fifth Amendment Date" shall mean, in the case
of the Amendment Year, the Pre-Amendment Losses for such year multiplied by a
fraction, the numerator of which is the number of days in the Amendment Year
that are both after the Adjustment Date and before or on the Fifth Amendment
Date and the denominator of which is the number of days in the Amendment Year
that are on or before the Fifth Amendment Date.
(vi) The term "General Losses allocable to periods after the Fifth
Amendment Date," shall mean: (A) in the case of the Amendment Year, the Post-
Amendment Losses for such fiscal year; and (B) in the case of Partnership
fiscal years after the Amendment Year, the General Losses for such fiscal year.
(f) Notwithstanding the other provisions of this Section 15, to the
greatest extent possible, the Managing Partners shall make such allocations of
Losses, LDA Losses, General Losses, or items of loss or deduction in accordance
with Section 19 as are necessary to implement the basic economic arrangement of
the Partners as described in Section 19.
Sixteen: Special Allocations and Allocation of Profits. Certain items of
income or gain required to be allocated to a Partner under federal income tax
regulations and the Profits of the Partnership shall be allocated to the
Partners in accordance with the provisions of this Section 16.
(a) If there is a net decrease during a Partnership fiscal year in
Partnership Minimum Gain then, to the extent required by Treas. Reg. Section
1.704-2(f), each Partner shall be allocated items of Partnership income and
gain for that year (and, if necessary, for succeeding years) equal to that
Partner's share of the net decrease in Partnership Minimum Gain (within the
meaning of Treas. Reg. Section 1.704-2(g)(2)). It is the intent of the
Partners that this Section 16(a) constitute a Partnership Minimum Gain
Chargeback provision under Treas. Reg. Section 1.704-2(f) and be interpreted
consistently with such regulation to effectuate such intent.
(b) If there is a net decrease during a Partnership fiscal year in
Partner Nonrecourse Debt Minimum Gain then, to the extent required by Treas.
Reg. Section 1.704-2(i)(4), any Partner with a share of that Partner
Nonrecourse Debt Minimum Gain (as determined under Treas. Reg. Section 1.704-
2(i)(5)) at the beginning of such fiscal year shall be allocated items of
Partnership income and gain for such fiscal year (and, if necessary, for
succeeding years) equal to that Partner's share of the net decrease in the
Partner Nonrecourse Debt Minimum Gain (within the meaning of Treas. Reg.
Section 1.704-2(i)(4)). It is the intent of the Partners that this Section
16(b) constitute a Partner Nonrecourse Debt Minimum Gain chargeback provision
under Treas. Reg. Section 1.704-2(i)(4) and be interpreted consistently with
such regulation to effectuate such intent.
(c) If any Partner unexpectedly receives an adjustment, allocation, or
distribution of the type contemplated by Treas. Reg. Section 1.704-
1(b)(2)(ii)(d)(4), (5), or (6) that causes or increases a deficit in such
<PAGE>12
Partner's Adjusted Capital Account Balance items of Partnership income and gain
shall be allocated to all such Partners in proportion to such deficits being
offset to eliminate such deficits as quickly as possible. It is the intent of
the Partners that this Section 16(c) constitute a qualified income offset
provision under Treas. Reg. Section 1.704-1(b)(2)(ii)(d) and be interpreted
consistently with such regulation to effectuate such intent.
(d) LDA Profits shall be allocated forty-nine percent (49%) to IGP,
thirty-one percent (31%) to IBC and twenty percent (20%) to SUPRA.
(e) General Profits allocable to periods after December 15, 1993, and
prior to the Adjustment Date, shall be allocated forty-eight percent (48%) to
IGP, thirty-one percent (31%) to IBC, twenty percent (20%) to SUPRA and one
percent (1%) to HDAMC.
(f) General Profits allocable to periods after the Adjustment Date and
prior to the Fifth Amendment Date shall be allocated Forty-One and Sixty-Five
One Hundredths percent (41.65%) to IGP, Twenty-Six and Thirty-Five One
Hundredths percent (26.35%) to IBC, Seventeen percent (17%) to SUPRA and
Fifteen percent (15%) to HDAMC.
(g) General Profits allocable to periods after the Fifth Amendment Date,
shall be allocated among the Partners in proportion to their Percentage
Partnership Interests. Notwithstanding the preceding sentence, General Profits
(i) that are allocable to periods after the Fifth Amendment Date, (ii) that
otherwise would be allocated to Partners other than HDAMC under the preceding
sentence, and (iii) that are equal in an aggregate amount to fourteen percent
(14%) of the General Profits, if any, allocable to periods after December 15,
1993, and prior to the Adjustment Date, (whether allocated under this Agreement
or pursuant to a provision of a predecessor Partnership agreement) shall be
allocated to HDAMC. In applying the second sentence of this Section 16(g),
General Profits shall first be allocated among the Partners under the first
sentence of this Section 16(g) and any amounts allocated to HDAMC under the
second sentence shall be subtracted from the amounts of General Profits
allocated to Partners other than HDAMC under the first sentence in proportion
to the amounts otherwise allocated to such Partners. The Managing Partners may
make appropriate adjustments in allocating General Profits (or items entering
into the computation of General Profits) under this Section 16(g) in the case
where General Losses allocable to periods after December 15, 1993 and prior to
the Adjustment Date are unlikely to be offset properly by allocations to HDAMC
of General Losses allocable to periods after the Fifth Amendment Date under the
second and third sentences of Section 15(d).
(h) For purposes of this Section 16:
(i) The term "Adjusted Capital Account Balance" means a Partner's
capital account balance (a) increased by any amount that such Partner is
obligated to restore under Treas. Reg. Section 1.704-1(b)(2)(ii)(c) (including
any addition thereto pursuant to the next to last sentences of Treas. Reg.
Section 1.704-2(g)(1) and (i)(5) after taking into account thereunder any
changes during such fiscal year in Partnership Minimum Gain and in Partner
Nonrecourse Debt Minimum Gain) and (b) decreased by any adjustments,
allocations, and distributions specified in Treas. Reg. Section 1.704-
1(b)(2)(ii)(d)(4), (5), and (6) as are reasonably expected to be made to such
Partner. A distribution or allocation will result in a Partner having a
deficit Adjusted Capital Account Balance to the extent such distribution or
<PAGE>
<PAGE>13
allocation either will create or increase a deficit balance in such Partner's
capital account after making the adjustments described in the preceding
sentence.
(ii) The terms "Partnership Minimum Gain" and "Partner Nonrecourse
Debt Minimum Gain" shall have the meaning set forth in Treas. Reg. Section
1.704-2(d) and (i)(3), respectively.
(iii) The term "Amendment Year" shall mean the Partnership fiscal
year beginning before the Fifth Amendment Date and ending on or after the Fifth
Amendment Date.
(iv) The term "Pre-Amendment Profits" shall mean, in the case of the
Amendment Year, the General Profits for such fiscal year computed as if such
fiscal year ended on the Fifth Amendment Date.
(v) The term "Post-Amendment Profits" shall mean, in the case of the
Amendment Year, the General Profits for such fiscal year computed as if such
fiscal year began on the date after the Fifth Amendment Date.
(vi) The term "General Profits allocable to periods after December
15, 1993, and prior to the Adjustment Date," shall mean, in the case of the
Amendment Year, the Pre-Amendment Profits for such fiscal year multiplied by a
fraction, the numerator of which is the number of days in the Amendment Year
that are on or before the Adjustment Date and the denominator of which is the
number of days in the Amendment Year that are on or before the Fifth Amendment
Date.
(vii) The term "General Profits allocable to periods after the
Adjustment Date and prior to the Fifth Amendment Date" shall mean, in the case
of the Amendment Year, the Pre-Amendment Profits for such year multiplied by a
fraction, the numerator of which is the number of days in the Amendment Year
that are both after the Adjustment Date and before or on the Fifth Amendment
Date and the denominator of which is the number of days in the Amendment Year
that are on or before the Fifth Amendment Date.
(viii) The term "General Profits allocable to periods after the
Fifth Amendment Date," shall mean: (A) in the case of the Amendment Year, the
Post-Amendment Profits for such fiscal year; and (B) in the case of Partnership
fiscal years after the Amendment Year, the General Profits for such fiscal
year.
(i) Notwithstanding the other provisions of this Section 16, to the
greatest extent possible, the Managing Partners shall make such allocations of
Profits, LDA Profits, General Profits or items of income or gain in accordance
with Section 19 as are necessary to implement the basic economic arrangement of
the Partners as described in Section 19.
Seventeen: Capital Accounts. Separate capital accounts shall be
maintained for each Partner. All allocations of Partnership income, gain,
Profit and Loss and all capital contributions by and all distributions to the
Partners shall be credited or charged, as the case may be, to the separate
capital accounts of the Partners in accordance with this Section 17.
(a) The capital accounts of each Partner shall be increased by:
(i) The amount of any cash contributed to the Partnership by or on
behalf of such Partner;
<PAGE>14
(ii) The fair market value of any property other than cash
contributed to the Partnership by or on behalf of such Partner; and
(iii) The amount of any Profits, LDA Profits, General Profits or
items of income or gain allocated to such Partner under Section 16 of this
Agreement or to such Partner under a similar provision in a predecessor
Partnership agreement of the Partners.
(b) The capital accounts of each Partner shall be reduced by:
(i) The amount of any cash distributed to such Partner,
(ii) The fair market value of any property other than cash
distributed to such Partner; and
(iii) The amount of any Losses, LDA Losses, General Losses or items
of deduction or loss allocated to such Partner under Section 15 of this
Agreement or to such Partner under a similar provision in a predecessor
Partnership agreement of the Partners.
(c) If any property other than cash is distributed to a Partner, the
capital accounts of the Partners shall be adjusted to reflect the manner in
which gain or loss that has not previously been reflected in the capital
accounts would be allocated among the Partners under Sections 15 and 16 of this
Agreement if the distributed property had been sold by the Partnership for a
price equal to its fair market value on the date of distribution.
(d) The Managing Partners may, upon the occurrence of one of the events
described in Section 17(d)(ii), increase or decrease the capital accounts of
the Partners in accordance with Section 17(d)(i) to reflect a revaluation of
Partnership property.
(i) Any adjustments made under this Section 17(d) shall reflect the
manner in which the unrealized income, gain, loss, or deduction inherent in
Partnership property (to the extent that it has not been reflected in the
capital accounts previously) would be allocated among the Partners under
Sections 15 and 16 if the Partnership had sold all of its property for its fair
market value on the date of adjustment. The adjustments described in this
Section 17(d)(i) shall be based on the fair market value of Partnership
property on the date of adjustment.
(ii) The Managing Partners may make the capital account adjustments
described in this Section 17(d) upon the occurrence of the following events:
(A) a contribution of money or other property (other than a de minimis amount)
to the Partnership by a new or existing Partner as consideration for an
interest in the Partnership; (B) a distribution of money or other property
(other than a de minimis amount) by the Partnership to a retiring or continuing
Partner as consideration for an interest in the Partnership; or (C) the
liquidation of the Partnership.
(iii) The adjustments described in this Section 17(d) are intended to
comply with Treas. Reg. Section 1.704-1(b)(2)(iv)(f) and shall be interpreted
consistently with such regulation to effectuate such intent. See Section
14(b)(iv) for special rules for the computation of Profits and Losses in the
case of an Adjustment under this Section 17(d).
