SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, 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.
10,256,785 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 (Loss) for
the Nine Months Ended September 30, 1996
and 1995. (Unaudited) 3
Consolidated Statements of Loss for
the Three Months Ended September 30, 1996
and 1995. (Unaudited) 4
Consolidated Balance Sheets at September 30, 1996
(Unaudited) and December 31, 1995. 5
Consolidated Statements of Changes in
Partners' Capital for the Nine
Months Ended September 30, 1996.
(Unaudited) 7
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1996 and 1995.
(Unaudited) 8
Consolidated Statements of Cash Flow for the
Three Months Ended September 30, 1996 and 1995.
(Unaudited) 9
Notes to Consolidated Financial Statements. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Nine
and Three Months Ended September 30, 1996 and 1995. 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Material Modifications of Rights of Registrant's 33
Securities
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
<PAGE>3
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1996 1995
---------- -----------
REVENUES:
Community development - land sales $ 10,036 $ 11,598
Homebuilding - home sales 8,050 8,378
Revenues from investment properties -
Equity in earnings from partnerships
and development fees 16,279 1,932
Apartment rental income 5,380 3,463
Management and other fees, substantially all
from related entities 4,001 3,047
Interest and other income 695 409
---------- ----------
Total revenues 44,441 28,827
---------- ----------
EXPENSES:
Cost of land sales 7,538 6,440
Cost of home sales 7,553 7,663
Selling and marketing 1,075 1,065
General and administrative 6,289 6,308
Rental apartment expense 5,213 3,307
Depreciation and amortization 257 328
Interest expense 2,077 1,823
Wetlands litigation expenses 750 2,091
---------- ----------
Total expenses 30,752 29,025
---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 13,689 (198)
PROVISION FOR INCOME TAXES 4,773 813
---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST 8,916 (1,011)
MINORITY INTEREST 393 96
---------- ----------
NET INCOME (LOSS) $ 8,523 $ (1,107)
========== ==========
NET INCOME (LOSS)
GENERAL PARTNERS $ 85 $ (11)
LIMITED PARTNERS 8,438 (1,096)
---------- ----------
$ 8,523 $ (1,107)
========== ==========
NET INCOME (LOSS) PER UNIT $ .83 $ (.11)
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,254
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>4
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1996 1995
---------- -----------
REVENUES:
Community development - land sales $ 10 $ 1,911
Homebuilding - home sales 2,334 2,532
Revenues from investment properties -
Equity in earnings from partnerships
and development fees 482 602
Apartment rental income 2,139 1,149
Management and other fees, substantially all
from related entities 731 855
Interest and other income 202 197
---------- ----------
Total revenues 5,898 7,246
---------- ----------
EXPENSES:
Cost of land sales 269 1,498
Cost of home sales 2,170 2,240
Selling and marketing 344 332
General and administrative 2,090 1,734
Rental apartment expense 2,122 1,113
Depreciation and amortization 90 126
Interest expense 334 740
Wetlands litigation expenses 100 1,774
---------- ----------
Total expenses 7,519 9,557
---------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST (1,621) (2,311)
PROVISION FOR INCOME TAXES (670) 256
---------- ----------
LOSS BEFORE MINORITY INTEREST (951) (2,567)
MINORITY INTEREST (82) (69)
---------- ----------
NET LOSS $ (869) $ (2,498)
========== ==========
NET LOSS
GENERAL PARTNERS $ (9) $ (25)
LIMITED PARTNERS (860) (2,473)
---------- ----------
$ (869) $ (2,498)
========== ==========
NET LOSS PER UNIT $ (.08) $ (.24)
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,257 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>5
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
September 30, December 31,
1996 1995
------------- -----------
(Unaudited) (Audited)
CASH AND SHORT-TERM INVESTMENTS
Unrestricted $ 2,150 $ 3,476
Restricted cash 1,384 2,125
-------- --------
3,534 5,601
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 34,033 33,088
St. Charles, Maryland 27,245 26,287
Other United States locations 16,385 17,061
Notes receivable on lot sales and other 5,068 3,122
-------- --------
82,731 79,558
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 1,790 3,254
Investment in joint venture 292 250
Receivables and other 240 315
-------- --------
2,322 3,819
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment properties, net of accumulated
depreciation of $20,319 and $5,124 as
as of September 30, 1996 and December 31,
1995, respectively 39,993 23,348
Investment in residential rental partnerships 11,421 10,922
Other receivables, net of reserves of
$19 and $384 as of September 30,
1996 and December 31, 1995, respectively 2,299 2,452
-------- --------
53,713 36,722
-------- --------
OTHER ASSETS
Costs in excess of net assets acquired, less
accumulated amortization of $1,002 and $888
as of September 30, 1996 and December 31,
1995, respectively 2,033 2,147
Deferred costs regarding waste technology and other 2,983 2,975
Property, plant and equipment, less accumulated
depreciation of $2,347 and $2,216 as of
September 30, 1996 and December 31, 1995,
respectively 1,174 1,271
-------- --------
6,190 6,393
-------- --------
Total assets $148,490 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>6
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and other accrued liabilities $ 4,478 $ 5,719
Mortgages and notes payable 515 301
Accrued income tax liability - current 4,555 464
Accrued income tax liability - deferred 5,015 4,704
-------- --------
14,563 11,188
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 35,485 47,841
Non-recourse debt 2,108 2,034
Accounts payable, accrued liabilities
and deferred income 5,382 3,752
-------- --------
42,975 53,627
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 623 981
Accounts payable, accrued liabilities
and deferred income 1,878 2,746
-------- --------
2,501 3,727
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,194 1,322
Non-recourse debt 39,092 22,650
Accounts payable and accrued liabilities 2,942 1,670
-------- --------
43,228 25,642
-------- --------
Total liabilities 103,267 94,184
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,365 4,292
Limited partners' capital-10,257 Units
issued and outstanding as of September
30, 1996 and December 31, 1995 40,858 33,617
-------- --------
Total partners' capital 45,223 37,909
-------- --------
Total liabilities and partners' capital $148,490 $132,093
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>7
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands)
(Unaudited)
General Limited
Partners' Partners'
Capital Capital Total
-------- --------- ---------
Balances, December 31, 1995 $ 4,292 $33,617 $37,909
Net income for the six
months ended June 30, 1996 94 9,298 9,392
Distributions for the six months
ended June 30, 1996 (6) (616) (622)
Assets transferred at general
partner's basis (1) (68) (69)
------- ------- -------
Balances, June 30, 1996 $ 4,379 $42,231 $46,610
Net (loss) for the three months
ended September 30, 1996 (9) (860) (869)
Distributions for the three months
ended September 30, 1996 (5) (513) (518)
------- ------- -------
Balances, September 30, 1996 $ 4,365 $40,858 $45,223
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>8
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,523 $(1,107)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization
Corporate 552 409
Investment properties 874 497
Provision for income taxes 311 813
Equity in earnings of partnerships (563) (1,204)
Increase in sponsor and developer fees
from partnerships (251) (273)
Decrease (increase) in
Homebuilding assets 1,539 1,402
Community development assets (3,173) (1,193)
Restricted cash 741 (1,240)
Increase (decrease) in accounts payable,
accrued liabilities and deferred income 3,612 (546)
------- -------
Net cash provided by (used in) operating activities 12,165 (2,442)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investment in joint venture (42) --
Decrease in assets related to investment properties 594 201
Net (acquisitions) dispositions of other assets (349) (819)
------- -------
Net cash provided by (used in) investing activities 203 (618)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 13,243 26,701
Payment of debt (25,797) (22,812)
Employee Unit options exercised -- 171
Distributions to Unitholders (1,140) --
------- -------
Net cash (used in) provided by financing activities (13,694) 4,060
------- -------
NET (DECREASE) INCREASE IN CASH
AND SHORT-TERM INVESTMENTS (1,326) 1,000
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 3,476 1,120
------- -------
CASH AND SHORT-TERM INVESTMENTS, SEPTEMBER 30 $ 2,150 $ 2,120
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>9
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (869) $(2,498)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
Corporate 182 144
Investment properties 408 166
Provision for income taxes 247 256
Equity in earnings of partnerships (313) (440)
Increase in sponsor and developer fees
from partnerships (60) (91)
Decrease (increase) in
Homebuilding assets 299 (70)
Community development assets (1,932) 966
Restricted cash 191 (1,434)
Decrease in accounts payable,
accrued liabilities and deferred income (437) (1,414)
------- -------
Net cash used in operating activities (2,284) (4,415)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in investment in joint venture 23 --
(Increase) decrease in assets related to
investment properties (158) 64
Net dispositions (acquisitions) of other assets 38 (240)
------- -------
Net cash used in investing activities (97) (176)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 1,989 18,750
Payment of debt (1,865) (13,311)
Distributions to Unitholders (518) --
------- -------
Net cash (used in) provided by financing activities (394) 5,439
------- -------
NET (DECREASE) INCREASE IN CASH
AND SHORT-TERM INVESTMENTS (2,775) 848
CASH AND SHORT-TERM INVESTMENTS, JUNE 30 4,925 1,272
------- -------
CASH AND SHORT-TERM INVESTMENTS, SEPTEMBER 30 $ 2,150 $ 2,120
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>10
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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's management considers necessary for a fair presentation of the
results of operations for the interim periods. Certain account balances in
the 1995 financial statements have been reclassified to conform to the 1996
presentation. The operating results for the three and nine month periods
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the year. Net income per unit is calculated based on
weighted average units outstanding. Outstanding options and warrants to
purchase Units do not have a material dilutive effect on the calculation of
earnings per Unit.
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, 1995.
(2) FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements
principally from cash flow generated by land and home sales, property
management fees, distributions from residential rental partnerships and
from bank financing providing funds for development and working capital.
The Company's cash flow has been adversely affected by a weak market
for residential lots and expenses related to the Clean Water Act
litigation. Concerns over job security and a rise in mortgage rates have
contributed to a slowdown in new home sales in the region. During the
first nine months of 1996, new home sales in Charles County were down 6.3%
below the same period in 1995. Over the course of the Clean Water Act
litigation through September 30, 1996, the Company has incurred
approximately $5.2 million in related legal and consulting expenses. In
addition, the Company has reserves of $150,000 to cover future estimated
expenses relating to appeal of the convictions. The monetary fines and
estimated remediation expenses arising from the sentence imposed on the
Company remain as unreserved contingent liabilities pending results of the
appeal.
The Company's loan agreements contain certain restrictive covenants,
cross-default provisions and material adverse change in financial condition
clauses. During the second quarter, the Company reported that Signet Bank
had issued a notice of default pertaining to $1.8 million of debt. This
loan, which has been reduced to $1.6 million at September 30, 1996, has
been extended to June 30, 1997.
<PAGE>11
Defaults and the potential for multiple loan defaults has hindered the
Company's ability to secure financing necessary for the development of
Fairway Village, the third of five villages in the Planned Unit Development
of St. Charles, Maryland. The Company's remaining inventory of finished
lots in St. Charles is limited, therefore, the development of additional
lots will be necessary to provide inventory for sales in 1997 and beyond.
During the first quarter of 1996, four apartment projects in Puerto
Rico were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). This sale, after taxes, generated
approximately $11.4 million of cash. Approximately $9.2 million of cash
proceeds was pledged to curtail bank debt and the remainder was used to pay
legal fees related to the wetlands convictions and support operations. As
a result of the debt curtailments, the FDIC loan was paid off and
NationsBank has a first lien on commercial properties in St. Charles which
will have the effect of improving the Company's cash flow as the release
prices under the NationsBank agreement are less than that of the FDIC.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of September 30, 1996, IGC manages and is a general partner in 25
real estate partnerships which own 28 apartment projects in Puerto Rico,
Maryland, Virginia and Washington, D.C. IGC is also a limited partner in
many of these partnerships. The apartment projects are financed by non-
recourse mortgages. Of the 5,641 rental units in the various partnerships,
the Federal Housing Administration ("FHA") provides subsidies for low and
moderate income tenants in 4,453 units.
The Company acquired a controlling interest in four partnerships in
conjunction with the 1994 purchase of partnership interests from IBC, by
purchasing IBC's remaining 1.1% limited partnership interest in those
partnerships. The terms were consistent with the original agreement and
resulted in a charge to capital of $69,000 for the difference in IBC's book
basis, and IGC's basis of the receivables satisfied. The partnership's
accounts are now included in the Company's consolidated balance sheet
resulting in a $17,689,000 increase to assets and liabilities.
