SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 1-9393
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.
10,311,785 Class A Units
------------------------
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION Page
Number
Item 1. Consolidated Financial Statements ------
Consolidated Statements of Income for
the Six Months Ended June 30, 1998 and
1997. (Unaudited) 3
Consolidated Statements of Income for
the Three Months Ended June 30, 1998 and
1997. (Unaudited) 4
Consolidated Balance Sheets at June 30, 1998
(Unaudited) and December 31, 1997. 5
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 1998 and 1997.
(Unaudited) 7
Consolidated Statements of Cash Flow for the
Three Months Ended June 30, 1998 and 1997.
(Unaudited) 8
Notes to Consolidated Financial Statements. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Month Periods Ended June 30, 1998 and 1997. 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Material Modifications of Rights of Registrant's 24
Securities
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1998 1997
---------- ----------
REVENUES
Community development-land sales
Non-affiliates $ 11,640 $ 2,619
Affiliates 620 3,000
Homebuilding-home sales 3,630 3,760
Equity in earnings from partnerships and
developer fees 646 635
Investment in gaming properties -- 549
Rental property revenues 4,432 4,300
Management and other fees, including fees
from affiliates of $1,507 and $2,100 1,749 2,269
Interest and other income 804 488
---------- ----------
Total revenues 23,521 17,620
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $490 and $1,689 7,139 3,555
Cost of home sales 3,281 3,612
Selling and marketing 668 571
General and administrative 3,457 3,532
Interest expense 1,654 1,817
Rental properties operating expense 1,781 1,768
Depreciation and amortization 989 1,089
Wetlands litigation expenses -- 68
Write-off of deferred project costs -- 6
Spin-off costs 1,048 --
---------- ----------
Total expenses 20,017 16,018
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 3,504 1,602
PROVISION FOR INCOME TAXES 504 112
---------- ----------
INCOME BEFORE MINORITY INTEREST 3,000 1,490
MINORITY INTEREST (461) (13)
---------- ----------
NET INCOME $ 2,539 $ 1,477
========== ==========
BASIC NET INCOME PER UNIT $ .24 $ .14
========== ==========
NET INCOME
General Partners $ 25 $ 15
Limited Partners 2,514 1,462
---------- ----------
$ 2,539 $ 1,477
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,332 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands, except per unit amounts)
(Unaudited)
1998 1997
---------- ----------
REVENUES
Community development-land sales
Non-affiliates $ 5,972 $ 1,170
Affiliates 296 3,000
Homebuilding-home sales 1,600 1,865
Equity in earnings from partnerships and
developer fees 141 239
Investment in gaming properties -- 549
Rental property revenues 2,223 2,142
Management and other fees, including fees
from affiliates of $755 and $843 773 926
Interest and other income 558 342
---------- ----------
Total revenues 11,563 10,233
---------- ----------
EXPENSES
Cost of land sales, including purchases
from affiliates of $240 and $1,689 3,635 2,612
Cost of home sales 1,447 1,827
Selling and marketing 335 327
General and administrative 1,762 1,871
Interest expense 788 895
Rental properties operating expense 885 933
Depreciation and amortization 496 512
Wetlands litigation expenses -- 68
Write-off of deferred project costs -- 1
Spin-off costs 291 --
---------- ----------
Total expenses 9,639 9,046
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 1,924 1,187
PROVISION FOR INCOME TAXES 169 --
---------- ----------
INCOME BEFORE MINORITY INTEREST 1,755 1,187
MINORITY INTEREST (263) 35
---------- ----------
NET INCOME $ 1,492 $ 1,222
========== ==========
BASIC NET INCOME PER UNIT $ .14 $ .12
========== ==========
NET INCOME
General Partners $ 15 $ 12
Limited Partners 1,477 1,210
---------- ----------
$ 1,492 $ 1,222
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,332 10,257
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
June 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 2,590 $ 2,273
Restricted 2,352 508
-------- --------
4,942 2,781
ASSETS RELATED TO COMMUNITY DEVELOPMENT -------- --------
Land and development costs
Puerto Rico 29,866 32,918
St. Charles, Maryland 29,816 28,417
Other United States locations 15,524 14,698
Notes receivable on lot sales and other 3,004 6,476
-------- --------
78,210 82,509
ASSETS RELATED TO RENTAL PROPERTIES -------- --------
Operating properties, net of accumulated
depreciation of $22,023 and $21,392 as of June
30, 1998 and December 31, 1997, respectively 37,530 37,829
Investment in unconsolidated rental property
partnerships, net of deferred income of
$1,998 and $2,193 as of June 30, 1998 and
December 31, 1997, respectively 7,202 8,657
Other receivables, net of reserves of
$338 and $223 as of June 30, 1998
and December 31, 1997, respectively 1,043 805
-------- --------
45,775 47,291
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 1,561 1,914
Investment in joint venture 754 591
Receivables and other 121 68
-------- --------
2,436 2,573
OTHER ASSETS -------- --------
Deferred costs regarding waste technology and
other projects, receivables and other 5,744 8,797
Property, plant and equipment, less accumulated
depreciation of $2,369 and $2,460 as of June
30, 1998 and December 31, 1997, respectively 1,101 1,087
-------- --------
6,845 9,884
-------- --------
Total assets $138,208 $145,038
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
June 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Audited)
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 27,229 $ 35,176
Non-recourse debt 2,369 2,295
Accounts payable, accrued liabilities
and deferred income 4,462 5,245
-------- --------
34,060 42,716
-------- --------
LIABILITIES RELATED TO RENTAL PROPERTIES