<PAGE>
<PAGE>15
(iv) The Adjustment constituted an event described in Section
17(d)(ii)(A) and the Managing Partners shall make the adjustments described in
Section 17(d)(i) as of the Adjustment Date (to the extent that such adjustments
have not been made pursuant to a similar provision in a predecessor Partnership
agreement). It is anticipated that the capital account of each Partner, after
taking into account (1) any adjustments to the capital account under Sections
17(a)(iii) and 17(b)(iii) to be made in order to reflect Partnership operations
up to and including the Adjustment, as well as future allocations of LDA
Profits, LDA Losses, General Profits (but only until the allocations made under
the second sentence of Section 16(g) have been given full effect), and General
Losses (but only until the allocations made under the second sentence of
Section 15(d) have been given full effect), (2) the adjustments described in
Section 17(d)(i), (3) the adjustments under Section 17(a)(i) to reflect the
Contingent Contribution, and (4) prior and future adjustments under Sections
17(b)(i) and 17(b)(ii) that have been or are expected to be made in order to
reflect any distribution described in Sections 18(b) 18(c), and 18(d), shall be
in proportion to such Partner's Percentage Partnership Interest immediately
after the Adjustment. In accordance with Section 19, the Managing Partner
shall take such steps as are necessary, consistent with Treas. Reg.
Section 1.704-1(b)(2)(iv)(f), to achieve the anticipated result specified in
the preceding sentence, including correcting the aggregate adjustment under
Section 17(d)(i) and making special allocations of items of income, gain, loss,
or deduction among the Partners under Section 19 in order to reflect properly
the basic economic arrangement of the Partners as described in Section 19.
(e) The Managing Partners shall have the authority to make such changes
in the allocations of Profits or Losses to the Partners under Sections 15 and
16 of this Agreement, and to make such adjustments to the capital accounts of
IGP, Equus and HDAMC as is necessary in order that the allocations of Profits
or Losses to IGP, Equus and HDAMC have substantial economic effect (or are
otherwise recognized for United States federal tax purposes) and are consistent
with the economic arrangement of the Partners. The allocations set forth in
Sections 16(a), 16(b), and 16(c), and such part of the allocations under
Section 15 that constitute Nonrecourse Deductions and Partner Nonrecourse
Deductions (within the meaning of Treas. Reg. Section 1.704-2(c) and (i)(2),
respectively), together with allocations made under similar provisions in a
predecessor Partnership agreement of the Partners (collectively referred to as
the "Regulatory Allocations") are intended to comply with certain requirements
of the Treasury Regulations promulgated under Code Section 704(b). It is the
intent of the Partners that, to the greatest extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 17(e). Therefore, notwithstanding any other
provisions of Sections 15 and 16 (other than the Regulatory Allocations), the
Managing Partners shall make such offsetting special allocations of income,
gain, loss, or deductions in whatever manner they determine appropriate so
that, after the Regulatory Allocations and such offsetting allocations are
made, each Partner's capital account balance is, to the greatest extent
possible, equal to the capital account balance such Partner would have had if
the Regulatory Allocations were not part of the Partnership Agreement and all
Partnership items were allocated pursuant to Sections 15 and 16 (without regard
to the Regulatory Allocations). In exercising their discretion under this
Section 17(e) the Managing Partners shall take into account future Regulatory
Allocations that, although not yet made, are likely to offset other Regulatory
Allocations previously made to the extent that taking into account such future
Regulatory Allocations would not affect the economic arrangement of the
Partners. The preceding two sentences are intended to eliminate, to the
greatest extent possible, any economic distortions which may result from
<PAGE>16
application of the Regulatory Allocations and shall be interpreted in a manner
consistent therewith.
(f) Notwithstanding anything herein to the contrary, it is the
understanding and intent of the Partners that none of the provisions described
in Sections 14, 15, 16, 17, 18, 19, 23(c) and 24 hereof relating to the
determination, recognition, definition and allocation of income, gain, profits,
losses, deductions, capital accounts, basis, distributions, and other economic
interests for federal income tax purposes (including, but not limited to,
allocations made to comply with Treas. Reg. Section 1.704-1 and 1.704-2 and
allocations made to minimize any economic distortions arising therefrom) shall:
(1) affect the otherwise applicable rules and regulations to SUPRA under the
laws of Puerto Rico; (2) adversely affect any allocation of income, gain,
profits, losses, deductions, capital accounts, basis, distributions and other
economic interests that SUPRA is entitled to receive under the laws of Puerto
Rico; or (3) subject SUPRA to any liabilities for federal income taxes; and in
order to comply with this subsection (f), the Managing Partners shall take all
necessary actions and make any necessary adjustment and allocation to the
Partnership accounts as are necessary to implement and comply with the terms of
this subsection (f) and to reflect properly the implementation of this
subsection (f). It is the intent of the Partners that this subsection (f)
clarifies that SUPRA's economic interest in the Partnership, as determined by
the basic economic arrangement of the Partners, will not be affected by any
provision related to federal income taxes.
(g) The Partnership Accountants shall annually provide SUPRA, together
with a copy of the annual financial statement for each fiscal year, a statement
certifying any allocation and adjustment made at year end to SUPRA's interest
and account in the Partnership which were necessary to reflect, and conform
such interest and account with, the full implementation of this Section 17(f),
pursuant to the laws of Puerto Rico, to SUPRA's interest and accounts,
including the year-end balances of such accounts and SUPRA's capital account as
a result thereof.
(h) The transferee of an interest in the Partnership shall succeed to the
capital account of the transferor of such interest to the extent provided in
Section 7.
(i) In the event that the Partnership is "liquidated" within the meaning
of Treas. Reg. Section 1.704-1(b)(2)(ii)(g), a Partner who holds a Profits
Interest ("Profits Interest Holder") that corresponds to a Capital Interest
held by another Partner ("Capital Interest Holder") shall contribute to the
Partnership an amount equal to the excess of (A) that portion of the positive
balance of the capital account of the Capital Interest Holder (as determined
under Section 17, after taking into account all capital account adjustments
attributable to Partnership operations up to and including such liquidation)
that corresponds to such Profits Interest; over (B) the amount that the Capital
Interest Holder would receive under Section 23 with respect to the portion of
such capital account described in clause (A) of this sentence, but for the
application of this Section 17(i).
Eighteen: Cash Distributions.
(a) To the extent permitted by the Annual Tax Payment Agreement as
defined in that certain indenture by and among the Partnership, the
Partnership's subsidiary, El Comandante Capital Corp., and Banco Popular de
Puerto Rico, as Trustee, dated as of December 15, 1993, (the "Indenture"), the
Partnership shall distribute to the Partners for each fiscal year an amount
<PAGE>17
equal to the product of (i) the Partnership's net income for such fiscal year
determined in accordance with generally accepted accounting principles,
consistently applied, and (ii) the highest of the then applicable highest
United States federal or Puerto Rico personal or corporate income tax rate (the
"Highest Tax Rate"). Such distributions shall be made at such times as shall
be determined by Equus, provided that within 75 days of the close of each
fiscal year Equus shall determine the maximum amount permitted to be
distributed under this Section 18(a) for such fiscal year ("Maximum Annual
Amount") and shall distribute within 90 days of the close of such fiscal year
the excess of the Maximum Annual Amount for such fiscal year over the aggregate
distributions previously made in respect of such fiscal year. Distributions
under this Section 18(a) shall be made in proportion to the Partners'
Percentage Partnership Interests; provided, however, that appropriate
adjustments will be made to reflect the fact that HDAMC does not share in the
LDA Losses and LDA Profits and the special allocation of General Profits under
the second sentence of Section 16(g) and General Losses under the second
sentence of Section 15(d).
(b) As soon as practicable after the date of this Agreement, the
Partnership shall make a distribution to HDAMC in an aggregate amount equal to
the amount in the Hold-Back Account as defined in Section 18(f) (to the extent
that such distribution has not previously been made under a similar provision
in a predecessor Partnership agreement).
(c) To the extent permitted by the Indenture, the Partnership shall make
distributions of funds attributable to the LDA Receivable (to the extent that
such funds have not been distributed under Section 18(a)) to IGP, Equus and
SUPRA in such amounts and at such times as shall be determined by Equus;
provided, however, that all distributions under this Section 18(c) shall be
made forty-nine percent (49%) to IGP, thirty-one percent (31%) to Equus and
twenty percent (20%) to SUPRA. For purposes of the preceding sentence, a
distribution of the LDA Receivable or a portion thereof shall be treated as a
distribution of funds attributable to the LDA Receivable.
(d) To the extent permitted by the Indenture, after HDAMC is admitted to
the Partnership and prior to the Adjustment, the Partnership shall make cash
distributions of funds that are not attributable to the LDA Receivable (to the
extent that such funds have not been distributed under Section 18(a) or
pursuant to a similar provision in a predecessor Partnership agreement) to the
Partners in such amounts and at such times as shall be determined by the
Managing Partners; provided, however, that (i) no distribution shall be made
under this Section 18(d) until all advances made by the Partners pursuant to
Section 8 of this Agreement, together with any interest accrued thereon shall
have been paid, and (ii) all distributions under this Section 18(d) shall be
made to the Partners in proportion to their Percentage Partnership Interests
under the Third Amended and Restated Partnership Agreement.
(e) To the extent permitted by the Indenture, after the Adjustment, the
Partnership shall make cash distributions of funds that are not attributable to
the LDA Receivable (to the extent that such funds have not been distributed
under Sections 18(a) or (d)) to the Partners in such amounts and at such times
as shall be determined by the Managing Partners; provided, however, that (i) no
distribution shall be made under this Section 18(e) until all advances made by
the Partners pursuant to Section 8 of this Agreement, together with any
interest accrued thereon, shall have been paid, and (ii) all distributions
under this Section 18(e) shall be made to the Partners in proportion to their
Percentage Partnership Interests. In any year in which there has been a change
in the Percentage Partnership Interests of the Partners (other than changes
<PAGE>18
made by the Adjustment), distributions shall be made under this Section 18(e)
to reflect properly such change.
(f) In determining the amount available under Sections 18(d) or (e) for
distribution to the Partners, the Managing Partners shall take into
consideration the anticipated needs of the Partnership for working capital and
future expansion, amounts needed to pay or reserve against existing and
anticipated operating expenses and obligations, and such other factors as the
Managing Partners deem relevant, including the reserve for contingencies.
Until the Racing Board approved or denied the Adjustment, the Managing Partners
were required under a predecessor Partnership agreement to hold an amount equal
to fifteen percent (15%) of the amount otherwise available for distribution
under a provision of such predecessor Partnership agreement that was similar to
Section 18(d) in a separate account (the "Hold-Back Account") and were
prohibited from distributing the funds in the Hold-Back Account until the
Racing Board approved or denied the Adjustment.