As of September 30, 1996, IGC holds a controlling interest in seven of
the partnerships. The results of operations, assets and liabilities of
these partnerships are included in the accompanying consolidated financial
statements. The Company's investment in the 18 remaining partnerships are
accounted for under the equity method. The combined condensed statements
of income for the three and nine month periods ended September 30, 1996 and
1995 shown below include the operating results of all 25 partnerships. The
results of operations for the four projects sold in 1996 pursuant to
LIHPRHA are not included. These four partnerships that produced $4.5
million of revenue, $225,000 of net income and $404,000 of cash flow for
the year ended 1995 were sold for $52.7 million and generated a gain of
$38.1 million. As a result of this sale, IGC received $16.4 million in
cash and recognized earnings of $14.6 million.
<PAGE>12
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF (LOSS) INCOME (1)
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands) (In thousands)
Operating income $31,352 $30,779 $10,682 $10,271
------- ------- ------- -------
Operating expenses
Depreciation 4,920 4,780 1,653 1,608
Other 26,581 25,607 9,151 8,402
------- ------- ------- -------
31,501 30,387 10,804 10,010
------- ------- ------- -------
Net (loss) income $ (149) $ 392 $ (122) $ 261
======= ======= ======= =======
(1) The income and expenses of three partnerships are also included
in the Company's consolidated statements of income for the
three and nine month periods ended September 30, 1996 and 1995.
The income and expenses of four partnerships during the period
April 1, 1996 to September 30, 1996 are also included in the
Company's consolidated statements of income for the three and
nine month periods ended September 30, 1996. The total income
and expenses included above that relate to these partnerships
for these time periods are as follows:
Income Expenses
------ --------
Three months ended September 30, 1996 $2,263,021 $2,320,173
Three months ended September 30, 1995 $1,149,091 $1,252,591
Nine months ended September 30, 1996 $5,620,404 $5,885,996
Nine months ended September 30, 1995 $3,463,059 $3,722,422
<PAGE>13
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS (1)
(Unaudited)
A S S E T S
September 30, December 31,
1996 1995
------------- -----------
(In thousands)
Rental apartments, at cost $244,106 $242,732
Accumulated depreciation (98,599) (93,831)
-------- --------
145,507 148,901
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 7,432 6,780
Replacement reserves and escrows 10,633 10,302
-------- --------
Total restricted cash and marketable securities 18,065 17,082
Cash and certificates of deposit 3,930 3,448
-------- --------
Total cash and marketable securities 21,995 20,530
-------- --------
Other assets 4,122 5,169
-------- --------
Total assets $171,624 $174,600
======== ========
LIABILITIES AND PARTNERS' CAPITAL
September 30, December 31,
1996 1995
------------- -----------
(In thousands)
Non-recourse mortgage notes and accrued interest $174,851 $177,354
Loans and interest payable to the Company 11,215 11,112
Other liabilities 15,991 14,918
-------- --------
Total liabilities 202,057 203,384
-------- --------
Partners' capital
Capital contributions, net of distributions (3,805) (2,315)
Retained earnings (26,628) (26,469)
-------- --------
Total partners' capital (30,433) (28,784)
-------- --------
Total liabilities and partners' capital $171,624 $174,600
======== ========
(1) The assets and liabilities of three partnerships are also
included in the Company's consolidated balance sheets as of
September 30, 1996 and December 31, 1995. The assets and
liabilities of four additional partnerships are also included
in the Company's consolidated balance sheet as of September 30,
1996. The total assets and liabilities included above that
relate to these partnerships as of September 30, 1996 and
December 31, 1995 are $30,127,577 and $22,563,621, respectively.
<PAGE>14
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF OPERATING CASH FLOW (1)
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands)
Net (loss) income $ (149) $ 392 $ (122) $ 261
Add back non-cash items:
Depreciation 4,920 4,780 1,653 1,608
Other 293 313 137 101
Deduct cash expenditures
Mortgage principal 2,559 2,468 947 841
Capital additions 1,581 894 517 235
Net replacement reserve
(releases) deposits 30 27 (142) (107)
------ ------ ------ ------
Net cash flow before distributions $ 894 $2,096 $ 346 $1,001
====== ====== ====== ======
(1) The net cash flow before distributions of three partnerships
are also included in the Company's consolidated statements of
cash flow for the three and nine month periods ended September
30, 1996 and 1995. The net cash flow before distributions of
four partnerships during the period April 1, 1996 to September
30, 1996 are also included in the Company's consolidated
statements of cash flow for the three and nine month periods
ended September 30, 1996. The net cash flow before
distributions included above that relate to these partnerships
for these time periods are as follows:
Three months ended September 30, 1996 $ (61,952)
Three months ended September 30, 1995 $ 59,193
Nine months ended September 30, 1996 $ (72,756)
Nine months ended September 30, 1995 $ 125,491
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. 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. During the nine and three month
periods ended September 30, 1996 and 1995, the Company received cash
distributions from these partnerships of $810,000 and $980,000,
respectively, and $397,000 and $306,000, respectively.
<PAGE>15
(4) OPERATIONS DISTRIBUTED TO UNITHOLDERS
On February 6, 1995, IGC distributed to its unitholders its 99%
limited partnership interest in Equus Gaming Company L.P. ("Equus") (the
"Equus Distribution"). IGC and its wholly owned subsidiary, Equus
Management Company ("EMC"), retained the 1% general partner interest. As
general partner, the Company provides management services. In addition,
IGC provided certain administrative services and support to Equus pursuant
to a Master Support and Services Agreement (the "Support Agreement") until
August 1, 1996 at which time IBC assumed the responsibilities of the
Support Agreement. As of September 30, 1996 and December 31, 1995,
$436,000 and $225,000, respectively, were due from Equus to the Company for
these services and operating advances. IGC accounts for its investment on
the equity method of accounting.
<PAGE>16
(5) DEBT
The Company's outstanding debt is collateralized primarily by land,
housing and other land improvements, receivables, and investments in
partnerships. The following table summarizes the indebtedness of IGC:
Stated Outstanding Balance at:
Maturity Interest September 30, December 31,
Description by Lender Date Rate 1996 1995
- ---------------------- -------------- -------- ------------- ------------
(In thousands)
Non-recourse debt:
Community Development 02-01-24 to 6.85%-9.875% $31,697 $22,650
Administration (a) 10-01-28
GMAC 10-01-19 (n) 2,352 --
Reilly Mortgage 04-01-20 (o) 5,043 --
Supra & Co. (h) 08-02-09 P + 1.5% 2,108 2,034
------- -------
Total non-recourse 41,200 24,684
------- -------
Recourse debt:
Citibank (f,l) Demand (i) 1,194 1,334
NationsBank 05-31-98 P + 1%-1.5% 8,872 10,725
(b,d,k,l)
Washington Savings From 12-27-96 9%-10.50% 271 682
(b,c,k) to 05-19-97
Riggs National Bank (b) 09-30-97 P + 1.5% 1,309 1,205
1st National Bank of 06-15-97 to P + 1.5%-9.5% 613 765
St. Mary's (b,c,m) 12-29-97
Signet Bank (b,j) 10-31-96 P + 1.5% 1,571 3,325
FDIC (b,d) 09-30-96 P + 1% -- 6,546
Virginia First 11-16-96 P + 1.5%-2% 277 339
Savings (c)
Wachovia Bank & Trust 11-30-96 P + 1% 37 227
(b,k)
Purchase money 10-28-97 10% 1,000 1,000
mortgage (b)
Banco Santander (b,l) 03-01-98 P + 1% 1,797 --
FirstBank (b,l) 12-31-97 P + 1.5% 14,396 17,370
Banco Popular (b,g,l) 12-05-98 P + 1.5% 4,000 4,000
General (e) From 11-05-96 P + 1.25%-10.9% 515 566
to 11-03-00
Citibank (b,l,n) 05-05-96 Eurodollar -- 2,361
+ 2.5%
R&G Premier (b,l) 04-31-99 P + 1.5% 1,965 --
------- -------
Total recourse 37,817 50,445
------- -------
Total debt $79,017 $75,129
======= =======
*P = The prime lending interest rate.
<PAGE>17
Balance Sheet Classification
- ----------------------------
Outstanding Balance at:
September 30, December 31,
1996 1995
------------- ------------
Mortgages and notes payable - Recourse debt $ 515 $ 301
Related to community development -
Recourse debt 35,485 47,841
Non-recourse debt 2,108 2,034
Related to homebuilding projects - Recourse debt 623 981
Related to investment properties -
Recourse debt 1,194 1,322
Non-recourse debt 39,092 22,650
------- -------
Total debt $79,017 $75,129
======= =======
(a) Collateralized by apartment projects and secured by FHA or the
Maryland Housing Fund.
(b) Collateralized by community development assets.
(c) Collateralized by homebuilding assets.
(d) Collateralized by investment in residential rental
partnerships.
(e) Collateralized by other assets.
(f) Collateralized by letter of credit.
(g) Collateralized by a secondary interest in Equus Units owned by
Interstate Business Corporation ("IBC").
(h) Minority partner in Puerto Rico land development subsidiary.
(i) The interest rate is not fixed to maturity and is renegotiated
on a periodic basis. The interest rate was 7.75% and 7.05% at
September 30, 1996 and December 31, 1995, respectively.
(j) The financial institution granted a forbearance of the notice
of default it issued as a result of the wetlands litigation
verdict. The forbearance agreement required a principal
curtailment on July 15, 1996, which the Company did not fully
meet. The financial institution reissued the notice of default
on July 26, 1996. The financial institution has agreed to a
loan modification and an extension to June 1, 1997. The
documents are in process and execution is expected prior to
December 31, 1996. Once executed the default status will be
extinguished.
(k) These loans contain certain covenants requiring the Company to
remain in compliance with applicable laws. Unless reversed on
appeal, the wetlands litigation verdict would result in a
default of these covenants.
(l) These loans contain cross default provisions that could be
triggered by the events of default resulting from the wetlands
litigation verdict.
(m) These loans contain a provision allowing the financial
institution to call the loan if there has been a material
adverse change in the Company's financial condition.
(n) The note bears an interest rate of 7.75% which is reduced by an
interest subsidy pursuant to Section 236 guidelines.
(o) The note bears an interest rate of 7.5% which is reduced by an
interest subsidy pursuant to Section 236 guidelines.
<PAGE>18
(6) RELATED PARTY TRANSACTIONS
IBC and James J. Wilson, Chief Executive Officer of the Company, have
an ownership interest in various entities to which IGC provided management
or support services during 1996 and 1995. These entities and their
relationships to IGC are as follows:
IBC or Affiliate IGC
-------------------- --------------------
Limited Limited
and Limited and Limited
General Liability General Liability
Partner Partner Partner Partner
------- ----------- ------- -----------
Chastleton .99% -- .01% --
Coachman's Limited Partnership
("Coachman's") 1% 49% 1% 49%
Santa Maria Associates,
S.E. ("Santa Maria") -- 99% -- 1%
El Monte Properties, S.E.
("El Monte") -- 99% -- 1%
G.L. Limited Partnership
("Rolling Hills") 1% 49% -- --
Village Lake Associates
Limited Partnership
("Village Lake") 99% 1% -- --
Capital Park Associates
("Capital Park") (a) -- -- --
Smallwood Village Associates
Limited Partnership ("SVA") 1% 51% -- --
Smallwood Village Office Building
Associates Limited Partnership
("SVOBA") 25% -- -- --
IBC, General Partner of IGC -- -- -- --
(a) An affiliate of IBC holds notes receivable that are secured by
the existing general partners' interest in the partnership.
<PAGE>19
Transactions between the above entities and IGC are described in the
following tables.