Nineteen: Economic Arrangement of the Partners. It is the intent of the
Partners that all distributions of cash or other property, including amounts
distributed upon liquidation of the Partnership, shall be made in accordance
with the basic economic arrangement of the Partners. The basic economic
arrangement of the Partners is as follows: (i) the distribution of all funds
attributable to the LDA Receivable shall be made in accordance with Section
18(c) (or, where applicable, under a similar provision in a predecessor
Partnership agreement); (ii) the "Closing Distribution" (as that term was
defined in the Fourth Amended and Restated Agreement of the Partnership) was
made in accordance with Section 18(d) of the Fourth Amended and Restated
Agreement of the Partnership; and (iii) the Net Distributions (as defined in
the next sentence) shall be made in proportion to each Partner's Percentage
Partnership Interest immediately after the Adjustment; provided, however, that
in applying this clause (iii) to a Partner that has a Profits Interest (or
Capital Interest) in excess of its Capital Interest (or Profits Interest),
appropriate adjustments will be made to reflect properly the application of the
rules set forth in Sections 7(d) or 7(e) to the transfers that gave rise to
such excess. For purposes of the preceding sentence, the term "Net
Distributions" at any time shall mean the net amount of all distributions that
have been made or are expected to be made after HDAMC was admitted to the
Partnership (including distributions to be made in liquidation of the
Partnership) other than those specified in clauses (i) and (ii) of this Section
19. In order to reflect properly the basic economic arrangement of the
Partners, the Managing Partners shall, to the extent possible, make special
allocations of Profits, Losses, LDA Profits, LDA Losses, General Profits,
General Losses, and items of income, deduction, gain, or loss under Sections
15(f) and 16(i) as are necessary to properly reflect the basic economic
arrangement of the Partners as described in clauses (i), (ii), and (iii) of
this Section 19. In applying the preceding sentence the Managing Partners
shall take into account the requirement under Section 23(c) that liquidating
distributions are to be made in accordance with capital account balances and
the adjustments that are to be made to the capital accounts under Section 17,
including adjustments to be made under Section 17(d) and the adjustments to be
made under Sections 17(a) and 17(b) to reflect contributions, distributions and
the allocations of items under Sections 15 and 16 (including those made under
Sections 15(f) and 16(i) pursuant to this Section 19), and the application of
Sections 7(d) and 7(e) to transfers of Profits Interests and Capital Interests,
respectively.
<PAGE>
<PAGE>19
Twenty: Transfer of Interests.
(a) Except as provided in this Section, the Partners may transfer their
Partnership Interests subject to a right of first refusal exercisable by the
Partnership; provided, however, that such right of first refusal shall not
apply to the transfers described in Section 4(a) and (c). The transferring
Partner is required to advise the Partnership by written notice of the price,
terms and conditions of a third-party bona fide written offer to purchase any
Partnership Interest at least sixty (60) days prior to the proposed transfer.
Said right of first refusal shall be exercisable by the Partnership at the
price and on the terms and conditions set forth in such written offer and the
Partnership must notify the transferring Partner of its intention to purchase
its Partnership Interest at least thirty (30) days prior to the proposed date
of transfer. In the case of a gratuitous transfer of a Partnership Interest,
said right of first refusal shall be at fair market value as determined by an
independent appraisal. Until admitted to the Partnership as a Partner, a
transferee of an interest in the Partnership pursuant to this Section 20 shall
be entitled to receive the distributions from this Partnership to which the
transferor would otherwise be entitled but shall not become entitled to
exercise any rights of a Partner. However, in the case of any purported
transfer not permitted under any other subsection of this Section 20, the
purported transfer shall be void and the purported transferee shall not receive
any distribution. Notwithstanding any other provision of this Section 20, a
transferee of an interest in this Partnership shall be admitted as a Partner
only with the consent of all Managing Partners, which consent may be given or
withheld in the sole and absolute discretion of the Managing Partners. A
Partner shall cease to be a Partner upon the transfer of all of its interest
(including all Profits Interests and Capital Interests) in the Partnership.
(b) Unless all Managing Partners consent to the transfer, no Partner
shall transfer a Partnership Interest to any other person to the extent that
such transfer, if effected, would cause a termination of the Partnership for
federal income tax purposes under Code Section 708(b). Unless all Managing
Partners consent to the transfer, any attempt to transfer a Partnership
Interest that, if effected, would cause a termination of the Partnership is not
effective to transfer the Partnership Interest to the purported transferee
thereof and the purported transferee shall not be entitled to any rights as a
Partner of the Partnership.
(c) Except as provided in Section 4(c), IGP may not transfer any interest
in the Partnership before the date that is one (1) year and one (1) day after
the later of the Fifth Amendment Date or the date on which IGC distributes an
interest in Equus to its Unitholders (hereinafter referred to as the "Amendment
Anniversary"). HDAMC may not transfer any of its interest in the Partnership
prior to December 16, 1994 (hereinafter referred to as the "Closing
Anniversary"). In addition, IGP and HDAMC may not transfer an interest in the
Partnership (hereinafter referred to as the "Interstate Subject Transfer") if
such interest when combined with all other interests transferred (or deemed to
be transferred) by IGP (other than the interest transfer described in Section
4(c)), IBC, Equus, or HDAMC within one (1) year of such Interstate Subject
Transfer would exceed a forty-one and one-half percent (41-1/2%) (such percent
hereinafter referred to as the "Limitation Percent") interest in the
Partnership in the aggregate. If, as permitted under the Third Amended and
Restated Partnership Agreement, SUPRA has transferred more than an eight-
percent (8%) interest in the Partnership prior to the Closing Anniversary, then
(i) in the case of Interstate Subject Transfers occurring prior to the Closing
Anniversary, the limitation contained in the preceding sentence shall be
applied by substituting "forty and one-half percent (40 1/2 %)" for the
<PAGE>20
Limitation Percent contained therein; (ii) in the case of Interstate Subject
Transfers occurring on or after December 16, 1994, and before December 16,
1995, the limitation contained in the preceding sentence shall be applied by
substituting "thirty-nine and one-half percent (39 1/2%)" for the Limitation
Percent contained therein; and (iii) notwithstanding the limitations contained
in the preceding sentence, IGP and HDAMC may transfer, in the aggregate, up to
an additional three-percent (3%) interest upon the expiration of one (1) year
from first date on which Supra has transferred since December 15, 1993, a
three-percent (3%) interest in the Partnership.
(d) SUPRA may not transfer more than an eight-percent (8%) interest in
the Partnership prior to the Closing Anniversary. After the Closing
Anniversary, SUPRA may not transfer any interest in the Partnership
(hereinafter referred to as the "Supra Subject Transfer") if such interest when
combined with all other interests transferred by SUPRA within one (1) year of
such Supra Subject Transfer would exceed an eight-percent (8%) interest in the
Partnership in the aggregate. If, as permitted under the Third Amended and
Restated Partnership Agreement, SUPRA transfers more than an eight-percent (8%)
interest in the Partnership prior to the Closing Anniversary SUPRA may not
transfer any interest in the Partnership (hereinafter referred to as the
"Alternative Supra Subject Transfer") if such interests when combined with all
other interests transferred by SUPRA within one (1) year of such Alternative
Supra Subject Transfer would exceed a six-percent (6%) interest in the
Partnership in the aggregate.
(e) If, prior to the Closing Anniversary, SUPRA has not transferred any
interest in the Partnership and does not have a commitment from a buyer to
acquire an interest in the Partnership, then IGP, HDAMC and SUPRA shall not be
subject to the limitations imposed by subsection (c) and (d), as the case may
be, and shall be subject to the limitations imposed by this Section 20(e). In
such a circumstance:
(i) IGP and HDAMC may transfer an interest in the Partnership to the
extent that such transfer would be permitted under the first three sentences of
Section 20(c). In addition to the transfers described in the preceding
sentence and in Section 4(c), IGP and HDAMC may transfer, in the aggregate, up
to an eight-percent (8%) interest in the Partnership prior to December 15,
1995.
(ii) Except as provided in Sections 4(c) and 20(e)(i), IGP and HDAMC
may not transfer any more interests in the Partnership before the Amendment
Anniversary;
(iii) SUPRA may not transfer an interest in the Partnership until
one (1) year has elapsed following the date on which IGP and HDAMC have
transferred the additional eight-percent interest (8%) in the Partnership
described in the last sentence of Section 20(e)(i); and
(iv) Upon the expiration of the one-year period described in Section
20(e)(iii), SUPRA may not transfer an interest if such interest when combined
with all other interests transferred by SUPRA within one (1) year of the
transfer would exceed a sixteen-percent (16%) interest in the Partnership in
the aggregate.
(f) Subsections (c), (d) and (e), above, are not intended to waive any
other provision of this Section 20, including in particular subsection (b). To
the extent necessary to comply with subsection (b), the interests that IGP, IBC
and HDAMC may transfer in any one (1) year period may be reduced by any
<PAGE>21
Partnership interest transferred or deemed to be transferred in connection with
the Closing, the Adjustment, the events described in Section 4, or the
distribution of Equus interests by IGC to its Unitholders.
(g) Unless otherwise precluded from doing so under this Section 20, upon
Equus becoming a Qualified Public Company (as that term is defined in the
offering memorandum issued in connection with the Closing) HDAMC shall transfer
its interest in the Partnership to Equus; provided, however, that HDAMC shall
only transfer its entire interest at one time, and may not make a transfer of
less than its entire interest, to Equus in exchange for an equity interest in
Equus with a fair market value equal to the greater of (i) the fair market
value of HDAMC's interest in the Partnership on the date of transfer or
(ii) the sum of (x) one-half of the fair market value on the date of the
transfer of the interest that HDAMC would have received if HDAMC had
transferred its entire interest in the Partnership to Equus on the date that
Equus became a Qualified Public Company and (y) one-half of the fair market
value of HDAMC's interest in the Partnership on the date of transfer. The fair
market value of the interests will be determined by an independent financial
expert.
(h) Any person that acquires a Partnership interest from IGP, IBC, HDAMC
or SUPRA may not transfer such interest within two (2) years of the Fifth
Amendment Date without the consent of the Managing Partners.
(i) Except as otherwise provided in this Section 20, the transfer of an
interest in the Partnership shall include a transfer of a Partnership Interest,
a Capital Interest, or a Profits Interest.
Twenty-One: Indemnification.
The Partnership shall indemnify, to fullest extent of Puerto Rico
law, the Managing Partners and their shareholders, partners, directors,
officers, employees, and agents against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by any of those persons in connection with any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative, if such person's actions did not constitute gross negligence,
willful misconduct or fraud.
Twenty-Two: Termination of the Partnership.
(a) The Partnership may be terminated at any time by the mutual agreement
of all the Partners.
(b) The Partnership shall be terminated if a Managing Partner is
adjudicated bankrupt or insolvent, or if an assignment of its assets is made
for the benefit of its creditors, or if a trustee is appointed to take care of
its assets, or if a voluntary petition for relief in bankruptcy is filed by
such Managing Partner.
(c) Upon the termination of the Partnership on account of an event
described in subsection (b) above, a majority in interest of the Partners other
than such Managing Partner shall have a right of first refusal to purchase the
assets of the Partnership at their then fair market value as determined by
independent appraisal.
<PAGE>
<PAGE>22
Twenty-Three: Liquidation of Partnership. Upon termination of the
Partnership for any reason, the Partnership shall continue its business solely
for the purpose of winding up its affairs and shall be liquidated as rapidly as
business judgment permits. All decisions with respect to the disposition of
the Partnership's assets, collections, or compromise of any amounts receivable
and payment or compromise of any amounts payable by the Partnership, shall be
made by the Managing Partners. The assets of the Partnership shall be applied
for the following in the following manner:
(a) First, to the payment or provision for payment of all debts and
obligations of the Partnership to creditors, other than the Partners, and for
the expenses of winding up the affairs of the Partnership.
(b) Second, to the payment of all amounts payable by the Partnership to
the Partners, other than in respect to Partners' capital accounts.
(c) Third, all remaining assets of the Partnership shall be distributed
to the Partners in accordance with the positive balance in each Partner's
capital account as adjusted under Section 17 to reflect all Partnership
operations up to and including the liquidation.
Twenty-Four: Amendments.
(a) Except as provided in subsection (b) below, amendments to this
Agreement require the prior approval of all Partners.
(b) Acting jointly, the Managing Partners, after thirty (30) days notice
to the Partners and subject to subsection (c) below, may amend this Agreement,
without the approval of the other Partners: (i) to change the name of the
Partnership or its registered agent or registered office or the location of its
principal registered office; (ii) to make any change necessary or advisable in
the good faith opinion of the Managing Partners to ensure that the Partnership
will not be treated as an association taxable as a corporation for federal
income tax purposes and will remain qualified as a special partnership under
the ITA; (iii) to make any change that is necessary or desirable to satisfy any
requirements contained in any opinion, directive, order, ruling or regulation
of any federal or state agency (including the Puerto Rico Racing Board),
compliance with which the Managing Partners in their good faith judgment deem
to be in the best interests of the Partnership and the Partners; (iv) to make
any change that is required to bring the Partnership into compliance with the
Puerto Rico Racing Industry and Sport Act; (v) to make any change necessary or
desirable in the good faith opinion of the Managing Partners to facilitate the
public trading of Partnership interests including changes that may be necessary
to ensure that the Partnership interests may qualify as Listed Securities (as
that term is defined in the offering memorandum issued in connection with the
Closing) provided that any such change that has a material adverse effect on
distributions and allocations of profits and losses to HDAMC in a manner that
is inequitable or disproportionate between the Partners will require the
consent of two-thirds of the number of outstanding shares of Class A Stock of
HDAMC and shares of Class A Stock of HDAMC for which outstanding warrants are
then exercisable; (vi) to make any change to reflect the reduction of HDAMC's
interest in the Partnership as a result of the Partnership performing its
guarantee obligations under the warrant agreement between the Partnership,
HDAMC and Banco Popular de Puerto Rico as warrant agent (the "Warrant
Agreement"); (vii) to make any change that is of an inconsequential nature and
does not affect the Partners in any material respect; and (viii) to make any
other changes similar to the foregoing.
<PAGE>23
(c) Notwithstanding the foregoing, the Managing Partners may not amend
the Partnership Agreement in any manner that would disproportionately and
inequitably affect the interests of the Partners without the consent of
Partners holding seventy percent (70%) of the Percentage Interests of the
Partnership.
Twenty-Five: Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matters hereof.
Twenty-Six: Notices. Any and all notices or other communication or
deliveries required or permitted to be given pursuant to any of the provisions
of this Agreement, shall be deemed to have been duly given for all purposes to
be sent by certified or registered mail, return receipt requested, and postage
pre-paid, hand delivered or sent by telegraph or telex to the parties hereto at
the following addresses: (a) IGP: P.O. Box 363908, San Juan, Puerto Rico
00936-3908; (b) SUPRA: P.O. Box 362528, San Juan, Puerto Rico 00936-2528;
(c) Equus: Dresden Farm, Route 734, Middleburg, Virginia 22117; and (d) HDAMC:
P.O. Box 363908, San Juan, Puerto Rico 00936-3908, or (e) at such other address
as any Partner may have specified by notice given to the other Partners in
accordance with this section. The date of giving any such notice shall be the
date the same is deposited in the mail, as such date appears in the postage
cancellation affixed by the United States Postal Service.
Twenty-Seven: Waiver of Provisions. Except as provided in Section 4, no
waiver of the provisions hereof shall be effective unless in writing and signed
by the party to be charged with such waiver and no waiver shall be deemed a
continuing waiver or waivers in respect of any subsequent breach or default, of
either a similar or different nature, unless expressly so stated in writing.
Twenty-Eight: Separability. Should any clause, section or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, sections or parts of this Agreement which can be affected without the
illegal clause, section or part, shall nevertheless continue in full force and
effect.
Twenty-Nine: Governing Law. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the Commonwealth of
Puerto Rico. It is the intention of the parties that the Partnership be
governed by the provisions of Special Partnerships of the Civil Code of Puerto
Rico. The Partnership shall file with the Secretary of the Treasury of the
Commonwealth of Puerto Rico its option to have the Partnership operate as a
Special Partnership under the provisions of Act Number 8 of July 1985, as may
be amended from time to time.
Thirty: Jurisdiction of Courts. Each of the parties hereto consents to
the jurisdiction of the Courts of the Commonwealth of Puerto Rico, with respect
to any matter arising under this Agreement, and shall subject itself to the
jurisdiction of such Courts and agrees that service of process upon it, may be
made in any matter permitted by the laws of the Commonwealth of Puerto Rico.
Thirty-One: Successors. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
Thirty-Two: Headings. The headings or captions under sections of this
Agreement are for convenience and reference only and do not in any way modify
or interpret or construe the intent of the parties to affect any of the
provisions of this Agreement.
<PAGE>24
Thirty-Three: Certain Terms. The use of the term Partner in this
document shall be understood to include and mean the singular and/or plural as
the identity of the parties or the situation so requires.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date and year first above written.
INTERSTATE GENERAL PROPERTIES
LIMITED PARTNERSHIP S.E.
By: INTERSTATE GENERAL COMPANY L.P.
Its General Partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION
Its Managing General Partner
By: /s/ Donald G. Blakeman
------------------------------
Donald G. Blakeman
Executive Vice President
EQUUS GAMING COMPANY L.P.
By: INTERSTATE GENERAL COMPANY L.P.
Its General Partner
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION
Its Managing General Partner
By: /s/ Donald G. Blakeman
------------------------------
Donald G. Blakeman
Executive Vice President
HDA MANAGEMENT CORPORATION
By: /s/ Donald G. Blakeman
-----------------------------
Donald G. Blakeman
President
<PAGE>
<PAGE>25
Affidavit No. 45
Subscribed before me by Donald G. Blakeman, of legal age,
married and resident of San Juan, Puerto Rico, in his capacity as
Executive Vice President of Interstate General Management
Corporation, the Managing General Partner of Interstate General
Company L.P., the Managing General Partner of Interstate General
Properties Limited Partnership S.E., and President of HDA Management
Corporation, to me personally known.
In San Juan, Puerto Rico, this 1st day of August, 1994.
/s/ Armando Martinez Fernandez
-------------------------------------
NOTARY PUBLIC
<PAGE>1
EXHIBIT 10(d)
LIMITED PARTNERSHIP AGREEMENT
OF
EQUUS GAMING COMPANY L.P.
a Virginia limited partnership
THIS AGREEMENT, dated as of the 1st day of August (the "Agreement
Date"), 1994, by and between Interstate General Company L.P. ("IGC"), a
Delaware limited partnership, as General Partner and as a Limited Partner; and
Interstate Business Corporation ("IBC"), a Delaware corporation, as a Limited
Partner;
W I T N E S S E T H:
WHEREAS, the parties hereto entered into that certain Partnership
Agreement of Equus Gaming Company, dated September 17, 1993 (the "General
Partnership Agreement"), for the purpose of forming a general partnership (the
"Original Partnership") under the laws of the Commonwealth of Virginia to
engage in the business described therein;
WHEREAS, the General Partnership Agreement was amended by a First
Amendment thereto, dated October 15, 1993, and a Second Amendment thereto,
dated December 6, 1993, and was amended and restated by the Amended and
Restated Partnership Agreement, dated December 29, 1993; and
WHEREAS, IGC and IBC now desire to convert the Original Partnership
into a limited partnership for the purpose of engaging in the business
described herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto hereby agree as follows:
1. Reorganization of Partnership.
The parties hereby convert the Original Partnership, as previously
established by them pursuant to the General Partnership Agreement, the First
and Second Amendments thereto, and the Amended and Restated Partnership
Agreement, into a limited partnership (the "Partnership"). The Partnership
shall be governed by the Act (as hereinafter defined), in accordance with the
provisions of this Agreement. The parties hereby convert their general
partnership interests in the Original Partnership into the limited and general
partnership interests described in section 7 of this Agreement. The rights and
liabilities of the Partners (as hereinafter defined) shall be as provided in
the Act except as herein otherwise expressly provided.
2. Name.
2.1 The name of the Partnership is "Equus Gaming Company L.P."
<PAGE>2
2.2 The Partnership business shall be conducted under such names as
the General Partner (as hereinafter defined) may from time to time deem
necessary or advisable, provided that appropriate amendments to this Agreement
and/or necessary filings under applicable assumed or fictitious name statutes
are first obtained.
3. Offices and Registered Agent.
3.1 The registered office of the Partnership shall be located at
P.O. Box 392, Middleburg, Virginia, 22117, or at such other place as the
General Partner may from time to time designate by notice to the Partners.
3.2 The Partnership may have such additional offices as the General
Partner may from time to time deem necessary or advisable.
3.3 The General Partner, in its sole and absolute discretion, may
select any Person (as hereinafter defined) permitted by applicable law to act
as registered agent for the Partnership in each jurisdiction in which it is
necessary or appropriate for the Partnership to have a registered agent and may
replace any such Person from time to time.
4. Purpose of the Partnership.
The purpose and business of the Partnership shall be to hold
interests in Housing Development Associates S.E. ("HDA"), a Puerto Rico special
partnership; to organize and hold interests in Virginia Jockey Club, Inc., a
Virginia corporation, and to hold interests in other companies that have an
interest in horse racing ventures; to foster the financing and development of
the business of those entities in which the Partnership holds interests, and to
engage in any and all activities incidental or related to the foregoing and any
other activities permitted to be engaged in by a partnership organized under
the Act.
5. Term.
The Partnership shall be of indefinite duration, but may be
terminated as hereinafter provided.
6. Certain Defined Terms.
Certain terms used in this Agreement shall have the following
meanings:
6.1 "Act" shall mean the Virginia Revised Uniform Limited
Partnership Act.
6.2 "Agreed Value" shall mean, with respect to property, the fair
market value of that property on the date it is contributed to the Partnership,
as determined by the General Partner in good faith and by reasonable methods
(including the employment of independent professional appraisers).
6.3 "Agreement" shall mean this Limited Partnership Agreement of
Equus Gaming Company L.P., as the same may be amended from time to time.
6.4 "Capital Account" shall mean that certain capital account
maintained by the Partnership for each Partner in its capacity as a Partner in
accordance with Section 8.1 hereof.
<PAGE>3
6.5 "Capital Contribution" shall mean the sum of cash and the Agreed
Value of other property, if any, contributed to the Partnership by each Partner
in accordance with Section 7 and otherwise. Any reference in this Agreement to
the Capital Contribution of a Partner shall include the contributions to the
capital of the Partnership made by any predecessor in interest of such Partner.
6.6 "Cash Reserve" shall be any reserve fund which may be
established and maintained by the General Partner, in its reasonable good faith
judgment, for the conduct of the business of the Partnership, provided that
such fund is in keeping with generally accepted accounting practices and never
exceeds amounts reasonably necessary for anticipated debt service, future
capital expenditures, repairs, replacements, taxes, contingent liabilities and
the like. If the Cash Reserve is drawn down it may be replenished in
accordance with the preceding limitations.