REVENUE FOR THE NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1996
(In thousands)
--------------------------------------------------
Nine Months Three Months
----------------------------------- ------------
Management Decrease
Fees and (Increase) Total Total
Interest in Reserve Recognized Recognized
----------- ---------- ---------- ----------
Chastleton (a,b,e) $ 55 $327 $382 $ 1
Coachman's (a,e) 25 29 54 --
Santa Maria 46 -- 46 5
El Monte 74 -- 74 19
Rolling Hills (a) 67 -- 67 22
Village Lake (a) 18 (10) 8 --
Capital Park 159 -- 159 30
SVA (d) 22 -- 22 1
SVOBA (d) 3 -- 3 --
IBC (d) 20 -- 20 --
---- ---- ---- ----
$489 $346 $835 $ 78
==== ==== ==== ====
REVENUE FOR THE NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1995
(In thousands)
--------------------------------------------------
Nine Months Three Months
---------------------------------- -------------
Management Decrease
Fees and (Increase) Total Total
Interest in Reserve Recognized Recognized
---------- ---------- ---------- ----------
Chastleton (a,b) $ 54 $(53) $ 1 $ --
Coachman's (a,f) 36 292 328 --
Santa Maria 74 -- 74 17
El Monte 56 -- 56 26
Rolling Hills (a,c) 61 352 413 24
Village Lake (a) 19 26 45 6
Capital Park 234 -- 234 79
SVA (d) 41 3 44 15
SVOBA (d) 5 -- 5 2
IBC (d) 48 -- 48 16
------ ---- ------ ----
$ 628 $620 $1,248 $185
====== ==== ====== ====
<PAGE>20
OUTSTANDING RECEIVABLE BALANCE AT
(In thousands)
--------------------------------------------------------
September 30, 1996 December 31, 1995
--------------------------- ---------------------------
Receivable Receivable
(g) Reserve Balance (g) Reserve Balance
---------- ------- ------- ---------- ------- -------
Chastleton (e,h,i) $ 29 $(19) $10 $ 380 $(347) $ 33
Coachman's (e,j) 12 (8) 4 154 (37) 117
Santa Maria 1 -- 1 -- -- --
El Monte 39 -- 39 28 -- 28
Rolling Hills (e) 41 -- 41 283 -- 283
Village Lake (e) 12 (10) 2 51 -- 51
Capital Park 18 -- 18 28 -- 28
SVA (d) -- -- -- 5 -- 5
SVOBA (d) -- -- -- -- -- --
IBC (d,e) 1 -- 1 346 -- 346
---- ---- ---- ------ ----- ----
$153 $(37) $116 $1,275 $(384) $891
==== ==== ==== ====== ===== ====
(a) The management fee was reduced from 4.5% or 5% to 2.5% until
the project has positive cash flow and has paid all previously
accrued management fees.
(b) Management agreed that it would defer all management fees until
Chastleton had sufficient cash flow to fund operations and to
subordinate 50% of its management fee until IBC has recovered
its operating advances.
(c) The performance of this project has improved and the project
produced positive cash flow during 1995. The collection of the
remaining receivable balance is considered probable and
reserves related to this receivable aggregating $335,000 were
recognized as income during the first quarter of 1995.
(d) The management contracts for commercial projects owned by IBC
were terminated April 30, 1996. IBC became the new management
agent effective May 1, 1996. IGC receives reimbursement for
services provided to these properties.
(e) During the second quarter of 1996, IBC transferred its
remaining 1.1% limited partnership interest in four housing
partnerships to IGC for its market value of $69,000 as partial
satisfaction of a note receivable. The balance of this note
receivable and other receivables were purchased by an affiliate
of IBC for a cash payment of $1,279,000. The collection of the
majority of these receivables had previously been questionable
and $413,000 had been reserved. This transaction resulted in
income recognition of these reserves during the second quarter
of 1996.
(f) During the first quarter of 1995, IBC assigned a note
receivable due from Lakeside to IGC in satisfaction of past due
receivables from Coachman's. The collection of the majority of
the Coachman's receivables had previously been questionable and
$328,000 had been reserved. This transaction resulted in
income recognition of these reserves during the first quarter
of 1995. The Company collected the $352,000 receivable due
from Lakeside during 1995.
<PAGE>21
(g) The outstanding receivable balances include unpaid management
fees, operating advances, reimbursement due for common
expenses, and interest on those balances.
(h) IGC is contingently liable under $4.6 million of letters of
credit issued by NationsBank collateralized by land, which
secure additional bonds issued for Chastleton.
(i) IBC has the funding obligation for operating deficits. In
early 1996, IGC, as general partner, funded $184,000 of cash
deficits that were satisfied in April 1996 (see subnote (e)
above).
(j) IBC has the funding obligation for operating deficits. Since
IGC equally shares the general and limited partnership interest
with IBC, IGC funded a portion of the deficits.
IGC and affiliates lease office space from Smallwood Village
Associates Limited Partnership ("SVA"), one of IBC's commercial properties
in which IGC's executive offices are located. A total of 17,255 square
feet of office space is leased by IGC and affiliates at approximately
$205,000 per year (subject to adjustment for inflation). The leases expire
in the years 1997 and 2005 and at IGC's request, IBC has the obligation to
sublease the space for the remainder of the lease. During the three and
nine month periods ended September 30, 1996 and 1995, IGC's rent for its
share of the leases was $40,000 and $45,000, respectively, and $99,000 and
$140,000, respectively.
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
increases in the CPI and pro-rata share of operating expenses in years two
through five. Rental expense for the executive office and certain other
property in Puerto Rico leased from affiliates was $169,000 and $171,000
for the nine months ended September 30, 1996 and 1995, respectively.
Rental expense for the three month periods ended September 30, 1996 and
1995 was $61,000 and $61,000, respectively.
American Family Homes, a wholly owned subsidiary of IGC, leased 3000
square feet of commercial space from IBC which was used for one of its
sales centers. The lease expired December 31, 1995. Rent expense
associated with this lease during the three and nine month periods ended
September 30, 1995 was $10,000 and $29,000, respectively.
James J. Wilson, as a general partner of Interstate General
Properties S.E. ("IGP"), is entitled to priority distributions made by each
housing partnership in which IGP is the general partner. If IGP receives a
distribution which represents 1% or less of a partnership's total
distribution, Mr. Wilson receives the entire distribution. If IGP receives
a distribution which represents more than 1% of a partnership's total
distribution, Mr. Wilson receives the first 1% of such total.
In addition to the management services as specified in the
partnership agreement and other support provided Equus pursuant to the
Support Agreement, the Company provides management services and
administrative support to Equus' subsidiaries, HDA, Galapagos and S & E,
and its major tenant, ECOC. The administrative support is reimbursed as
the services are rendered. The management agreement with HDA expires
December 2004. The base annual management fee of $250,000 is adjusted
annually beginning in 1994 by the percentage increase in the Consumer Price
<PAGE>22
Index ("CPI"). The HDA management fees earned during the first nine months
of 1996 and 1995 were $203,000 and $198,000, respectively. Management fees
for the three month periods ended September 30, 1996 and 1995 were $81,000
and $64,000, respectively. Effective August 1, 1996, IGC assigned the
management agreement to EMC.
Pursuant to a consulting agreement effective December 15, 1993, ECOC
has retained as executive management three racing consultants employed by
IGC. ECOC reimburses all of IGC's payroll, bonus, fringe benefits and out-
of-pocket expenses associated with the employment of the consultants, and
reimburses IGC for other personnel who from time to time provide services
to ECOC. Such reimbursements are subject to certain limitations on
increases in reimbursable costs during the term of the consulting
agreement. Effective April 1, 1996, the IGC employees were transferred to
EMC and the consulting agreement was assigned to EMC. ECOC uses certain
land owned by Land Development Associates, S.E. ("LDA") for a sanitary
landfill in connection with its operation of the El Comandante Race Track.
LDA has authorized this use, but has reserved the right to terminate such
use if it conflicts with future development by LDA. Jorge Colon Nevares, a
director of IGMC, also serves as a director of ECOC and Thomas B. Wilson,
an IGMC director, serves as ECOC's president.
On March 31, 1995, IGC sold two parcels in the Parque Escorial
development in Puerto Rico to Compri Caribe Development Corp. ("Compri"), a
corporation wholly owned by Jorge Colon Nevares, a director of the
Company's managing general partner, for use in its operations. The terms
of sale provided for a sales price of $3,453,000, of which $693,000 was
paid in cash, and the remainder of which was satisfied by a note in the
amount of $2,760,000. The note is collateralized by the land parcels and
bears interest at a rate of 10% per annum commencing upon the completion of
certain infrastructure improvements. Monthly payments of principal and
interest totalling $27,000 commenced May 1, 1995 with a balloon payment due
at maturity on April 1, 1998. On August 27, 1996 Compri released from the
mortgage a parcel of 3,026 square meters upon paying $505,847.
Concurrent with the transaction described above, the Company executed
a $3,397,000 contract of sale with Compri for three other land parcels in
the Parque Escorial development. On April 1, 1996, Compri made a 20% cash
payment and the remainder was satisfied by an interest bearing note
collateralized by the land parcels. The note bears interest at a rate of
10% per annum commencing upon the completion of certain infrastructure
improvements scheduled to be completed in the third quarter of 1996, and is
payable in thirty-five monthly installments of $27,000, with a balloon
payment due at maturity on April 1, 1999. Until such time as the
infrastructure improvements are completed, the monthly installment will be
applied to principal reduction in full.
On September 8, 1995, the Company executed a Contract of Sale with
Twenty First Century Homes S.E. ("Twenty First Century") for two parcels of
land in the residential area of Parque Escorial Development for $3,520,000.
Jorge Colon Nevares, a director of IGC, holds a 50% ownership interest in
Twenty First Century. Closing occurred on June 27, 1996 for $2,720,000,
which reflected a price adjustment due to current market conditions. The
price reduction was equal to that given to the purchasers of two other
parcels in the residential area. A steep increase in on site construction
costs to the purchasers forced the reduction in the sales price of the
land.
<PAGE>23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion contains statements that may be considered
forward looking that involve a number of risk and uncertainties as
discussed herein and in the Company's SEC reports. Therefore, actual
results could differ materially.
The real estate industry is cyclical, and is especially sensitive to
fluctuations in economic activity and movements in interest rates.
Residential lot sales and 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 to builders 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 both commercial and residential
development activity, including the demand for housing.
The Company's homebuilding and community development sales continue to
be greatly influenced by consumer confidence, housing demand, prevailing
market interest rates, movements in such rates and expectations about
future rates. Even though the rates have remained fairly stable and an
adequate supply is available to the entry-level homebuyer, the economic
uncertainties associated with the federal budget and government furloughs
during 1995 and 1996 came at a time when supplies and competition were high
in the Washington, D.C. market. As a result, the area's inventory remains
high and profit margins continue to decline.
The Company has substantially completed its tract homebuilding
projects and will not resume construction until the area's inventory is
reduced and profit margins increase to a suitable return. The housing
markets in St. Mary's and Charles County are anticipated to be favorably
impacted by the expansion of the Patuxent River Naval Air Station in St.
Mary's County. This expansion will create 13,000 jobs within the next few
years. Management anticipates the light industrial and business park land
sales to increase after the absorption of the excess inventory in the
region. Currently, the Company has seen a significant increased interest
in its U.S. commercial land. The Puerto Rico residential and commercial
market has remained stable.
The following discussion and analysis covers changes in the results of
operations for the nine and three month periods ended September 30, 1996 as
compared to the results for the nine and three month periods ended
September 30, 1995.
<PAGE>24
The Company's net income (loss) for the nine and three months ended
September 30, 1996 and 1995 totalled $8.5 million versus $(1.1 million) and
$(.9 million) versus $(2.5 million), respectively. A summary of these
results by operation is as follows:
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- ------- --------
(In thousands) (In thousands)
Community development $ 1,911 $ 4,963 $ (247) $ 473
Homebuilding (384) (251) (110) (31)
Investment properties and
asset management 20,447 5,135 1,230 1,493
Other income and expenses (8,678) (10,141) (2,412) (4,177)
------- ------- ------- -------
Net income (loss) before
provision for income tax 13,296 (294) (1,539) (2,242)
Provision for income tax 4,773 813 (670) 256
------- ------- ------- -------
Net income (loss) $ 8,523 $(1,107) $ (869) $(2,498)
======= ======= ======= =======
<PAGE>25
Community Development Operations
The following table presents selected community development financial data:
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
--------------------- --------------------
1996 1995 1996 1995
-------- -------- ------ ------
(In thousands, except units and percentages)
Lots Sold:
Commercial and business parks (acres)
St. Charles, Maryland 1 14 -- 3
Parque Escorial, Puerto Rico 4 5 -- --
Residential lots (units)
St. Charles, MD
Developed single-family lots 11 109 3 38
Developed townhome lots 6 -- -- --
Montclair, Virginia
Semi-developed parcel 53 21 -- 21
Parque Escorial, Puerto Rico 376 -- -- --
Westbury, Maryland
Developed single-family lots 14 -- -- --
Bulk and miscellaneous sales (acres) 1 -- 1 --
Average Sales Price:
Commercial and business parks
(per acre)
St. Charles, Maryland $126 $269 $ -- $ 87
Parque Escorial, Puerto Rico $682 $666 $ -- $ --
Residential (per unit)
St. Charles, Maryland
Developed single-family lots $ 43 $ 39 $ 48 $ 37
Developed townhome lots $ 32 $ -- $ -- $ --
Montclair, Virginia
Semi-developed parcel $ 15 $ 12 $ -- $ 12
Parque Escorial, Puerto Rico $ 14 $ -- $ -- $ --
Westbury, Maryland
Developed single-family lots $ 23 $ -- $ -- $ --
Bulk and miscellaneous sales $ 60 $ -- $ 60 $ --
Average Gross Profit Margin:
Commercial and business parks
St. Charles, Maryland 58% 69% -- 69%
Parque Escorial, Puerto Rico 40% 46% -- --
Residential lots
St. Charles, Maryland
Developed single-family lots 37% 35% 43% 29%
Developed townhome lots 29% -- -- --
Montclair, Virginia
Semi-developed parcel 0% 0% -- 0%
Parque Escorial, Puerto Rico 27% -- -- --
Westbury, Maryland
Developed single-family lots (1)% -- -- --
Bulk and miscellaneous sales 93% -- 93% --
<PAGE>26
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
--------------------- ----------------------
1996 1995 1996 1995
-------- -------- ------ ------
(In thousands, except units and percentages)
Sales revenue $10,036 $11,598 $ 10 $1,911
Cost of sales 7,538 6,440 269 1,498
------- ------ ------ ------
Gross profit 2,498 25% 5,158 44% (259) (2590%) 413 22%
------- ------ ------ ------
Selling and marketing 194 99 70 9
Minority interest 393 96 (82) (69)
------- ------ ------ ------
Operating profit $ 1,911 $4,963 $ (247) $ 473
======= ====== ====== ======
Interest expense included
in cost of sales $ 144 $ 591 $ 14 $ 181
======= ====== ====== ======
Land sales decreased to $10 million for the nine months ended
September 30, 1996 from $11.6 million for this same period in 1995. Land
sales decreased to $10,000 for the three months ended September 30, 1996
from $1.9 million for the same period in 1995. The percentage of revenues
earned during the first nine months of 1996 for commercial and business
park land sales was 30% as compared to 62% of revenues earned during 1995.