6.7 "Code" shall mean the Internal Revenue Code of 1986, as amended
(or any corresponding provision or provisions of succeeding law).
6.8 "Fiscal Year" shall mean an annual accounting period ending
December 31 of each year during the term of the Partnership; provided, however,
that the last such Fiscal Year shall be the period beginning on January 1 of
the calendar year in which the final liquidation and termination of the
Partnership is completed and ending on the date such final liquidation and
termination is completed. To the extent any computation or other provision
hereof provides for an action to be taken on a Fiscal Year basis, an
appropriate proration or other adjustment shall be made in respect of the first
or final Fiscal Year to reflect that such period is less than a full calendar
year period.
6.8 "General Partnership Interest" shall mean the Partnership
Interest at a General Partner held in its capacity as a General Partner.
6.9 "Limited Partnership Interest" shall mean the Partnership
Interest of a Partner held in its capacity as a Limited Partner.
6.10 "Partner" shall mean IGC and IBC and any Person who becomes a
substitute Partner pursuant to Section 11 hereof. "General Partner" shall mean
any Person (i) who is identified as such in the first sentence of this
Agreement and any other person or entity that has become a General Partner
pursuant to the terms of this Agreement, and (ii) who has not, at any given
time, ceased to be a General Partner pursuant to the terms of this Agreement.
"Limited Partner" shall mean any person (I) who is identified as such in the
first sentence of this Agreement and any other Person that has become a Limited
Partner pursuant to the terms of this Agreement, and (II) who, at any given
time, holds an interest in the Partnership.
6.11 "Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership at any particular time, including the right of such
Partner to any and all distributions and any other benefits to which such
Partner may be entitled as provided in this Agreement and the Act, together
with the obligations of such Partner to comply with all the provisions of this
Agreement and the Act.
<PAGE>
<PAGE>4
6.12 "Percentage Interest" shall mean, as of the Agreement Date, the
respective total percentage interest(s) held by each Partner as set forth in
Section 7.2 (including all interests held either as a General Partner or as a
Limited Partner). Thereafter, the General Partner may adjust the Partners'
respective Percentage Interests to reflect each Partner's interest in the
Partnership.
6.13 "Percentage Limited Partnership Interest" shall mean for each
Limited Partner a percentage determined by dividing the Percentage Interest of
such Limited Partner (excluding any parties of such Percentage Interest
attributable to a General Partnership Interest by 100 minus the aggregate
Percentage Interest of all General Partners (excluding any portion of such
Percentage Interest attributable to any Limited Partnership Interest held by
such General Partners).
6.14 "Person" shall mean any human being, organization, corporation,
partnership, joint venture, association, labor organization, legal
representative, federal, state or local governmental agency, court authority or
other legal entity whatsoever.
6.15 "Profits" or "Loss" shall mean, for any fiscal year, the net
income or net loss, respectively, of the Partnership as reported by the
Partnership for federal income tax purposes, except that (i) items of income,
gain, loss, and deduction relating to property contributed to the Partnership
shall be computed as if the basis of the property to the Partnership at the
time of contribution were equal to its Agreed Value on that date (for purposes
of this clause (i), the amount of any depreciation, amortization, or other cost
recovery deduction allowable for any period with respect to Property
contributed to the Partnership shall be an amount that bears the same ratio to
the Agreed Value of the Property on the date of contribution as the federal
income tax depreciation, amortization, or other cost recovery deduction bears
to the adjusted tax basis of the Property on the date of contribution), (ii)
any income of the Partnership that is exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses shall be added to
such taxable income or loss, and any related expenses not allowed as a
deduction pursuant to Code Section 265 shall be subtracted from such taxable
income or loss, and (iii) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treas. Reg. Section 1.704-1(b) and not otherwise taken into account
under this Section shall be subtracted from such income or loss.
Profits and Losses shall include, where the context requires, related
federal income tax items such as capital gain or loss, tax preferences,
investment interest, depreciation, cost recovery, depreciation recapture, and
cost recovery recapture. Except as otherwise provided in the regulations
issued under Code Section 704(b), such amounts shall be computed without taking
into account any basis adjustment resulting from an election under Section 754
of the Code.
If there has been an adjustment to the Partners' Capital Accounts
pursuant to Section 8.1(e) to reflect the unrealized income, gain, loss, or
deduction inherent in Partnership property: (I) depreciation, amortization, or
other cost recovery deductions with respect to such property for each fiscal
year or other period shall equal an amount which bears the same ratio to the
fair market value of such property on the date of such adjustment as the
federal income tax depreciation, amortization, or other cost recovery
deductions for such year or other period bears to the adjusted tax basis of
such property on such date; and (II) gain or loss resulting from any
<PAGE>5
disposition of such property with respect to which gain or loss is recognized
for federal income tax purposes shall be computed under this sentence as if
such property had an adjusted basis on the date of such adjustment equal to its
fair market value on such date and all subsequent adjustments for depreciation,
amortization, or other cost recovery deductions were made in accordance with
clause (I) of this sentence.
The term "Profits" shall mean a net positive amount and the term
"Losses" shall mean a net negative amount for the Partnership fiscal year
determined after making the adjustments described above.
6.16 "Property" shall mean all of the Partnership's right, title and
interest in and to, and shall include, any real or personal property interests
(tangible and intangible) owned by the Partnership.
6.17 "Transfer" shall mean any sale, transfer, exchange, assignment,
pledge, gift, or any contract for the foregoing; any voting trust or other
agreement or arrangement respecting the transfer of voting rights or any other
beneficial interest in a Partnership Interest.
7. Capital Contributions and Partnership Interests.
7.1 In consideration for their interests in the Original
Partnership, each Partner has previously contributed $100 to the Original
Partnership.
7.2 On the Agreement Date:
(a) IGC will contribute or cause to be contributed to the
Partnership a 40.65% interest (the "IGC Profits Interest")
in HDA's profits now held by Interstate General Properties
Limited Partnership S.E. ("IGP"). IGP will retain a 1%
interest in HDA's profits and its full 41.65% interest (the
"IGC Capital Interest") in HDA's capital. In return, IGC
will receive a 60.25% Percentage Interest as a Limited
Partner and a 1% Percentage Interest as a General Partner.
(b) IBC will contribute to the Partnership its entire 26.35%
interest (the "IBC Interest") in HDA. In return, IBC will
receive a 38.75% Percentage Interest as a Limited Partner.
8. Capital Accounts.
8.1 Maintenance of Capital Accounts.
(a) The Partnership shall maintain a separate Capital Account for
each Partner in accordance with this Section 8.1.
(b) A Partner's Capital Account shall be credited with (i) the
amount of any cash contributed to the Partnership by or on behalf of such
Partner, (ii) the Agreed Value of any property other than cash contributed to
the Partnership by or on behalf of such Partner, (iii) allocations to such
Partner of Partnership Profits (or items thereof) pursuant to Section 9.1, (iv)
the amount of any Partnership liabilities assumed by such Partner or which are
secured by any property distributed to such Partner, and (v) any other item
required to be credited for proper maintenance of capital accounts by the
Treasury regulations under Section 704(b) of the Code.
<PAGE>6
(c) A Partner's Capital Account shall be debited with (i) the amount
of any cash and the fair market value of property other than cash that is
distributed to such Partner, all as may be determined in accordance with this
Agreement, (ii) allocations to such Partner of Partnership Losses (or items
thereof) pursuant to Section 9.1, (iii) the amount of any liabilities of such
Partner assumed by the Partnership or which are secured by any property
contributed by such Partner to the Partnership, and (iv) any other item
required to be debited for proper maintenance of capital accounts by the
Treasury regulations under Section 704(b) of the Code.
(d) If any property other than cash is distributed to a Partner, the
Capital Accounts of the Partners shall be adjusted to reflect the manner in
which gain or loss that has not previously been reflected in the Capital
Accounts would be allocated among the Partners under Section 9.1 if the
distributed property had been sold by the Partnership for a price equal to its
fair market value on the date of distribution. See Section 8.1(c)(i) for
additional adjustments to be made to the distributee Partner's Capital Account.
(e) The General Partner may, upon the occurrence of one of the
events described in Section 8.1(e)(ii), increase or decrease the Capital
Accounts of the Partners in accordance with Section 8.1(e)(i) to reflect a
revaluation of Partnership property.
(i) Any adjustments made under this Section 8.1(e) shall
reflect the manner in which the unrealized income, gain, loss,
or deduction inherent in Partnership property (to the extent
that it has not been reflected in the Capital Account
previously) would be allocated among the Partners under Section
9.1 if the Partnership had sold all of its property for its fair
market value on the date of adjustment. The adjustments
described in this Section 8.1(e)(i) shall be based on the fair
market value of Partnership property on the date of adjustment.
(ii) The General Partner may make the Capital Account
adjustments described in this Section 8.1(e) upon the occurrence
of the following events: (A) a contribution of money or other
property (other than a de minimis amount) to the Partnership by
a new or existing Partner as consideration for an interest in
the Partnership; (B) a distribution of money or other property
(other than a de minimis amount) by the Partnership to a
retiring or continuing Partner as consideration for an interest
in the Partnership; or (C) the liquidation of the Partnership.
(iii) The adjustments described in this Section 8.1(e) are
intended to comply with Treas. Reg. Section 1.704-1(b)(2)(iv)(f)
and shall be interpreted consistently with such regulation to
effectuate such intent. See the definition of "Profits and
Losses" for special rules for the computation of Profits and
Losses in the case of an adjustment under this Section 8.1(e).
(f) In the event of a permitted transfer of a Partnership Interest
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred Partnership Interest.
8.2 No Interest on or Right to Withdraw Capital
Contributions.
<PAGE>7
No interest shall be paid by the Partnership on capital contributions
or on the balance in any capital account and no Partner shall have the right to
withdraw his capital contribution or to demand or receive a return of his
capital contribution.
9. Profits, Losses, and Tax Allocations.
9.1 Profits, Losses, and Tax Allocations.
(a) Allocation of Profits. Except as otherwise provided in the
Agreement, items of income and of gain and Profits of the Partnership for each
fiscal year shall be determined as of the end of such fiscal year and allocated
to the Partners as follows:
(i) First, if any Limited Partner unexpectedly receives an
adjustment, allocation, or distribution of the type contemplated
by Treas. Reg. Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) that
causes or increases a deficit in such Limited Partner's Capital
Account balance, items of Partnership income and gain entering
into the computation of Profits and Losses shall be allocated to
all such Limited Partners in proportion to such deficits being
offset to eliminate such deficits as quickly as possible. It is
the intent of the Partners that this Section 9.1(a)(i)
constitute a qualified income offset provision under Treas. Reg.
Section 1.704-1(b)(2)(ii)(d) and be interpreted consistently
with such regulation to effectuate such intent.
(ii) Second, Profits less any items allocated under section
9.1(a)(i) shall be allocated to each General Partner to the
extent necessary to offset any previous allocations of Loss to
such General Partner pursuant to the last sentence of Section
9.1(b).
(iii) Third, Profits less any amounts allocated under Sections
9.1(a)(i) and 9.1(a)(ii) shall be allocated to the Partners in
proportion to each Partner's Percentage Interest.