Commercial and business park sales are usually large individual sales that
do not occur on a repetitive basis. The U.S. residential lot sales volume
has continued to be unfavorably impacted by the competitive market
conditions. Excess new and resale home inventory levels throughout the
industry have reduced the need for homebuilders to purchase additional
lots. The effect of this decline in U.S. residential lot sales was offset
by the addition of residential lot sales in Puerto Rico. In addition to
reduced residential lot sales, the third quarter of 1996 was adversely
impacted by a $194,000 adjustment to sales revenue for discounts given to
purchasers. Certain off-site work was not completed adjacent to Parque
Escorial which has limited the access to the property sold earlier this
year and in 1995. The discounts were negotiated on a sale by sale basis.
Gross profit margins from community development decreased to 25%
during the first nine months of 1996 from 44% during the same period in
1995 due to the change in mix described above. The commercial business
park land sales produced 51% of the profits during the first nine months of
1996 as compared to 95% during the same period in 1995. During the third
quarter of 1996, the period costs and the discounts given on Parque
Escorial sales were in excess of the sales revenue resulting in a gross
loss as compared to a 22% gross profit in the third quarter of 1995. A
$1.8 million land sale to IBC scheduled to settle in the third quarter 1996
was delayed. This sale produced a gross profit of $1.2 million and cash
before debt service of $1.8 million in the fourth quarter.
Minority partner interest increased $297,000 from $96,000 to $393,000
during the nine months ended September 30, 1996 and decreased $13,000 from
$(69,000) to $(82,000) during the three months ended September 30, 1996 in
comparison with the same periods in 1995. A minority interest shares in
20% of the profits from the Puerto Rico land sales. The increases or
decreases are a direct reflection of the volume and type of the Puerto Rico
lot sales as described in detail on the preceding charts.
<PAGE>27
Homebuilding Operations
The following table presents selected homebuilding data:
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
--------------------------- -------------------------
1996 1995 1996 1995
------------ ------------ ----------- ------------
(In thousands, except units and percentages)
Units Settled:
Semi-Custom 49 60 15 19
Tract 27 20 6 5
---- ---- ---- ----
76 80 21 24
==== ==== ==== ====
Net New Orders:
Semi-Custom 16 63 (3) 21
Tract 28 22 2 4
---- ---- ---- ----
44 85 (1) 25
==== ==== ==== ====
Units Backlog:
Semi-Custom 55 84 55 84
Tract 5 7 5 7
---- ---- ---- ----
60 91 60 91
==== ==== ==== ====
Unit backlog under
construction:
Semi-custom 29 27 29 27
Tract 8 28 8 28
---- ---- ---- ----
37 55 37 55
==== ==== ==== ====
Average Sales Price:
Semi-Custom
(excludes lots) $ 100 $ 91 $ 102 $ 95
Tract $ 117 $ 146 $ 134 $ 146
Backlog $ 7,318 $11,035 $ 7,318 $11,035
Backlog average
sales price $ 122 $ 121 $ 122 $ 121
Home sales $ 8,050 $ 8,378 $ 2,334 $ 2,532
Cost of sales 7,553 7,663 2,170 2,240
------- ------- ------- -------
Gross profit 497 6% 715 9% 164 7% 292 12%
------- ------- ------- -------
Selling and marketing 881 966 274 323
------- ------- ------- -------
Operating loss $ (384) $ (251) $ (110) $ (31)
======= ======= ======= =======
<PAGE>28
Revenues from home sales decreased 4% to $8.1 million for the nine
months ended September 30, 1996 from $8.4 million for same period of 1995.
Home sales decreased 8% to $2.3 million for the three months ended
September 30, 1996 from $2.5 million for the same periods in 1995. The
primary reasons for these decreases were the 20% and 8% decreases in the
average sales price of the tract homes sold during the first nine months
and third quarter of 1996 through a close out program and an 18% and 21%
reduction in the number of semi-custom homes sold during the first nine
months and third quarter of 1996 as compared to the same periods in 1995.
Gross profits as a percentage of homebuilding revenues for a
particular period are a function of various factors including volume,
pricing, efficiency of homebuilding operations, and financing costs
(including costs of subsidizing customer financing, if any). The gross
profit margins earned during the nine months 1996 decreased to 6% from the
9% achieved during the same 1995 period. The gross profit margins
decreased to 7% during the third quarter of 1996 compared to the 12% earned
during the third quarter of 1995. These declines in the gross profit
margin during the 1996 periods were attributable primarily to the effect of
the close out sale of the tract homebuilding inventory at reduced sales
prices offset in part by a $372,000 and $68,000 reduction in construction
overhead during the nine and three months ended September 30, 1996 as
compared to the same periods in 1995.
Investment Properties and Asset Management
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands) (In thousands)
Apartment rental revenues $ 5,380 $ 3,463 $ 2,139 $ 1,149
Apartment operating expenses (5,213) (3,307) (2,122) (1,113)
------- ------- ------- -------
Apartment operating income 167 156 17 36
------- ------- ------- -------
Equity in earnings from partnerships
and development fees 16,279 1,932 482 602
Management and other fees 4,001 3,047 731 855
------- ------- ------- -------
Total operating profit, before cost
of management operations $20,447 $ 5,135 $ 1,230 $ 1,493
======= ======= ======= =======
Apartment operating income during the nine and three months ended
September 30, 1996 was $167,000 and $156,000, respectively, compared to
$17,000 and $36,000, respectively, during the same periods in 1995. These
increases were primarily attributable to the consolidation of four
partnerships on April 1, 1996 when the Company gained control of these
partnerships through an acquisition of additional limited partnership
units.
<PAGE>29
Equity in earnings from partnerships and development fees during the
nine months ended September 30, 1996 increased to $16.3 million from $1.9
million for the same period in 1995, due primarily to the $14.6 million
earned on the LIHPRHA sale. Equity in earnings from partnerships during
the three months ended September 30, 1996 decreased to $482,000 from
$602,000 for the same period in 1995, primarily due to the elimination of
equity recorded on the four partnerships whose properties were included in
the LIHPRHA sale and the four newly consolidated partnerships.
Revenues from management fees increased $954,000 or 31% during the
first nine months of 1996 in comparison with the same period of the prior
year. This increase was due primarily to $1,362,000 of special management
fees earned in 1996 from the LIHPRHA transaction offset by the elimination
of $153,000 of fees earned from the four newly consolidated partnerships,
the loss of $32,000 in fees earned from commercial properties now managed
by IBC effective May 1, 1996, a negotiated reduction of $100,000 per year
effective June 1, 1996 on one of the management contracts, and $197,000 of
additional deferred management fees that were recognized in 1995. As a
result of these offsets, management and other fees decreased $124,000 to
$731,000 during the three months ended September 30, 1996 as compared to
$855,000 during this same period in 1995.
Other Income and Expenses
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
------------------- --------------------
1996 1995 1996 1995
-------- --------- -------- --------
(In thousands) (In thousands)
Interest and other income $ 695 $ 409 $ 202 $ 197
General and administrative (6,289) (6,308) (2,090) (1,874)
Depreciation and amortization (257) (328) (90) (126)
Interest expense (2,077) (1,823) (334) (740)
Wetland litigation expenses (750) (2,091) (100) (1,634)
------- -------- ------- -------
$(8,678) $(10,141) $(2,412) $(4,177)
======= ======== ======= =======
Interest and other income was $695,000 during the nine months ended
September 30, 1996, a 70% increase over this same period in 1995. Interest
and other income was $202,000 during the third quarter of 1996, a 3%
increase from the $197,000 in this same period in 1995. These increases
consisted primarily of interest earned on notes receivable from land sales
that resulted from an increase in the balance of notes receivable.
General and administrative expenses decreased $19,000 or .3% during
the first nine months of 1996 as compared to the first nine months of 1995,
due to management's efforts to continue its general cost reductions.
General and administrative expenses increased $216,000 or 12% during the
third quarter of 1996 as compared to the third quarter of 1995. This
increase was primarily attributable to a $43,000 increase in general legal
fees, the addition of an investor relations consultant for $42,000, an
increase in board of director meetings and board member resulted in a
$41,000 increase in board of directors fees, and $22,000 increase in
<PAGE>30
municipal taxes due to timing differences. During the third quarter of
1995, $97,000 of outside consultant expenses were capitalized resulting in
a reduction of general and administrative expense during that period with
no corresponding adjustment in 1996. These increases were offset by a
$27,000 overall reduction of office expenses.
Depreciation and amortization expense decreased $71,000 or 22% during
the first nine months of 1996 as compared to this same period in 1995.
Depreciation and amortization decreased $36,000 or 29% during the three
months ended September 30, 1996 as compared to the three month period ended
September 30, 1995. These decreases were due to certain fixed assets,
financing fees and similar assets becoming fully depreciated or amortized
during 1995 and the first quarter of 1996.
Interest expense increased $254,000 or approximately 14% during the
nine months ended September 30, 1996 versus the comparable period of 1995.
This increase is primarily a result of accrued loan fees of $500,000 offset
in part by reduced loan balances in the first nine months of 1996 as
compared to the same period in 1995. Interest expense decreased $406,000
or 55% during the three months ended September 30, 1996 versus this same
period in 1995, as a result of reduced outstanding loan balances during the
third quarter of 1996 as compared to the same quarter in 1995.
Provision for Income Tax. The provision for Puerto Rico income taxes
during the nine months ended September 30, 1996 increased to $4.8 million
compared to $.8 million during the first nine months of 1995 primarily due
to the income generated from the LIHPRHA transaction.
The provision for income taxes during the three months ended September
30, 1996 decreased to $(670,000) compared to $256,000 for the three months
ended September 30, 1995. This decrease is due to a decrease in income
generated by the Puerto Rico operations and recognition of increased
expenses during the third quarter of 1996 as compared to the same period in
1995.
FINANCING, LIQUIDITY AND RELATED MATTERS
The Company has historically met its liquidity requirements
principally from cash flow generated by land and home sales, property
management fees, distributions from residential rental partnerships and
from bank financing providing funds for development and working capital.
The Company's cash flow has been adversely affected by a weak market
for residential lots and expenses related to the Clean Water Act
litigation. Concerns over job security and a rise in mortgage rates have
contributed to a slowdown in new home sales in the region. During the
first nine months of 1996, new home sales in Charles County were down 6.3%
below the same period in 1995. Over the course of the Clean Water Act
litigation through September 30, 1996, the Company has incurred
approximately $5.2 million in related legal and consulting expenses. In
addition, the Company has reserves of $150,000 to cover future estimated
expenses relating to appeal of the convictions. The monetary fines and
estimated remediation expenses arising from the sentence imposed on the
Company remain as unreserved contingent liabilities pending results of the
appeal.
<PAGE>31
The Company's loan agreements contain certain restrictive covenants,
cross-default provisions and material adverse change in financial condition
clauses. During the second quarter, the Company reported that Signet Bank
had issued a notice of default pertaining to $1.8 million of debt. This
loan, which has been reduced to $1.6 million at September 30, 1996, has
been extended to June 30, 1997.