(b) Allocation of Losses. Except as otherwise provided in this
Agreement, items of expense, deduction and loss and the Losses of the
Partnership for each fiscal year shall be determined as of the end of such
fiscal year, and shall be allocated to the Partners in proportion to each
Partner's Percentage Interest, provided, however, Losses shall not be allocated
to any Limited Partner to the extent such Losses would cause or increase a
deficit in such Limited Partner's Capital Account balance. Any Losses that
cannot be allocated to a Limited Partner under the preceding sentence (due to
the deficit Capital Account balance restrictions) shall be allocated to the
General Partner.
(c) Curative Allocations. The qualified income offset allocations
under Section 9.1(a)(i) are intended to comply with certain requirements of the
Treasury regulations under Code Section 704(b). Notwithstanding any other
provision of this Section 9.1 (other than the qualified income offset
allocations), the qualified income offset allocations under Section 9.1(a)(i)
shall be taken into account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent possible, the net amount to
each Partner of such allocations together with such qualified income offset
allocations shall be equal to the net amount that would have been allocated to
each such Partner if such qualified income offset Allocations had not occurred.
<PAGE>8
This Section 9.1(c) is intended to minimize to the extent possible and to the
extent necessary any economic distortions which may result from application of
the qualified income offset allocations and shall be interpreted in a manner
consistent therewith.
(d) Tax Allocations. All items of income, gain, loss, and
deduction, and all tax preferences, depreciation, accelerated cost recovery
system deductions and investment interest and other tax items of the
Partnership for each fiscal year (collectively referred to as "Partnership Tax
Items") shall be allocated for tax purposes to the Partners in accordance with
this Section 9.1(d).
(i) Except as provided in Sections 9.1(d)(ii) and 9.1(d)(iii),
Partnership Tax Items shall be allocated for tax purposes in
accordance with the allocations of items of income, gain, loss,
deduction, Profits, and Losses under Section 9.1(a) through (c).
For purposes of the preceding sentence, an allocation to a
Partner of a share of Profits or Losses shall be treated as an
allocation to such Partner of the same share of each Partnership
Tax Item that is taken into account in computing such Profits or
Losses.
(ii) Gain or loss upon sale or other disposition of any
property contributed to the Partnership or any depreciation,
amortization, or other cost recovery deduction allowable with
respect to the basis of property contributed to the Partnership
shall be allocated for tax purposes among the contributing and
non-contributing Partners so as to take into account the
difference between the adjusted tax basis and the Agreed Value
of the property on the date of its contribution to the extent
permitted by Treas. Reg. Section 1.704-3 or such superseding
regulations as may be promulgated in accordance with Section
704(c) of the Code. In making allocations pursuant to the
preceding sentence, the General Partner is authorized to apply
any method or convention required or permitted by Section 704(c)
of the Code; provided, however, that the General Partner shall
select such method or convention as, in its opinion, will take
such variation fully into account and that will permit interests
in the Partnership to be publicly traded at some future time
(taking into account the need for publicly traded interests to
be fungible).
(iii) Except as provided in Section 9.1(d)(ii), if there has
been an adjustment to the Partners' Capital Accounts pursuant to
Section 9.1(e) to reflect the unrealized income, gain, loss, or
deduction inherent in Partnership property, Partnership Tax
Items with respect to such property shall be allocated to the
Partners for tax purposes so as to take into account the
difference between the adjusted tax basis of such property and
the value at which it is reflected in the Partners' Capital
Accounts in the same manner as variations between the adjusted
tax basis and fair market value of property contributed to the
Partnership are taken into account in determining the Partners'
allocations of Partnership Tax Items under Section 9.1(d)(ii),
including the requirement that the General Partner shall select
such method or convention as, in its opinion, will take such
variation fully into account and that will permit interests in
<PAGE>9
the Partnership to be publicly traded at some future time
(taking into account the need for publicly traded interests to
be fungible).
(iv) In implementing the election under Section 754 of the
Code, the General Partner shall select such methods or
conventions that are required or permitted under the Code that
will properly reflect each Partner's interest in the Partnership
and that will permit interests in the Partnership to be publicly
traded at some future time (taking into account the need for
publicly traded interests to be fungible).
(v) In the event of any changes in any Partner's Partnership
Interest during the fiscal year, then for purposes of this
Section 9, the General Partner shall take into account the
requirements of Code Section 706(d) and shall have the right to
select any method or convention of determining the varying
interests of the Partners during the year which satisfies Code
Section 706(d) and that will permit interests in the Partnership
to be publicly traded at some future time (taking into account
the need for publicly traded interests to be fungible).
9.2 Allocation Savings Provision. The allocation method set forth
in this Section 9 is intended to allocate Profits and Losses (and items
thereof) to the Partners for federal income tax purposes in accordance with
their economic interests in the Partnership and to permit interests in the
Partnership to be publicly traded at some future time (taking into account the
need for publicly traded interests to be fungible), while complying with the
requirements of the Code, including Section 704 and the Treasury Regulations
promulgated thereunder. If in the opinion of the General Partner, the
allocation of Profits or Losses (or items thereof) pursuant to the provisions
of this Section 9 will not (1) satisfy the requirements of Code Section 704 or
the Treasury Regulations thereunder, (2) comply with any other provisions of
the Code or Treasury Regulations, (3) permit the interests of the Partnership
to be publicly traded at some future time (taking into account the need for
publicly traded interests to be fungible), or (4) properly take into account
each Partner's interest in the Partnership, then notwithstanding anything to
the contrary contained in the preceding provisions of this Section 9, Profits
and Losses (or items thereof) shall be allocated in such manner as the General
Partner in its sole and unrestricted discretion determines to be required so as
to reflect properly items (1), (2), (3), or (4) of this sentence, as the case
may be, and the General Partner shall have the right to amend this Agreement
without action by the Partners to reflect any such change in the method of
allocating Profits and Losses (or items thereof).
10. Distributions.
10.1 Distributions. Distributions in cash or in kind may be made in
the discretion of the General Partner. Except with respect to the LDA
Receivable (as defined in Section 10.3) or except as provided in Section 17.2,
all such distributions shall be made in proportion to Partners' Percentage
Interests. Distributions in kind shall be treated as provided in Section 17.3
as if such distribution were made pursuant to a liquidation.
10.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provision of any state or local tax law with respect to any payment or
distribution to the Partnership or the Partners shall be treated as amounts
distributed to the Partners pursuant to this Section 10 for all purposes under
<PAGE>10
this Agreement. The General Partner may allocate any such amounts among the
Partners in any manner that is in accordance with applicable law.
10.3 Distribution of LDA Receivable. The LDA Receivable shall be
distributed exclusively to the Limited Partners ratably in proportion to each
Limited Partner's respective Percentage Limited Partnership Interest. For
purposes of this Agreement the term "LDA Receivable" shall mean an
approximately $13.2 million note receivable ($11.9 million principal plus $1.3
million in accrued and unpaid interest) payable by Land Development Associates
S.E. to HDA.
11. Withdrawals and Transfers of Partnership Interests.
11.1 General Partners.
(a) Withdrawal or Transfer.
(i) A General Partner may not voluntarily withdraw from the
Partnership or make a Transfer of its Partnership Interest as a
General Partner unless:
(A) In the case of a Transfer, the transferee of such
Partnership Interest provides written confirmation of its
agreement to purchase or succeed to such Partnership Interest as
a General Partner, to be bound by the terms and provisions of
this Agreement, and to accept the responsibility for the
management and control of the Partnership as a substitute
General Partner; and
(B) All the Limited Partners consent to such withdrawal or
Transfer and to the admission of the proposed successor General
Partner as a substitute General Partner.
(ii) Upon the occurrence of the foregoing conditions specified
in subsection 11.1(a)(i) of this Agreement, the General Partner
may withdraw from the Partnership effective on at least thirty
(30) days' advance written notice to the other Partners, such
withdrawal to take effect on the date specified in such notice,
provided that such withdrawal shall take effect immediately
after the transferee or successor General Partner, if any, has
been admitted to the Partnership as a substitute General
Partner. The General Partner shall have no liability to the
Partnership or the other Partners on account of any withdrawal
in accordance with the terms of this Section 11.1(a).
(b) Limitations on Withdrawal of the General Partner and Election of
a Successor General Partner. Notwithstanding the provisions of Section
11.1(a), a General Partner may not voluntarily withdraw from the Partnership or
make a Transfer of its Partnership Interest pursuant to Section 11.1(a) to the
extent that the action in question (i) would cause the loss of limited
liability of the Limited Partners under this Agreement, (ii) would cause the
Partnership to be treated as an association taxable as a corporation for
federal income tax purposes, or (iii) would result in the termination of the
Partnership within the meaning of section 708(b) of the Code. The remaining
and successor General Partners, as a group, shall have a continuing interest of
at least one percent (1%) in each material item of Partnership income, gain,
loss, deduction, or credit.
<PAGE>11
(c) Admission of a Successor General Partner. A successor General
Partner or the transferee of all or any portion of the Partnership Interest of
a General Partner pursuant to Section 11.1(a) shall be admitted to the
Partnership as a General Partner (in the place, in whole or in part, of the
transferor or former General Partner), effective as of the date that an
amendment to this Agreement, adding the name of such successor General Partner
and other required information, is recorded pursuant to the Act (which
admission, in the event the successor General Partner is in the place in whole
of the transferor or former General Partner, shall be immediately prior to the
withdrawal of such transferor or former General Partner), and upon receipt by
the Partnership of all of the following:
(i) the successor General Partner's acceptance of, and
agreement to be bound by, all of the terms and provisions of
this Agreement, in form and substance satisfactory to the
Partnership;
(ii) evidence of the authority of such successor General Partner
to become a General Partner and to be bound by all of the terms
and conditions of this Agreement;
(iii) the written agreement of the successor General Partner to
continue the business of the Partnership in accordance with the
terms and provisions of this Agreement; and
(iv) such other documents or instruments as may be required in
order to effect the admission of the successor General partner
as a General Partner under this Agreement.
(d) Admission of Additional General Partner. An additional General
Partner can be admitted with the consent of the existing General Partner and
upon the terms and conditions set by the existing General Partner, including
satisfaction of all of the requirements set forth in Section 11.1(c) for the
admission of a successor General Partner.
(e) Amendment of Agreement and Certificate of Limited Partnership.
This Agreement and the certificate of limited partnership of the Partnership
shall be amended to reflect the withdrawal or succession of a General Partner
or the admission of a new General Partner.
11.2 Transfers of Interests by Limited Partners.
(a) A Limited Partner may Transfer all or a portion of its
Partnership Interest subject to the written consent of the General Partner
which may be granted or withheld at the sole discretion of the General Partner,
and subject to the satisfaction of the following conditions:
(i) Each Transfer shall be effective as of the day on which the
General Partner consents in writing to such Transfer;
(ii) No Transfer shall be made unless, in the opinion of the
General Partner, such Transfer will not result in the
termination of the Partnership for purposes of the then
applicable provisions of the Code;
(iii) No Transfer shall be made unless, in the opinion of the
General Partner, such Transfer will not jeopardize any license
or any application therefor held by the Partnership; and
<PAGE>12
(iv) No Transfer shall be made unless, in the opinion of the
General Partner, registration is not required under applicable
general and state securities laws with respect thereto or as a
result thereof.
(b) Any Transfer pursuant to the terms hereof (including
obtaining the written consent of the General Partner and satisfaction of all of
the conditions set forth in Section 11.2(a)) shall confer upon the transferee
the right to become a substitute Limited Partner. Unless a transferee becomes
a substitute Limited Partner, such transferee shall have no right to
participate in the management or administration of the Partnership's business
or affairs, or to require any information or account of Partnership
transactions, or to inspect the Partnership's books and records. A transferee
who does not become a substitute Limited Partner shall only be entitled to
receive the share of distributions, income, and losses to which the
transferring Limited Partner would otherwise be entitled.
12. Tax Elections.
12.1 The Partnership shall elect, pursuant to Section 754 of the
Code, to adjust the basis of the Partnership's property with respect to an
assignment of all or part of a Partnership Interest by sale or exchange or on
death of a Partner. The General Partner shall implement the election under
Section 754, and make any resulting adjustments to basis in accordance with
section 9.1(d)(iv). Upon request of the General Partner, each Partner shall,
at its own expense, within thirty (30) days of such request, furnish to the
Partnership such information as is reasonably necessary to accomplish the
adjustments in basis provided for under the Section 754 election.
12.2 The General Partner shall cause the Partnership to make or
revoke all other tax elections provided for under the Code. Each Partner who
transfers all or any portion of its Partnership Interest shall furnish the
Partnership with all information required to enable the Partnership to fulfill
any federal income tax reporting requirements imposed with respect to such
transfer.
13. Management and Operation of Business.
13.1 The initial General Partner of the Partnership shall be IGC.
13.2 Except as otherwise expressly limited, restricted or
prohibited, the General Partner shall have and may exercise on behalf of the
Partnership all rights necessary, proper, convenient or advisable to effectuate
and carry out the purpose, business and objectives of the Partnership. Such
powers shall include, without limitation, the power to:
(a) acquire, hold, construct, lease and dispose of assets;
(b) create, by grant or otherwise, easements and servitudes relating
to the Partnership's property;
(c) employ and dismiss from employment any and all employees,
agents, independent contractors, real estate managers, brokers,
attorneys, and accountants;
(d) let or lease all or any portion of any Partnership property for
any purpose and whether or not the portion so leased is to be
occupied by the lessee, or, in turn, subleased in whole or in
part to others;
<PAGE>13
(e) construct, alter, improve, repair, raze, replace, or rebuild any
property;
(f) obtain replacements of any mortgage or mortgages related in any
way to the property owned by the Partnership, and to repay in
whole or in part, refinance, recast, modify, consolidate, or
extend any mortgages affecting any such property;
(g) take such action on behalf of the Partnership as may be
necessary to acquire real or personal property for the
Partnership as the Partners deem advisable or beneficial to the
purposes and goals of the Partnership;
(h) sell or exchange Partnership property; provided, however, that
the sale of all or substantially all of the assets of the
Partnership may be authorized only in accordance with the terms
of Section 14 hereof;
(i) be reimbursed for all expenses incurred in conducting and in
furtherance of the Partnership business, for all taxes paid by
the General Partner in connection with the Partnership business
and on behalf of the Partnership, and for all costs associated
with the development, organization, and initial operation of the
Partnership;
(j) do any and all of the foregoing at such a price, rental or
amount, for cash, securities, or other property and upon those
terms as the General Partner deems proper;
(k) deposit Partnership funds in an account or accounts to be
established from time to time in such financial institutions
(including any state or federally chartered bank or savings and
loan association), and shall be authorized to withdraw and shall
authorize the withdrawal of those funds;
(l) place record title to any property in the name of the
Partnership or in the name of a nominee or trustee for the
purpose of mortgage financing or any other convenience or
benefit of the Partnership;
(m) institute and defend actions at law or in equity;
(n) keep, or cause to be kept, full and accurate records of all
transactions of the Partnership;
(o) cause to be prepared and thereafter timely file (including any
applicable extensions), all tax returns and reports for the
Partnership and, in connection therewith, make any elections
that the Partners deem advisable, including but not limited to
the election referred to in Section 754 of the Code, and act as
"tax matters partner" for the Partnership within the meaning of
Sections 6221 through 6232 of the Code; and
(p) execute, acknowledge, and deliver any and all instruments to
effectuate any and all of the foregoing.
<PAGE>
<PAGE>14
13.3 Anything in this Agreement to the contrary notwithstanding, the
General Partner shall not cause or permit the Partnership to take any of the
following actions without the written agreement of the Partners:
(a) incur or assume any indebtedness other than indebtedness
incurred in the ordinary course of business;
(b) create or incur any lien upon the Partnership's assets other
than trade debt incurred in the ordinary course of business;
(c) guarantee or otherwise in any way become responsible for the
obligations or indebtedness of any other person.
13.4 Notwithstanding anything contained in Section 13.3 hereof to
the contrary, the General Partner shall be authorized to engage the management
services of any Person or Persons (provided such Person or Persons have the
requisite skill and ability), subject to the oversight and control of the
Partnership.
13.5 In addition to other acts expressly prohibited or restricted
herein or by law, the General Partner shall be expressly prohibited from the
following:
(a) doing any act in contravention of this Agreement;
(b) doing any act which, to the best of its present knowledge, would
make it impossible to carry on the ordinary business of the
Partnership;
(c) confessing a judgment against the Partnership in connection with
any threatened or pending legal action;
(d) possessing or in any manner dealing with the assets of the
Partnership or assigning the rights of the Partnership in the
assets of the Partnership for other than Partnership purposes;
(e) commingling the funds of the Partnership with the funds of any
other Person; and
(f) entering into any transaction on terms no less favorable to the
Partnership than would otherwise be obtained by two
disinterested parties on an arms-length basis.
14. Sale of All or Substantially All of the Assets of the Partnership.
The Partnership may not sell, mortgage, pledge, encumber or dispose
of any substantial Partnership asset or property, or any substantial portion of
any Partnership asset or property without the prior written consent of all of
the Partners.
15. Reserves.
In addition to the specific long term Cash Reserves provided for in
Section 6.7, the General Partner may cause the Partnership to create such short
term reserves or running cash balances for such purposes as it determines to be
in the best interests of the Partnership.
<PAGE>
<PAGE>15
16. Dissolution of the Partnership.
The Partnership shall be dissolved and terminated and its business
wound up on the occurrence of any one of the following events:
(a) the filing by, on behalf of, or against the Partnership of any
petition or pleading, voluntary or involuntary, to declare it
bankrupt under any bankruptcy law or act, or the commencement in
any court of any proceeding, voluntary or involuntary, to
declare it insolvent or unable to pay its debts, or the
appointment by any court or supervisory authority of a receiver,
trustee or other custodian of the Property, assets or business
of the Partnership or the assignment by the Partnership of all
or any part of its Property or assets for the benefit of
creditors if any said action, proceeding or appointment is not
dismissed, vacated or otherwise terminated within thirty
(30) days of its commencement; and
(b) any other event resulting in the dissolution or termination of
the Partnership under the laws of the Commonwealth of Virginia.
17. Distribution Upon Dissolution.
17.1 Negative Capital Account. Upon the dissolution of the
Partnership, any General Partner who has a negative balance in his Capital
Account, as determined after taking into account all Capital Account
adjustments for the Partnership fiscal year during which such dissolution
occurs, shall be obligated to contribute to the Partnership by the end of such
fiscal year (or, if later, within 90 days after the date of such dissolution)
an amount such that the balance in his Capital Account is zero, and such
contributed amount is to be applied and distributed as provided in Section
17.2. The General Partner's obligation to make a contribution with respect to
a negative Capital Account balance under the preceding sentence shall not apply
to benefit creditors with respect to nonrecourse obligations of the
Partnership. No Limited Partner shall have any obligation to pay any amount to
the Partnership on account of a negative Capital Account balance.
17.2 Dissolution and Liquidation. Unless the business of the
Partnership is continued, upon the dissolution of the Partnership, the General
Partner or the Persons required by law to wind up the Partnership's affairs
shall liquidate the assets of the Partnership and apply and distribute the
proceeds of such liquidation as follows, unless otherwise required by law:
(a) First, to payment of debts and liabilities of the Partnership
and the expenses of winding up;
(b) Second, to the setting up of reasonable reserves for any
contingent liabilities or obligations of the Partnership, provided that any
such reserves shall be held for such period as the General Partner or other
Persons so distributing shall deem advisable for the purpose of disbursing such
reserves in payment of such liabilities or obligations and, at the expiration
of such period, the balance of such reserves, if any, shall be distributed as
hereinafter provided;
(c) Third, to the Partners in accordance with their positive Capital
Account balances, as adjusted pursuant to Section 9.1 for all Partnership
operations up to and including such liquidation.
<PAGE>16
(d) Fourth, any additional amounts shall be distributed in
proportion to the Partners' respective Percentage Interests.
17.3 Distributions in Kind. If the General Partner or the Persons
required by law to wind up the Partnership's affairs shall determine that a
portion of the Partnership's assets should be distributed in kind to the
Partners, the General Partner or such Persons, as the case may be, shall obtain
an appraisal as of a date reasonably close to the date of liquidation. The
Capital Accounts shall be adjusted as provided in Section 8.1(d) to reflect
each Partner's share of the unrealized appreciation (or loss) with respect to
any such assets distributed in kind and the distribution of any such assets (or
portions thereof as tenants in common) in kind to a Partner shall be considered
a distribution of an amount equal to the assets' appraised fair market value
(or portions thereof) for purposes of Section 8.1(c)(i).
17.4 A reasonable time shall be allowed for the orderly liquidation
of the assets of the Partnership and the discharge of liabilities.
17.5 By no later than one hundred twenty (120) days after the
dissolution and termination of the Partnership, each of the Partners shall be
furnished with statements similar, so far as may be practicable, to those set
forth in Section 18.2 of this Agreement prepared by the certified public
accountant or bookkeeper for the Partnership as of and for the period ending
with the date of complete liquidation.
18. Books of Account, Records and Reports.
18.1 Proper and complete records and books of account shall be kept
by the General Partner in which shall be entered fully and accurately all
transactions and such other matters relating to the Partnership's business as
are usually entered into records and books of account maintained by persons
engaged in businesses of a like character. The books and records shall at all
times be maintained at the business office of the Partnership, and shall be
open to the reasonable inspection and examination of any Partner or its duly
authorized representatives during reasonable business hours.
18.2 Within ninety (90) days after the end of each Fiscal Year of
the Partnership, the General Partner shall send to each Person who was a
Partner at any time during such year such tax information, including, without
limitation, Federal Tax Schedule K-1, as shall be reasonably necessary for the
preparation by such Person of its federal income tax return. This period shall
be automatically extended by the period of any delay beyond the control of the
General Partner resulting from the failure of a third party to provide required
tax information to the Partnership in a timely manner.
19. Notices.
All notices under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally, or mailed by certified or
registered mail, postage prepaid, return receipt requested. Notices to the
Partnership shall be delivered at, or mailed to, its principal office. Notices
to a Partner shall be delivered to such Partner, or mailed to the last address
furnished by it for such purposes to the General Partner. Each Partner shall
give notice of a change of address to the Partnership in the manner provided in
this Section.
<PAGE>
<PAGE>17
20. Amendments.
This Agreement may be amended upon the written consent of all the
Partners.