Defaults and the potential for multiple loan defaults has hindered the
Company's ability to secure financing necessary for the development of
Fairway Village, the third of five villages in the Planned Unit Development
of St. Charles, Maryland. The Company's remaining inventory of finished
lots in St. Charles is limited, therefore, the development of additional
lots will be necessary to provide inventory for sales in 1997 and beyond.
During the first quarter of 1996, four apartment projects in Puerto
Rico were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). This sale, after taxes, generated
approximately $11.4 million of cash. Approximately $9.2 million of cash
proceeds was pledged to curtail bank debt and the remainder was used to pay
legal fees related to the wetlands convictions and support operations. As
a result of the debt curtailments, the FDIC loan was paid off and
NationsBank has a first lien on commercial properties in St. Charles which
will have the effect of improving the Company's cash flow as the release
prices under the NationsBank agreement are less than that of the FDIC.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1994, the Company filed two claims against Charles County, Maryland
and its County Commissioners in the Maryland Tax Court, a state
administrative agency, seeking compensation for school sites that it
previously had deeded to the County. The actions seek to enforce an
agreement settling litigation between the parties that was entered into in
1989 and also rights pursuant to Charles County law. Under the terms of
the settlement agreement, the County agreed to credit the Company for
school sites contributed and also agreed to repay to the Company any excess
school impact fees paid. The Company seeks $5.5 million, equal to the fair
market value of the school sites. The Company's claims have not yet been
decided by the Tax Court.
In a separate proceeding, the Company filed suit in 1990 against
Charles County and the County Commissioners in the Circuit Court for
Charles County to enforce a provision of the same settlement agreement that
required the County to conduct an appropriate water and sewer connection
fee study as the basis on which to set such fees for the St. Charles
Communities. On June 22, 1992, judgment was rendered in favor of the
Company, which was affirmed in 1995 by the Court of Special Appeals of
Maryland. The judgment requires the County to conduct the appropriate
water and sewer connection fee study. The County has indicated that it is
now in the course of conducting a water and sewer connection fee study.
The adequacy of the study will be subject to review by the Company and, if
necessary, the courts.
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
<PAGE>32
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 and filed suit against the Corps
claiming 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 that it had an agreement in
principle with the Corps that would settle the Company's claim and 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. After conducting a lengthy
investigation of the Company's wetlands practices in St. Charles, in
October 1995 a grand jury convened by the U.S. Attorney charged that
certain of the Company's practices with respect to four parcels, including
the Site, constituted criminal violations of Section 404 of the Clean Water
Act. The indictment charged each of IGC, its affiliate, St. Charles
Associates, L.P. ("SCA"), and the Company's Chairman, James J. Wilson.
During the course of the U.S. Attorney's investigation, the Corps issued
additional violation notices relating to filling portions of other parcels
claimed by the Corps to be protected wetlands and in October 1995 filed a
civil action in the U.S. District Court for the District of Maryland
charging the Company and Mr. Wilson with violations of the Clean Water Act.
Of the approximately 4,400 acres developed by the Company in St. Charles,
approximately 70 acres are the subject of the civil and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted
on four counts of felony violations of Section 404 of the Clean Water Act.
On June 17, 1996 the Court sentenced IGC and SCA to probation for five
years and imposed fines of $2,000,000 on IGC and $1,000,000 on SCA. The
fines are payable in unspecified installments within a period of two years
as directed by the U.S. Probation Officer. The Court also ordered IGC and
SCA to comply with a Wetlands Restitution/Mitigation Plan as directed by
the Corps and the U.S. Probation Officer. The definitive plan has not been
presented to the Company, however the Company expects that the plan will
involve a conservation easement covering between 40 and 100 acres in the
vicinity of the St. Charles Towne Center and other remediation activities
requiring estimated costs of $2 million. The Court sentenced Mr. Wilson to
a period of twenty-one months incarceration and imposed a $1,000,000 fine
payable in six months. He was also placed on supervised release for one
year and ordered to comply with the Wetlands Restitution/Mitigation Plan.
The Court denied Mr. Wilson's request for bail pending appeal and ordered
him to report to a federal correctional facility within sixty days.
Following the conviction, the U.S. Environmental Protection Agency ("EPA")
commenced a suspension and debarment proceeding against IGC, SCA and Mr.
Wilson. On October 1, 1996, EPA sent IGC and SCA a Notice of Statutory
Debarment, effective June 26, 1996. A petition for removal of IGC and SCA
from the list of violating facilities will be filed with EPA shortly. EPA
has indicated a willingness to settle the issue upon execution by IGC and
SCA of a compliance agreement committing them to take a number of actions
to eliminate the conditions that led to the criminal convictions under the
Clean Water Act, including implementation of an environmental management
system. The compliance agreement is being negotiated.
<PAGE>33
Management believes the Company and Mr. Wilson have many strong
arguments to present on appeal of the criminal convictions. Promptly
following sentencing, the Company and Mr. Wilson filed notices of appeal
with the United States Court of Appeals for the Fourth Circuit. On July
16, 1996 a three judge panel of the Fourth Circuit unanimously granted Mr.
Wilson's motion for bail pending appeal. The parties have filed briefs and
are awaiting scheduling of oral argument. The U.S. Attorney has agreed to
suspend prosecution of the civil action until the Fourth Circuit has ruled
on the appeals.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As a result of the wetlands litigation verdict, Signet Bank issued
a notice of default on its loan. The Company agreed to meet certain terms
and conditions as specified by the bank in exchange for forbearance of the
default. One of these terms required a mandatory principal payment on July
15, 1996 that the Company did not meet at that time. As a result, Signet
Bank issued another notice of default. Signet Bank has agreed to modify
and extend the loan until June 1, 1997. Execution of the documents is
expected to be complete no later than December 31, 1996. The outstanding
loan balance as of September 30, 1996 was $1,571,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Securities and Exchange Commission
Section 601 of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- ------- ----------------------------------------- ----------------------
10(a) Employment Agreement between Interstate Filed herewith
Waste Technologies, Inc. and Francis C.
Campbell dated September 1, 1996
10(b) Severance Agreement between Interstate Filed herewith
General Company L.P. and Gregory G.
Kreizenbeck dated August 16, 1996.
10(c) Real Estate Sales Contract between Filed herewith
American Family Homes, Inc. and
Interstate Business Corporation dated
September 30, 1996.
(b) None.
<PAGE>34
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
-------------------------------
(Registrant)
By: Interstate General Management
Corporation
Managing General Partner
Dated: November 14, 1996 By: /s/ James J. Wilson
------------------- -----------------------------
James J. Wilson
Chairman, President and Chief
Executive Officer
Dated: November 14, 1996 By: /s/ John E. Hans
------------------- -----------------------------
John E. Hans
Senior Vice President and
Chief Financial Officer
<PAGE>35
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10(a) Employment Agreement between Interstate Waste Technologies,
Inc. and Francis C. Campbell dated September 1, 1996
10(b) Severance Agreement between Interstate General Company L.P.
and Gregory G. Kreizenbeck dated August 16, 1996.
10(c) Real Estate Sales Contract between American Family Homes,
Inc. and Interstate Business Corporation dated September 30,
1996.
<PAGE>1
Exhibit 10(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of the first day of September, 1996 by and between Interstate Waste
Technologies, Inc., a Delaware corporation (the "Company"), and Francis C.
Campbell.
In consideration of the mutual covenants herein contained, the
parties agree to be bound by the following terms and conditions:
I. POSITION AND AUTHORITY
Francis C. Campbell (the "Employee") will hold the title of
Executive Vice President and Chief Operating Officer of the Company. The
Employee shall report to the Chief Executive Officer of the Company.
II. TERM
The term of employment of the Employee by the Company hereunder (the
"Term") shall begin on September 1, 1996, and shall expire on August 31,
1998 and thereafter for successive one-year terms; provided however, that
either party may terminate this Agreement on sixty (60) days prior written
notice, and the Company may terminate this Agreement for "cause" (defined
in Section VIII below) immediately upon written notice. In addition, on the
occurrence of the closing of the initial financing adequate to complete the
initial waste disposal facility developed by the Company or by an
organization in which the Company (or any affiliate of the Company
organized to engage in the waste disposal/power generation business (an
"Operating Affiliate")) has at least a 50% equity interest or some lesser
equity interest approved by the Company's board of directors (the
"Financial Closing"), the expiration date of the then effective Term shall
be extended by an additional three (3) years, subject again to the same
notice proviso set forth in the preceding sentence. Any renewal or
extension periods of employment pursuant to this Section II shall also be
included in the Term for purposes of this Agreement.
III. COMPANY RULES AND REGULATIONS
The Employee agrees to comply with all directives of the Board of
Directors and the Chief Executive Officer and all written rules, policies,
and regulations of the Company, including, but not limited to, those set
forth in the Employee Handbook as in effect from time to time, and to carry
out and perform such directives, policies, and mandates of the Company as
set forth herein. In the event of an express conflict between the terms of
this Agreement and the written rules, policies, and regulations of the
Company, as set forth in the Employee Handbook, the terms of this Agreement
shall govern.
IV. LOCATION OF EMPLOYMENT
The Employee's office location will be in the Malvern, Pennsylvania
area. The Employee acknowledges that performance of his duties may require
frequent travel and/or extended periods away from his office and that his
office may be relocated for appropriate business reasons at the direction
of the Company's Board of Directors.
<PAGE>2
V. DUTIES AND RESPONSIBILITIES
A. The Employee's authority and obligations are set forth in a
document entitled "Job Description," which is attached hereto as Exhibit A
and which may be amended from time to time by the Chief Executive Officer
or the Board of Directors.
B. The Employee agrees to devote his entire professional
time, energy, and ability to the proper and efficient performance of
professional services for the Company and its Operating Affiliates. Without
the prior express written authorization of the Company, the Employee shall
not, directly or indirectly, during his employment with the Company render
services of a professional nature to any other person or firm, whether for
compensation or otherwise.
C. During the Term and for a period of three (3) years
thereafter, the Employee shall not, without the written consent of the
Board of Directors or a person authorized by the Board of Directors,
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 Employee 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 the Company or its affiliates, including confidential information
regarding any of the Company's or its affiliates' business opportunities or
projects (collectively "Projects"); 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 Employee). The
Employee 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 Employee (a) discloses to his attorney the provisions of this
subsection C and (b) agrees not to waive the attorney-client privilege with
respect thereto.
D. While the Employee is employed by the Company hereunder,
the Employee shall 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, and shall promptly provide to the Chief
Executive Officer of the Company all material facts regarding such
opportunities.
E. During the Term and for a one-year period following the
termination of the Term, the Employee agrees that he shall not compete with
the Company or any of its affiliates without the prior written consent of
the Board of Directors. For purposes of this Agreement, the term "compete"
shall mean participating as a more than five percent (5%) 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 consulting with respect to, developing,
designing, or constructing waste disposal facilities within North America
and/or the Caribbean. During the Term and for a period of two years
following termination of the Term, the Employee shall not engage in any
Prohibited Solicitation. For purposes of this Agreement, the term
"Prohibited Solicitation" shall mean (i) contacting directly or indirectly
<PAGE>3
regarding any business relating to waste disposal and/or power generation
any potential customer (A) to which the Company or any of its affiliates
made a proposal during the Term, (B) which issued to the Company, or
disclosed to the Company plans to issue, during the Term any request for
proposal or invitation for bids regarding waste disposal facilities or, (C)
about which a prospective project was reported or advertised during the
Term in either of the trade publications The Resource Recovery Report or
Sludge, or (ii) employing or soliciting for employment any employees of the
Company or any of its affiliates. In the event the restrictions against
engaging in a competitive activity or Prohibited Solicitation contained in
this subsection E 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 subsection E 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. The
Employee acknowledges that a breach of the restrictions against engaging in
a competitive activity or Prohibited Solicitation contained in this
subsection E may 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 may be inadequate. Accordingly, the
Employee and the Company agree that if the Employee breaches the
restrictions against engaging in a competitive activity or Prohibited
Solicitation contained in this subsection E, in addition to any other
remedies to which it or they may be entitled 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.
VI. COMPENSATION
A. The Employee shall be compensated by the Company with an
annual base salary payable semi-monthly ("Annual Base Salary"). Initially,
the Annual Base Salary payable to the Employee shall be $150,000. The
Employee's Annual Base Salary shall be increased (i) to $175,000 commencing
on the first month next following the execution by the Company or an
Operating Affiliate and a customer of a definitive service agreement for
waste disposal (a "Service Agreement"), and (ii) to $200,000 commencing on
the first of the month next following the Financial Closing.