21. Meetings, Consents and Voting.
A meeting of the Partnership to consider any matter with respect to
which the Partners may vote as set forth in this Agreement may be called by any
Partner. Upon receipt of a notice requesting a meeting by such Partner and
stating the purpose of the meeting, the General Partner shall, within ten (10)
days thereafter, give notice of a meeting of the Partnership to be held at a
time and place convenient to the Partners as determined by written agreement of
the Partners on a date not earlier than fifteen (15) days nor later than sixty
(60) days after receipt by the General Partner of the notice requesting a
meeting. The notice of the meeting shall set forth the time, date, location
and purpose of the meeting.
22. Additional Documents.
Each party hereto agrees to execute and acknowledge all documents and
writings which the Partners may deem necessary or expedient in the creation of
this Partnership and the achievement of its purposes.
23. Survival of Rights.
Except as herein otherwise provided to the contrary, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
successors and assigns.
24. Interpretation and Governing Law.
When the context in which words are used in this Agreement indicates
that such is the intent, words in the singular number shall include the plural,
and vice versa, the masculine gender shall include the neuter or female gender,
and "or" is used in the inclusive sense. Headings or titles contained herein
are inserted only as a matter of convenience and in no way define, limit,
extend or interpret the scope of this Agreement or any particular Section
hereof. This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Virginia, without giving regard to the conflict of
law provisions thereof.
25. Severability.
If any provision, sentence, phrase or word of this Agreement or the
application thereof to any person or circumstance shall be held invalid, the
remainder of this Agreement, or the application of such provision, sentence,
phrase or word to persons or circumstance, other than those as to which it is
held invalid, shall not be affected thereby.
26. Agreement in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. In addition, this Agreement may contain more than one counterpart
of the signature page and this Agreement may be executed by the affixing of the
signatures of each of the Partners to one of such counterpart signature pages;
<PAGE>18
all of such signature pages shall be read as though one, and they shall have
the same force and effect as though all of the signers had signed a single
signature page.
27. Third Parties.
The agreements, covenants and representations contained herein are
for the benefit of the parties hereto inter se and are not for the benefit of
any third parties including, without limitations, any creditors of the
Partnership.
28. Prior Agreements.
This Agreement shall in all respects replace and supersede the
Amended and Restated Partnership Agreement as and from the date first above
written.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general
partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
LIMITED PARTNERS:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general
partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
INTERSTATE BUSINESS CORPORATION, a
Delaware corporation
By: /s/ Gretchen Gronau
----------------------------------
Title: Assistant Treasurer
<PAGE>1
EXHIBIT 10(e)
FIRST AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
EQUUS GAMING COMPANY L.P.
a Virginia limited partnership
THIS FIRST AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF EQUUS GAMING
COMPANY L.P ("Amendment"), dated as of the 1st day of August, 1994, by and
between Interstate General Company L.P. ("IGC"), a Delaware limited
partnership, as a General Partner and as a Limited Partner; Equus Management
Company ("EMC") a Delaware corporation, as a General Partner and as a Limited
Partner; and Interstate Business Corporation ("IBC"), a Delaware corporation,
as a Limited Partner (except as otherwise provided in this Amendment,
capitalized terms shall have the meaning set forth in the Agreement, as
hereinafter defined);
W I T N E S S E T H:
WHEREAS, IGC and IBC entered into that certain Partnership Agreement
of Equus Gaming Company, dated September 17, 1993 (the "General Partnership
Agreement"), for the purpose of forming a general partnership (the "Original
Partnership") under the laws of the Commonwealth of Virginia to engage in the
business described therein;
WHEREAS, the General Partnership Agreement was amended by a First
Amendment thereto, dated October 15, 1993, and a Second Amendment thereto,
dated December 6, 1993, and was amended and restated by the Amended and
Restated Partnership Agreement, dated December 29, 1993;
WHEREAS, IGC and IBC entered into that certain Limited Partnership
Agreement of Equus Gaming Company ("Agreement") on August 1, 1994, whereby the
Original Partnership was converted into a limited partnership ("Partnership");
and
WHEREAS, IGC has transferred to EMC (the "EMC Transfer") a ninety-
nine one-hundredths percent (0.99%) General Partnership Interest in the
Partnership and a one one-hundredths percent (0.01%) Limited Partnership
Interest in the Partnership, EMC has been admitted to the Partnership as a
General Partner and a Limited Partner, and IGC, IBC, and EMC desire to amend
the Agreement to reflect such transfer and admission;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto hereby agree to amend the
Agreement as follows:
<PAGE>
<PAGE>2
1. Admission of EMC.
1.1 EMC hereby agrees to succeed to that portion of IGC's General
Partnership Interest transferred in the EMC Transfer, to be bound by the terms
and provisions of the Agreement (as amended by this Amendment), to accept the
responsibility (along with IGC) for the management and control of the
Partnership as a substitute General Partner, and to continue the business of
the Partnership in accordance with the terms and provisions of the Agreement
(as amended by this Amendment).
1.2 IGC and IBC hereby consent to the EMC Transfer and the admission
of EMC as a substitute Limited Partner and a substitute General Partner.
1.3 IGC and EMC hereby represent that all of the requirements under
Section 11 of the Agreement have been satisfied with respect to the EMC
Transfer.
1.4 EMC is admitted to the Partnership as a substitute General
Partner and a substitute Limited Partner, as those terms are defined in the
Agreement, with respect to the Partnership Interest transferred in the EMC
Transfer.
2. Percentage Interests. Section 7.2 of the Agreement is revised to
reflect that as a result of the EMC transfer, EMC has a 0.99% Percentage
Interest as a General Partner and a 0.01% Percentage Interest as a Limited
Partner (for a total Percentage Interest of 1%), IGC has a 0.01% Percentage
Interest as a General Partner and a 60.24% Percentage Interest as a Limited
Partner (for a total Percentage Interest of 60.25%), and IBC has a 38.75%
Percentage Interest as a Limited Partner.
3. Capital Accounts. As a result of the EMC Transfer, EMC shall succeed
to one percent (1%) of the Capital Account balance of IGC immediately before
the EMC Transfer in accordance with Section 8.1(f) of the Agreement.
4. References to General Partner. All references to "General Partner"
in the Agreement shall, where the context requires, be treated as a reference
to all General Partners and any action which requires the consent (or other
action) of the General Partner under the Agreement shall henceforth require the
consent (or other action) of all General Partners.
5. Other Provisions of the Agreement. Except as otherwise provided in
this Amendment, all other provisions, terms, and conditions of the Agreement
shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in one or more
counterparts and all so executed shall constitute one agreement, binding on all
parties hereto, notwithstanding that all the parties are not signatory to the
original or the same counterpart.
<PAGE>
<PAGE>3
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.
GENERAL PARTNERS:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
EQUUS MANAGEMENT COMPANY, a
Delaware corporation
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
LIMITED PARTNERS:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
EQUUS MANAGEMENT COMPANY, a
Delaware corporation
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
INTERSTATE BUSINESS CORPORATION, a
Delaware corporation
By: /s/ Gretchen Gronau
----------------------------------
Title: Assistant Treasurer
<PAGE>1
EXHIBIT 10(f)
SECOND AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
EQUUS GAMING COMPANY L.P.
a Virginia limited partnership
THIS SECOND AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF EQUUS GAMING
COMPANY L.P ("Second Amendment"), dated as of the 1st day of August, 1994, by
and between Interstate General Company L.P. ("IGC"), a Delaware limited
partnership, as a General Partner and as a Limited Partner; and Equus
Management Company ("EMC") a Delaware corporation, as a General Partner and as
a Limited Partner (except as otherwise provided in this Second Amendment,
capitalized terms shall have the meaning set forth in the Agreement, as
hereinafter defined);
W I T N E S S E T H:
WHEREAS, IGC and Interstate Business Corporation ("IBC"), a Delaware
corporation, entered into that certain Partnership Agreement of Equus Gaming
Company, dated September 17, 1993 (the "General Partnership Agreement"), for
the purpose of forming a general partnership (the "Original Partnership") under
the laws of the Commonwealth of Virginia to engage in the business described
therein;
WHEREAS, the General Partnership Agreement was amended by a First
Amendment thereto, dated October 15, 1993, and a Second Amendment thereto,
dated December 6, 1993, and was amended and restated by the Amended and
Restated Partnership Agreement, dated December 29, 1993;
WHEREAS, IGC, as General Partner and Limited Partner, and IBC, as a
Limited Partner, entered into that certain Limited Partnership Agreement of
Equus Gaming Company ("Limited Partnership Agreement") on August 1, 1994,
whereby the Original Partnership was converted into a limited partnership
("Partnership"); and
WHEREAS, the Limited Partnership Agreement was amended by a First
Amendment thereto, dated August 1, 1994, to reflect the admission of EMC as
a General Partner and a Limited Partner (the Limited Partnership Agreement, as
amended by the First Amendment, hereinafter referred to as the "Agreement").
WHEREAS, IBC has transferred to IGC (the "IBC Transfer") its thirty-
eight and seventy-five one-hundredths percent (38.75%) Limited Partnership
Interest in the Partnership, IBC has withdrawn from the Partnership, and IGC
and EMC desire to amend the Agreement to reflect such transfer and withdrawal;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto hereby agree to amend the
Agreement as follows:
<PAGE>2
1. IBC Transfer.
1.1 IGC and EMC hereby consent to the IBC Transfer and the admission
of IGC as a substitute Limited Partner with respect to the Partnership Interest
transferred in the IBC Transfer.
1.2 IGC hereby represents that all of the requirements under Section
11 of the Agreement have been satisfied with respect to the IBC Transfer.
1.3 IGC is admitted to the Partnership as a substitute Limited
Partner, as that term is defined in the Agreement, with respect to the
Partnership Interest transferred in the IBC Transfer.
1.4 IBC has withdrawn as a Partner.
2. Percentage Interests. Section 7.2 of the Agreement is revised to
reflect that as a result of the IBC Transfer, IGC has a 0.01% Percentage
Interest as a General Partner and a 98.99% Percentage Interest as a Limited
Partner (for a total Percentage Interest of 99%), and EMC has a 0.99%
Percentage Interest as a General Partner and a 0.01% Percentage Interest as a
Limited Partner (for a total Percentage Interest of 1%).
3. Capital Accounts. As a result of the IBC Transfer, IGC shall succeed
to the Capital Account balance of IBC immediately before the IBC Transfer in
accordance with Section 8.1(f) of the Agreement.
4. Other Provisions of the Agreement. Except as otherwise provided in
this Second Amendment, all other provisions, terms, and conditions of the
Agreement shall remain in full force and effect.
5. Counterparts. This Second Amendment may be executed in one or more
counterparts and all so executed shall constitute one agreement, binding on all
parties hereto, notwithstanding that all the parties are not signatory to the
original or the same counterpart.
<PAGE>
<PAGE>3
IN WITNESS WHEREOF, the parties have executed this Second Amendment
as of the day and year first above written.
GENERAL PARTNERS:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
EQUUS MANAGEMENT COMPANY, a
Delaware corporation
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
LIMITED PARTNERS:
INTERSTATE GENERAL COMPANY L.P., a
Delaware limited partnership
By: Interstate General
Management Corporation,
its managing general partner
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
EQUUS MANAGEMENT COMPANY, a
Delaware corporation
By: /s/ Donald G. Blakeman
----------------------------------
Title: Executive Vice President