B. The Employee shall receive a financing bonus (a "Project
Financing Bonus") and a completion bonus (a "Project Completion Bonus") of
$25,000 and $75,000, respectively, per each processing line of
Thermoselect, Noell or similar technology to be installed in a facility in
which the Company or any Operating Affiliate has at least a 50% equity
interest or a lesser equity interest approved by the Company's board of
directors. The Employee shall be entitled to receive a Project Financing
Bonus upon closing by the Company or an Operating Affiliate of financing
adequate to complete the related project either during (i) the Term, or
(ii) within three (3) years following expiration or termination of the Term
with respect to any facility for which the Company or any affiliate has
presented a definitive proposal during the Term. The Employee shall be
entitled to receive a Project Completion Bonus when each processing line
becomes operational and accepted by the customer either during the Term, or
(ii) within three (3) years following the expiration or termination of the
Term with respect to any facility for which the Company or an Operating
<PAGE>4
Affiliate has presented a definitive proposal during the Term. Each
Project Completion Bonus shall become due and payable when each such
processing line becomes operational and accepted by the customer.
C. The Company hereby transfers to the Employee a 2.5% interest
in the Company's dividends paid and in any liquidation proceeds in respect
of its common equity whether evidenced by this Agreement or subsequently
evidenced by shares of common stock of the Company or any Operating
Affiliate ("Employee's Equity"). Within sixty (60) days following a
Financial Closing the Company shall issue, and, if applicable, cause any
Operating Affiliate receiving financing pursuant to the Financial Closing
to issue, to Employee a number of shares of the Company's, and, if
applicable, such Operating Affiliate's, common stock which following such
issuance will equal 2.5% of the then outstanding common stock of the
Company, and, if applicable, such Operating Affiliate ("Employee Shares").
Following issuance of Employee Shares, the Employee's Equity shall be
evidenced exclusively by the Employee Shares. Prior to issuance of Employee
Shares, the Employee's Equity shall not be transferable. Following issuance
of Employee Shares, but prior to the class of securities evidenced by
Employee Shares being registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 (a "Public Registration"), the Employee
Shares shall not be transferable without the prior approval of the Board of
Directors of the Company. Following a Public Registration, Employee Shares
shall be transferable subject to any restrictions under applicable
securities laws. Notwithstanding the foregoing, if (i) there is no
Financial Closing prior to the third anniversary following expiration or
termination of the term of this Agreement or (ii) the Financial Closing
relates to a project with respect to which the Company or an Operating
Affiliate did not make a definitive proposal during the Term, the Employee
shall forfeit and retain no interest in the Employee's Equity after such
expiration or termination.
VII. FRINGE BENEFITS
In addition to the compensation as defined above, the Employee shall
be entitled to the following fringe benefits:
A. The Employee shall be eligible to participate in the Company's
health plans, life and disability insurance programs, retirement plans,
vacation plans and other employee benefit plans (collectively the "Employee
Plans") available to senior executive employees in accordance with the
terms and provisions thereof. While the Company remains a wholly owned
subsidiary of Interstate General Company L.P. ("IGC"), the Employee Plans
shall be the employee benefit plans provided by IGC to its senior
executives.
B. The Company will provide the Employee (i) an automobile
allowance of $700 per month, payable semi-monthly concurrent with the
Employee's Annual Base Salary, (ii) a nationally recognized gasoline credit
card, and (iii) an internationally recognized credit card to pay for
expenses incurred by the Employee in connection with Company business
(collectively the Specified Benefits").
<PAGE>5
VIII. SEVERANCE
Upon termination of the Employee's employment hereunder, all payment
and benefit obligations of the Company hereunder shall immediately
terminate except as follows:
A. In the event of a termination of the Employee's employment due
to the Employee's death or disability, he Employee, or his estate shall (i)
continue to receive his Annual Base Salary and benefits (excluding the
Specified Benefits) for which the Employee remains eligible under the terms
of the Company's benefit plans (collectively, "Severance Compensation") for
a period commencing on the effective date of the Employee's termination
determined by the Board (the "Termination Date") and ending six (6) months
following the Termination Date, (ii) remain entitled to receive any Project
Financing Bonus or Project Completion Bonus in accordance with Section VI B
hereof and the Employee's Equity in accordance with Section VI C hereof;
and
B. In the event of a Qualifying Termination (defined below) by
the Company, the Employee shall (i) receive Severance Compensation for a
period commencing on the Termination Date and ending one year following the
Termination Date, and (ii) remain entitled to receive any Project Financing
Bonus or Project Completion Bonus in accordance with Section VI B hereof
and the Employee's Equity in accordance with Section VI C hereof.
For purposes of this Agreement, "Qualifying Termination" shall mean
any termination of the Employee by the Company other than for "cause" or
any termination by the Employee for "Good Reason." For purposes hereof,
"cause" shall be defined as (1) conviction of a felony, other crime
involving theft or fraud, or other crime of moral turpitude involving the
Company, and/or (2) engaging in fraud or conduct with the intent of causing
substantial harm to the Company. In the event the Company elects to
terminate the Employee's employment for cause, such termination may be made
effective immediately, and no advance notice shall be required.
For purposes of this section VIII, Employee shall have terminated
the employment for a Good Reason if:
A. the Employee terminates the employment relationship within 2
years following the occurrence of (i) a transaction or series of
transactions other than as a result of a Financial Closing or other equity
investment in the Company which result in neither Interstate General
Company L.P. ("IGC") nor the family of James J. Wilson exercising at least
fifty percent (50%) of the voting control of the Company; or (ii) a
transfer of all or substantially all of the assets of the Company or
the merger of the Company into another entity other than an entity at least
50% of the voting control of which is held by either IGC or the Wilson
family; or
B. the Employee terminates the employment relationship within 6
months following the occurrence of (i) the Company materially reducing,
diminishing, terminating or otherwise impairing the Employee's duties,
titles and/or responsibilities despite his written objection delivered to
the Board of Directors (ii) the Company instructing the Employee despite
his written objection delivered to the Board of Directors to take any
action which is in violation of any law, ordinance or regulation or would
require any act of dishonesty or moral turpitude; or (iii) the Company
committing a material breach of any of the provisions of this Agreement.
<PAGE>6
IX. RETURN OF COMPANY MATERIALS
Upon termination of his employment for any reason, the Employee
shall return to the Company all Company Records (defined below) and all
other items of personal property, including all Company credit cards,
telephone cards, keys, identification cards and software, that were in the
Employee's possession, custody or control as of the termination date and
that were generated or acquired by the Employee for use in connection with
his employment by the Company (collectively "Company Materials"). "Company
Records" shall mean all copies of all written materials, notes, notebooks,
minutes, letters, memoranda, books of account, litigation records, files,
drawings, photographs, video recordings, audio recordings, electronically
or magnetically stored data, charts, plans, specifications, maps and other
documents relating to the Company or any of its affiliates, or any of their
respective officers, personnel, customers, suppliers, contractors, counsel,
accountants or other parties having any business relationship with the
Company or any of its affiliates (collectively "Covered Persons"); provided
that, Company Records shall not include any written materials or other
documents relating to the foregoing that have been made generally available
to the public without violating any property rights of the Company.
X. INDEMNIFICATION
The Company agrees to indemnify the Employee, with respect to his
performance of his duties described herein, to the maximum extent permitted
by law.
XI. ARBITRATION; REMEDIES
A. Any dispute or controversy arising between the Employee and
the Company relating to this Agreement or otherwise to the Employee's
employment by the Company shall be submitted to private, binding
arbitration, upon the written request of either the Employee or the
Company, before a panel of three arbitrators, under the administration 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 Employee shall independently and
simultaneously select and identify one arbitrator each, both of whom must
have no past or present familial business relationships with the parties
and must possess expertise in the area of compensation of senior management
employees. In the event that a party has not selected its arbitrator within
60 days of initiation of the arbitration, the AAA shall select such
arbitrator. 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
Employee 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
<PAGE>7
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.
C. In addition to any other remedy available at law or equity, or
otherwise hereunder, in the event of any breach by the Employee not cured
within 30 days following notice by the Company of his obligations under any
of Sections V.C, V.E, or IX hereof, the Employee shall forfeit any right to
Severance Compensation and Project Completion Bonuses hereunder.
XII. ASSIGNABILITY AND BINDING EFFECT
Neither party may assign this Agreement, or any obligation or rights
hereunder, to any other person or entity without the express written
consent of the other party. This Agreement shall be binding upon the
parties and their heirs, executors, administrators, and successors.
XIII. GOVERNING LAW
This Agreement shall be governed by the laws of the State of
Maryland.
XIV. CAPTIONS
All captions contained in this Agreement are for convenience only
and in no way define or describe the intent of the parties or specific
terms hereof.
XV. SEVERABILITY
If any provision of this Agreement shall to any extent be held
invalid or unenforceable, the remaining terms and provisions shall not be
affected thereby.
XVI. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof. All prior negotiations or
stipulations concerning any matter which preceded or accompanied the
execution hereof are conclusively deemed to be superseded hereby.
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 Employee and such officer or director as may be specifically
designated by the Board of Directors.
<PAGE>8
XVII. NOTICES; MISCELLANEOUS
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be 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 Waste Technologies, Inc.
222 Smallwood Village Center
Waldorf, Maryland 20602
If to the Employee:
Mr. Francis C. Campbell
401 Knolls Road
West Chester, PA 19382
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.
XVIII. WITHHOLDING
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first set forth below, and the parties represent that they have
the capacity and authorization, whether it be personal or by the Board of
Directors of the Company, to execute this Agreement.
INTERSTATE WASTE TECHNOLOGIES, INC.
Date: October 11, 1996 /s/ Thomas B. Wilson
------------------ -----------------------------------
Thomas B. Wilson
Title:
Date: October 11, 1996 /s/ Francis C. Campbell
------------------ -----------------------------------
Francis C. Campbell
<PAGE>9
In order to induce the Employee to enter into this Employment Agreement,
Interstate General Company L.P., a Delaware limited partnership ("IGC"),
hereby unconditionally guarantees the performance of the obligations of the
Company under this Employment Agreement; provided that upon the earlier of
(i) the Financial Closing, or (ii) a sale or other disposition by IGC of
the shares or substantially all of the assets of the Company as a going
concern and assumption of this guarantee obligation by the acquirer, this
guarantee shall automatically become void and of no further effect and IGC
shall be released of all obligations hereunder.
INTERSTATE GENERAL COMPANY L P.
By: Interstate General Management
Corporation,
its managing general partner
Date: October 11, 1996 /s/ James J. Wilson
------------------ ----------------------------------------
James J. Wilson
Title: Chairman
<PAGE>1
Exhibit 10(b)
SEVERANCE AGREEMENT
This Severance Agreement dated as of August 16, 1996, by and between
Interstate General Company L.P., a Delaware limited partnership (the
"Company"), and Gregory G. Kreizenbeck, a resident of Maryland (the
"Executive").
W I T N E S S E T H:
WHEREAS, prior to June 18, 1996 the Executive was employed in the
capacity of President and Chief Operating Officer of the Company; and
WHEREAS, in connection with employment of the Executive, Executive
and the Company entered into that certain Amended and Restated Employment
Agreement dated as of January 15, 1996 (the "Employment Agreement"); and
WHEREAS, effective as of June 18, 1996 the Executive resigned his
positions with the Company and its affiliates; and
WHEREAS, following such resignation, the Executive and the Company
have reached mutual agreement regarding severance compensation and other terms
and conditions relating to the termination of the Executive's employment with
the Company which the parties wish to reflect by this Agreement;
NOW, THEREFORE, in consideration of these premises and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Resignation; Disposal of Units. The Executive hereby confirms
that effective as of June 18, 1996, (the "Resignation Date") the Executive
resigned from any and all positions as officer, director or otherwise that he
may have held with the Company, Equus Gaming Company L.P. ("Equus") or any
affiliate of any of the foregoing. The Executive further represents and
warrants that as of the date hereof neither he, nor any member of his immediate
family, beneficially owns any equity or debt securities issued by the Company,
Equus or any affiliate of either.
2. Severance Compensation and Benefits.
(a) For the six-month period ending December 18, 1996 (the
"Ending Date"), the Company shall continue to pay the Executive semi-monthly
payments of his base salary in effect on the Resignation Date, with the final
such payment to be made on the next regularly scheduled payment date following
the Ending Date, and prorated to compensate for the period between the
preceding payment date and the Ending Date.
(b) Upon execution of this Agreement, the Company shall pay
the Executive for his unused, accrued vacation in the amount of $16,370.31.
(c) If the Executive elects under COBRA to continue to receive
Company provided medical and dental insurance benefits, the Company shall pay,
with respect to insurance covering the period ending on the Ending Date, the
Company share of insurance premiums payable under the Company's medical and
dental insurance plan that would have been payable by the Company if the
Executive had remained employed by the Company through the Ending Date. Any
premiums payable by the Executive under such plan with respect to the period
<PAGE>2
ending on the Ending Date shall be withheld from amounts payable under
Subsection (a) of this Section and paid by the Company. The Executive's rights
with respect to medical and dental insurance benefits following the Ending Date
shall be limited to rights under COBRA.
(d) The Company hereby transfers to the Executive ownership of
the Zaurus personal scheduler previously purchased by the Company for the
Executive's business use.
(e) Upon execution of this Agreement, the Company shall pay the
Executive the amount of $21,635 to reimburse the Executive for legal fees
incurred by the Executive in connection with the review and negotiation of the
Employment Agreement.
(f) Upon execution of this Agreement, the Company shall
reimburse the Executive for expenses reflected on his previously submitted June
expense report.
(g) Anything in this Agreement to the contrary notwithstanding,
all payments required to be made by the Company hereunder to the Executive
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.
3. Return of Company Materials.
(a) The Executive represents that, except as set forth on Schedule 3
attached hereto, he has returned to the Company all Company Records (defined
below) and all other items of personal property, including all Company credit
cards, telephone cards, keys, identification cards and software, that were in
the Executive's possession, custody or control on the Resignation Date and that
were generated or acquired by the Executive for use in connection with his
employment by the Company (collectively "Company Materials"). "Company
Records" shall mean all copies of all written materials, notes, notebooks,
minutes, letters, memoranda, books of account, litigation records, files,
drawings, photographs, video recordings, audio recordings, electronically or
magnetically stored data, charts, plans, specifications, maps and other
documents relating to the Company or any of its affiliates, or any of their
respective officers, personnel, customers, suppliers, contractors, counsel,
accountants or other parties having any business relationship with the Company
or any of its affiliates (collectively "Covered Persons"); provided, that,
Company Records shall not include any written materials or other documents
relating to the foregoing that have been made generally available to the public
without violating any property rights of the Company. Notwithstanding the
foregoing, Company Materials shall not include the personal scheduler referred
to in Section 2 above or any personal property purchased by the Executive using
his own funds and not reimbursed by the Company, but shall include all office
furnishings currently remaining in the Executive's former office at the
Company's headquarters.
(b) Schedule 3 contains a complete and accurate list of all Company
Materials, a copy of which has been retained by the Executive (the "Copied
Materials"). The Company shall review the Copied Materials and within 30 days
following the date hereof shall determine in good faith whether retention of
<PAGE>3
Copied Materials by the Executive could be contrary to the best interests of
the Company. Upon any request by the Company during such 30 day period. The
Executive shall promptly surrender to the Company all copies, extracts,
summaries, notes recorded in any form and within the Executive's possession,
custody or control, of any Copied Materials so determined by the Company.
During such 30 day period the Executive shall not disclose any of the Copied
Materials to any person other than the Company or the Executive's Counsel.
4. Effect on Employment Agreement. Effective as of the Resignation
Date, except as otherwise provided in this Agreement:
(a) The Executive hereby forever releases and discharges the
Company and all of the Covered Persons from any and all obligations
and/or claims under the terms of the Employment Agreement or
otherwise related to or arising in connection with the Executive's
employment by the Company, except for the obligations of the Company
under this Agreement and under Section VIII (Indemnification) of the
Employment Agreement and the obligations of the Company under the
terms of that certain Amended and Restated Unit Application Rights
Agreement dated as of March 16, 1995 as amended by the First
Amendment thereto dated as of January 15, 1996 (the "Unit
Agreement").
(b) the Company hereby forever releases and discharges the
Executive from any obligations under the Employment Agreement and
arising out of the Executive's employment with the Company except for
the obligations of the Executive (the "Incorporated Obligations")
under Sections V.C. (Confidentiality), and V.E. (Noncompetition)
thereof which such obligations are hereby incorporated and
established as obligations under this Agreement; provided, however,
that (even though the Company is not presently aware of any basis for
any claim against the Executive), this release shall not release the
Executive from liability to the Company for any criminal or tortious
conduct.
5. Additional Post-Resignation Obligations. In addition to
complying with the Incorporated Obligations, the Executive agrees as follows:
(a) the Executive, upon the Company's request, shall cooperate
with the Company and use his best efforts, subject to reimbursement
by the Company of the Executive's reasonable expenses, in bringing or
defending any claim relating to activities of the Company prior to
the Resignation Date, whether such claim be brought or defended in
litigation, arbitration or other public or private hearing or
proceeding;
(b) the Executive shall indemnify and hold the Company and the
Covered Persons harmless against any losses, liabilities or damages
(including expenses and attorney's fees) arising from any breach by
Executive of his obligations hereunder or under the Incorporated
Obligations;
(c) the Executive shall not make any public statement which
has, or may be reasonably expected to have, the effect of disparaging
the reputation or business of the Company or any of the Covered
Persons and which would otherwise subject the Executive to civil
liability under applicable law;
<PAGE>4
(d) except to the extent of any claims not released pursuant to
Section 4(a) above, the Executive shall never sue or threaten to sue
or otherwise assert any claim against the Company or any Covered
Person relating to the Executive's employment or service or with the
Company or cessation of employment or service with the Company;
(e) for a period of ten (10) years from the Resignation Date
neither the Executive, his spouse, nor any of his affiliates will,
directly or indirectly, without in each instance the prior written
consent of the Company expressed in a resolution duly adopted by the
Board of Directors of the managing general partner of the Company;
(i) purchase or otherwise acquire, or offer, propose or
agree to purchase or otherwise acquire, or advise, encourage or
assist in the acquisition of, any equity or debt securities of the
Company or Equus or any of their affiliates or options or rights to
acquire any such securities (collectively "Prohibited Securities");
(ii) act together with any other person for the purpose of
acquiring, holding, voting or disposing of any Prohibited Securities;
or
(iii) act alone or together with any person to acquire, or
propose a business combination with, the Company or Equus, or to
control or influence the management or policies of the Company or
Equus;
provided, however, that nothing in this Subsection (e) shall prohibit the
Executive from any future employment with the Company or any discussions
regarding such prospective employment.
5. Arbitration. 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 administration
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 and
identify 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 in the real estate
industry. In the event that a party has not selected its arbitrator within 60
days of initiation of the arbitration, the AAA shall select such arbitrator.
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
<PAGE>5
upon such arbitration award may be entered in any court having jurisdiction
thereof. 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.
7. Assignability and Binding Effect. The Executive may not assign
this Agreement, or any obligation or rights hereunder, to any other person or
entity without the express written consent of the Company. This Agreement
shall be binding upon the Executive and his heirs, executors, administrators,
and successors.
8. Governing Law. This Agreement shall be governed by the laws of
the State of Delaware (excluding the choice-of-law rules thereof).
9. Captions. All captions contained in this Agreement are for
convenience only and in no way define or describe the intent of the parties or
specific terms hereof.
10. Severability. If any provision of this Agreement shall to any
extent be held invalid or unenforceable, the remaining terms and provisions
shall not be affected thereby and such invalid or unenforceable term shall be
reformed to be enforced to the maximum extent permitted by applicable law.
11. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof. Except for the Unit
Agreement, all prior negotiations or stipulations concerning any matter which
preceded or accompanied the execution hereof are conclusively deemed to be
superseded hereby. 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 of Directors of the Company's managing
general partner.
12. Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
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
Attention: James J. Wilson
If to the Executive:
Mr. Gregory G. Kreizenbeck
7460 Sedwick Court
St. Leonard, Maryland 20685
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
<PAGE>6
13. Remedies.
(a) The Executive acknowledges and agrees that the Company would be
irreparably damaged in the event that the Executive fails to perform any of his
obligations under this Agreement in accordance with their specific terms.
Accordingly, the Executive agrees that the Company, in addition to any other
remedy to which it may be entitled, shall be entitled to an injunction to
redress breaches of this Agreement and to specifically enforce the terms and
provisions hereof in any action instituted in any federal or state court in
Maryland or other federal or state court having jurisdiction. The Executive
further agrees that in the event that the Executive fails to perform any of his
obligations under this Agreement in accordance with their specific terms, the
Company shall have no further obligation to pay any amounts or provide the
Executive any benefits provided for under the terms of this Agreement.
(b) The Company acknowledges and agrees that the Executive would be
irreparably damaged in the event that the Company fails to perform any of its
obligations under this Agreement in accordance with their specific terms.
Accordingly, the Company agrees that the Executive, in addition to any other
remedy to which it may be entitled, shall be entitled to an injunction to
redress breaches of this Agreement and to specifically enforce the terms and
provisions hereof in any action instituted in any federal or state court in
Maryland or other federal or state court having jurisdiction. The Company
further agrees that in the event that the Company fails to pay to Executive the
compensation and benefits provided under Section 2 of this Agreement in
accordance with their specific terms, the release and discharge by the
Executive of the Company pursuant to Section 4(a) of this Agreement shall be
null and void.
14. Execution. The parties represent that they have the capacity
and authorization, whether it be personal or by the Board of Directors of the
managing general partner of the Company to execute this Agreement and shall be
legally bound hereby. Further, the Executive represents that he has read and
fully understands this meaning and intent of this Agreement and has had a
opportunity to review it with counsel.
15. Counterparts. This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first set forth below.
INTERSTATE GENERAL COMPANY L.P.
BY: INTERSTATE GENERAL
MANAGEMENT CORPORATION, its
managing general partner
Date: August 20, 1996 /s/ John E. Hans
------------------ --------------------------------
By: John E. Hans
Senior Vice President
Date: August 21, 1996 /s/ Gregory G. Kreizenbeck
------------------ --------------------------------
Gregory G. Kreizenbeck
<PAGE>1
Exhibit 10(c)
REAL ESTATE SALES CONTRACT
THIS CONTRACT, made as of this 30th day of September, 1996, by
and between American Family Homes, Inc. ("Seller") and Interstate Business
Corporation or assigns ("Purchaser").
WITNESSETH
NOW, THEREFORE, in consideration of the mutual covenants of Seller and
Purchaser and for other good and valuable consideration, the receipt and
sufficiency of which Seller acknowledges, Seller and Purchaser agree as
follows:
1. Agreement of Sale and Purchase. Seller agrees to sell and convey to
Purchaser and Purchaser agrees to purchase from Seller, in fee simple absolute,
under terms and conditions set forth below, all that parcel of land containing
32.38 acres located in the Dorchester Neighborhood of St. Charles PUD, Charles
County, Maryland and known as Dorchester Greens, Parcel Q, containing one
hundred twenty-two (122) single-family lots hereinafter collectively referred
to as the Property, more particularly described and shown as Exhibit A,
attached hereto and made a part hereof.
2. Purchase Price. The total purchase price for the Property shall be
Two Million ($2,000,000) Dollars in cash.
3. Payment of Purchase Price. The total purchase price for the
property shall be paid as follows:
(a) The sum of Fifty thousand ($50,000.00) Dollars as a good faith
deposit (the "Deposit") shall be paid at the time of execution of this contract
in the form of a check. The Deposit shall be applied against the purchase
price at closing or be refunded to Purchaser where such refund is permitted
under this Agreement.
3a. Additional Consideration.
A. Purchaser in the name of and on behalf of the Seller, agrees
that it will pay to the Charles County Department of Public Works, or such
other legal entity providing sewer and/or water services to the aforesaid
lots, the charges in effect at the time of connection for connection to
the sewer and/or water system including such other charges as may be
imposed by such authority, the charge per dwelling unit for the purpose of
providing a sewer connection to the Mattawoman Interceptor or similar
interceptor serving the balance of the project. All rebates and/or
credits shall inure to the benefit of and be repaid to the Seller.
B. Purchaser will pay to Seller a fee of $200.00 per dwelling unit
for off-site construction of interceptors, pumping or treatment
facilities.
C. Purchaser shall pay in a timely fashion, in the name of and on
behalf of the Seller, the applicable off-site road fee imposed by the
Charles County Department of Public Works and the applicable school impact
fee.
<PAGE>2
D. Purchaser shall provide and install all mailboxes onto provided
mailbox structures as required by local Post Office and the St. Charles
Planning and Design Review Board.
E. Purchaser agrees to comply with all of the requirements of Docket
90 for Parcel Q, as attached.
F. Purchaser agrees to comply with all requirements of the
Preliminary Plan, as approved.
G. Purchaser shall pay all fines imposed by Maryland Department of
the Environment due to failure of Purchaser's lot(s) to comply with
Erosion and Sediment Control Ordinances.
4. Title. The Lots purchased hereunder shall be conveyed by Seller with
good and marketable title of record and in fact, in fee simple, free and clear
of all liens and encumbrances of any kind, except covenants, conditions,
easements and restrictions of record ordinarily recorded in the development of
residential housing developments and uniformly applicable to all other lots in
each group or section purchased by Purchaser, including but not limited to, the
Declaration of Easements, Covenants, Conditions and Restrictions recorded for
Westlake Village and Dorchester Neighborhood and Westlake Village Architectural
Covenants. At Closing, conveyance of the Property to the Purchaser shall be
effected by a good and sufficient special warranty deed.
5. Investigation. The Purchaser shall have the right within 30 days
from the acceptance date of this contract by the Seller to cause any one or
more of the following to be made: boring, engineering, market, economic,
topographic tests, studies, and or investigations as to the subject property.
In the event that any one or more of said tests, studies, and or investigations
do not warrant the development of the Property, in the sole discretion of the
Purchaser, then and in such event, the purchaser shall have the right within
said 30 day period to terminate this contract and to forthwith receive a full
refund of his deposit paid hereunder.
6. Settlement. The Purchaser agrees to settle on the property within
15 days after notification to Seller that all of the conditions of approval
placed on the project by the Charles County Planning Commission are acceptable
to the Purchaser, but in no event later than September 30, 1996. Settlement on
the land shall take place at the law offices of the Purchaser's choosing. TIME
IS OF THE ESSENCE.
7. Failure to Deliver Title. Should Seller be unable to deliver title
in accordance with the provisions of this Agreement or any extension of time
agreed upon by the parties, it is agreed that Purchaser's liability shall
terminate; provided, however, that if the defects of title are of such nature
that they can readily be remedied by legal action, such action shall be
promptly undertaken by Seller, at its expense, and the time of Closing extended
for a period not to exceed sixty (60) days for such action.
8. Use of Property. Purchaser represents and warrants that it is
acquiring the Property for the purpose of building and selling single family
units.
9. Front-Foot Benefit Charges. The Seller advises the builder and the
builder agrees to and shall advise all purchasers of lots from the builder,
that said lots may be subject to uniform front-foot benefit charges, in
accordance with Charles County policies and regulations.
<PAGE>3
10. Water and Sewer Services. Seller represents and warrants that water
and sewer services shall be furnished by the Charles County Department of
Public Works or such other legal entity responsible for furnishing water and
sewer services and such services shall be available to Purchaser for each
dwelling unit, as and when required by Purchaser, in accordance with the rates,
rules and regulations then in effect.
The Purchaser agrees to notify the Builder(s) that at the time of any
application for a building permit for said lot or lots, he will agree in
writing that he understands that the Certificate of Use and Occupancy will not
be issued for said lot or lots until such time as the water and sewer
facilities are determined by the County to be substantially complete and that
he will include in any contract of sale which he executes for the sale of said
lot or lots a written notice to any subsequent purchaser that a Certificate of
Use and Occupancy will not be issued for said lot or lots until the water and
sewer facilities are determined by the County to be substantially complete.
The builder also understands that a Certificate of Use and Occupancy will not
be issued for any lot until it is determined by the County that all roads
serving the particular lot are substantially complete. Satisfactory
installation of the base coat constitutes "substantially complete".
11. FHA and Other Governmental Rules and Regulations.
A. Purchaser agrees that any dwelling units constructed by it on
the aforesaid Lots shall be in accord with the standards, specifications,
rules and regulations of all applicable governmental agencies.
B. Seller is including in the sale price of the Lots as set forth
herein all amenities, including but not limited to parks, playgrounds,
school sites and neighborhood centers with swimming pool. These amenities
are part of Dorchester Neighborhood, and in accordance with this contract
Parcel Q must be annexed by Purchaser to Dorchester Neighborhood prior to
the sale of any units. Further, the Purchaser must provide all of the
requirements stated in the Docket 90 approval including the capital
contribution of Two Hundred Dollars ($200.00) per unit at the time of
settlement of each unit. A fee for maintenance of community facilities
will be applicable in accordance with any assessments applied pursuant to
Section 17 herein.
12. Architectural Approval.
A. Purchaser shall submit to Seller, for its written approval,
floor plans and elevations on all new dwelling units proposed to be
constructed by Purchaser on the aforesaid Lots and from which sales of
dwelling units will be made, plus plans for styles and exteriors of all
such buildings to be built. The Purchaser also agrees that the Seller,
through the St. Charles Planning and Design Review Board, or other
committee designated by Seller, has the absolute right to approve or
disapprove any and all site plans and architectural plans for structures
to be constructed in the St. Charles Communities. See Exhibit D, Fee
Schedule.
B. If Purchaser complies with reasonable standards of design and
FHA requirements, Seller guarantees approval of Purchaser's plans by said
Committee.
<PAGE>4
C. Written approval or disapproval of plans submitted by Purchaser
shall be delivered to Purchaser within thirty (30) days after submission
of such plans by Purchaser. In the event that the St. Charles Planning
and Design Review Board or any committee designated by Seller shall fail
to deliver written approval or disapproval of the Purchaser's plans within
thirty (30) days after submission of such plans, it shall be conclusively
presumed that the plans submitted have been approved.
13. Advertising.
A. Purchaser agrees that in its sales program, advertising,
publicity and public relations campaign, copy for newspapers, radio,
television, billboard and other advertising media and in brochures,
circulars and the like, the name and logo "St. Charles" shall be
publicized in a prominent manner, and that all advertising copy shall be
submitted to and approved by Seller prior to being used by Purchaser.
B. The Purchaser agrees that any advertisement for the sale of
housing or rental of housing constructed by it at St. Charles will adhere
to the following restrictions:
1. The Purchaser shall submit all news releases concerning St.
Charles to all publications and radio and TV stations on the list
maintained by the Developer for advertising purposes.
2. All advertising in any communications medium or any
printed matter made available to the public shall contain the equal
housing opportunity logo, statement or slogan of the Department of
Housing and Urban Development (37 F.R. 6702, Table II).
3. Seller shall provide the necessary signs from the road to the
model home site.
14. Trees. Both Seller and Purchaser agree that they will use their best
efforts to preserve the trees on the finished sites.
15. Restrictive Covenants and Assessments. Purchaser agrees that all of
the Lots conveyed under this Agreement are subject to all restrictive covenants
that have been or will be recorded against the Property in form as approved by
the Seller, which covenants will contain the power of assessment in an
association or other entity. Such assessment shall be prorated between the
Purchaser and Seller as of the date of settlement. Assessment shall not be
more than 75 cents per hundred dollars of assessed valuation of the Property.
16. Seller's Representations and Warranties.
A. Seller represents and warrants that (i) it is the owner of
record and in fact, legally and beneficially, of the Property, (ii) it has
the right to sell said Property without the agreement of any other person
and (iii) it has title that is good and marketable, and not subject to any
liens, encumbrances, leases, covenants, conditions, restrictions, rights
of way, easements or other matters affecting title which would interfere
with Purchaser's intended development of the Property.
<PAGE>5
17. Purchaser's Representations and Warranties.
A. Purchaser is a corporation duly organized and validly existing
under the laws of the State of Maryland and is qualified to do business in
the State of Maryland.
B. Purchaser and its officers have full right and authority to
execute this Purchase Agreement.
18. Adjustments and Costs. Taxes, metropolitan district charges, front
footage or other benefit charges or assessments charged on an annual or other
periodic basis by any State, County, District, Commission or any agency or
subdivision thereof shall be adjusted and prorated to the date of Closing,
except that assessments for improvements existing in or on the Property prior
to the date of Closing, whether or not levied or even if payable thereafter,
shall be paid by the Seller. The cost of all documentary stamps, transfer
taxes, or other taxes on the act of transfer or conveyance required to be paid
in full in connection with the transfer of the Property shall be paid in full
by Purchaser. Costs of recordation and title examination shall be paid by
Purchaser. Any special Farmland Assessment, rezoning tax, recapture tax or
successor tax shall be paid in full by Seller.
19. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until the deed of conveyance is recorded is assumed by the
Seller.
20. Cable Television. Purchaser agrees that prior to and during the
period in which a home or homes on the Property are being constructed,
Purchaser shall permit Jones Communications, a Colorado corporation, and its
agents, employees and contractors, to lay CATV cable in the same trenches
opened for the running of electric lines and, at reasonable times and upon
reasonable notice, to enter the premises and pre-wire the premises for cable
television service. The right of access granted hereby shall be for the
benefit of, and exercisable by, Jones Intercable, Inc., or any successor or
assignee thereto succeeding to the ownership or operation of its cable
television system in St. Charles.
21. Complaints. As the satisfaction and well being of all purchasers of
homes in St. Charles is of importance to Seller and Purchaser, the parties
agree that any homeowner complaints shall be treated by Purchaser both
courteously and expeditiously.
22. Nondiscrimination.
A. Purchaser agrees that neither it nor anyone authorized to act
for it will refuse to sell or rent, after the making of a bona fide offer, or
refuse to negotiate for the sale or rental of, or otherwise make unavailable or
deny a Lot covered by this Agreement to any person because of race, color,
religion, sex or national origin. This covenant shall also be included in the
final deed of conveyance, shall run with the land and shall remain in effect
without any limitations in time.
B. Seller and Purchaser agree that any restrictive covenant on the
Property relating to race, color, religion, sex, or national origin is
recognized as being illegal and void and is specifically disclaimed.
<PAGE>6
23. Sole Agreement. This Agreement represents the complete understanding
between the parties hereto and supersedes all prior negotiations,
representations or agreements, either written or oral, as to the matters
described herein. This Agreement may be amended only by a written instrument
signed by both parties. No requirements, obligations, remedy or provision of
this Agreement shall be deemed to have been waived, unless so waived expressly
in writing, and any such waiver of any provision shall not be considered a
waiver of any right to enforce such provision thereafter.
24. Time of the Essence. Time shall be considered of the essence of this
Agreement.
25. Serveability. If any provision of this Agreement shall be held
violative of any applicable law or unenforceable for any reason, the invalidity
or unenforceability of any such provision shall not invalidate or render
unenforceable any other provision hereof which shall remain in full force and
effect.
26. Assignment. Purchaser shall not have the right to assign this
Agreement without the consent of Seller, which consent shall not be
unreasonably withheld.
27. Successors, Assigns and Survival. The covenants, agreements and
conditions herein contained shall inure to the benefits of and bind the
successors and acceptable assigns of the parties hereto. All representation,
warranties, covenants and agreements set forth herein shall remain operative
and shall survive the Closing on the Property and the execution and delivery of
the Deed and shall not be merged therein.
28. Competitors. Purchaser hereby understands Seller plans to sell lots
and acreage to other builders; however, Seller hereby warrants that no other
purchasers will receive price and price terms which would in any way place
Purchaser at a competitive disadvantage as to price, advertising cooperation,
purchase of additional properties, terms of payment, model home lots, quality
of construction demanded by the St. Charles Planning and Design Review Board,
or other consideration.
29. Notice. All notices authorized or required herein shall be in
writing and shall be sent by registered or certified mail, return receipt
requested, to Seller or Purchaser at their respective address as set forth
below:
Seller: American Family Homes, Inc.
222 Smallwood Village Center
St. Charles, Maryland 20602
Attention: Edwin L. Kelly
Buyer: Interstate Business Corporation
222 Smallwood Village Center
Waldorf, Maryland 20602
Attention: J. Michael Wilson, President
30. Commissions. No real estate commissions are involved in respect to
the sale and purchase of the Property described herein.
31. Governing Law. This Agreement shall be governed by the laws of the
State of Maryland.
<PAGE>7
32. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
their respective seals as of the day and year first above written.
WITNESS: AMERICAN FAMILY HOMES, INC.
/s/ Joanne R. Jewell By: /s/ Edwin L. Kelly
- ------------------------ -------------------------------
Edwin L. Kelly
Its: Director, Vice Chairman
WITNESS: INTERSTATE BUSINESS CORPORATION
/s/ Paula S. Biggs By: /s/ J. Michael Wilson
- ------------------------ -------------------------------
J. Michael Wilson
Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,534<F1>
<SECURITIES> 0
<RECEIVABLES> 7,682
<ALLOWANCES> (214)
<INVENTORY> 79,453
<CURRENT-ASSETS> 0
<PP&E> 3,521
<DEPRECIATION> 2,347
<TOTAL-ASSETS> 148,490
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 45,223
<TOTAL-LIABILITY-AND-EQUITY> 148,490
<SALES> 18,086
<TOTAL-REVENUES> 44,441
<CGS> 15,091
<TOTAL-COSTS> 21,379
<OTHER-EXPENSES> 7,349
<LOSS-PROVISION> (53)
<INTEREST-EXPENSE> 2,077
<INCOME-PRETAX> 13,296
<INCOME-TAX> 4,773
<INCOME-CONTINUING> 8,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,523
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<FN>
<F1>Balance includes $1,384 of restricted cash.
</FN>
</TABLE>