Recourse debt 917 969
Non-recourse debt 38,886 39,101
Accounts payable and accrued liabilities 3,529 3,331
-------- --------
43,332 43,401
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 221 159
Accounts payable and accrued liabilities 2,306 2,501
-------- --------
2,527 2,660
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 5,520 6,330
Notes payable and capital leases 619 615
Accrued income tax liability - current 2,587 1,541
Accrued income tax liability - deferred 3,945 4,487
-------- --------
12,671 12,973
-------- --------
Total liabilities 92,590 101,750
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,368 4,345
Limited partners' capital-10,332 Units
issued and outstanding as of
June 30, 1998 and December 31, 1997 41,250 38,943
-------- --------
Total partners' capital 45,618 43,288
-------- --------
Total liabilities and partners' capital $138,208 $145,038
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1998 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,539 $ 1,477
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 989 1,089
Provision for deferred income taxes (542) (995)
Equity in earnings from gaming properties -- (549)
Equity in earnings from unconsolidated
partnerships and development fees (483) (683)
Distributions from unconsolidated partnerships 1,796 4,967
Cost of sales-community development
and homebuilding 10,420 7,167
Homebuilding construction expenditures (2,928) (3,174)
Equity in loss from homebuilding joint venture (163) 48
Write-off of deferred project cost -- 6
Collection of fines 3,212 --
Changes in notes and accounts receivable, due
from affiliates changed $4,046 and $(210) 3,862 (731)
Changes in accounts payable, accrued
liabilities and deferred income (544) (460)
------- -------
Net cash provided by operating activities 18,158 8,162
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (6,312) (3,590)
Change in assets related to unconsolidated
rental property partnerships 142 (741)
Change in restricted cash (1,844) 88
Additions to rental operating properties, net (556) (350)
Acquisitions of other assets, net (988) (86)
Contributions to homebuilding joint venture -- (225)
------- -------
Net cash used in investing activities (9,558) (4,904)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 4,154 3,321
Payment of debt (12,228) (7,216)
Distributions to Unitholders (209) --
-------- -------
Net cash used in financing activities (8,283) (3,895)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 317 (637)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,273 2,212
-------- -------
CASH AND CASH EQUIVALENTS, JUNE 30, $ 2,590 $ 1,575
======== =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
1998 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,492 $ 1,222
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 496 512
Provision for deferred income taxes 36 (1,139)
Equity in earnings from gaming properties -- (549)
Equity in earnings from unconsolidated
partnerships and development fees (240) (266)
Distributions from unconsolidated partnerships 46 4,636
Cost of sales-community development
and homebuilding 5,082 4,439
Homebuilding construction expenditures (1,410) (1,713)
Equity in loss from homebuilding joint venture 99 27
Write-off of deferred project cost -- 1
Changes in notes and accounts receivable, due
from affiliates changed $1,159 and $(596) 1,511 (846)
Changes in accounts payable, accrued
liabilities and deferred income (384) (413)
------- --------
Net cash provided by operating activities 6,728 5,911
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (3,643) (2,841)
Change in assets related to unconsolidated
rental property partnerships 7 (775)
Change in restricted cash (216) 214
Additions to rental operating properties, net (98) (205)
Acquisitions of other assets, net (867) 210
Contributions to homebuilding joint venture -- (1)
------- --------
Net cash used in investing activities (4,817) (3,398)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 2,449 2,032
Payment of debt (4,795) (4,084)
Distribution to Unitholders (209) --
-------- -------
Net cash used in financing activities (2,555) (2,052)
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (644) 461
CASH AND CASH EQUIVALENTS, MARCH 31, 3,234 1,114
-------- -------
CASH AND CASH EQUIVALENTS, JUNE 30, $ 2,590 $ 1,575
======== =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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 1997 financial statements have been reclassified to conform to the 1998
presentation. The operating results for the three and six months ended
June 30, 1998 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, warrants to purchase Units
and Unit Appreciation Rights do not have a material dilutive effect on the
calculation of earnings per Unit and therefore are not presented.
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, 1997.
(2) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, IGC adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The adoption of SFAS No. 130 did not
have a material effect on IGC's financial statements. The Company intends
to implement SFAS No. 131 at December 31, 1998.
<PAGE>
(3) INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
Housing Partnerships
The following information summarizes financial data and principal
activities of unconsolidated housing partnerships which the Company
accounts for under the equity method. The information is presented to
segregate the two projects undergoing condominium conversion from the
operating properties (in thousands).
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
June 30, 1998 $123,209 $ 9,915 $133,124
December 31, 1997 129,332 9,509 138,841
Total Non-Recourse Debt
June 30, 1998 132,049 12,720 144,769
December 31, 1997 132,984 11,612 144,596
Total Other Liabilities
June 30, 1998 24,812 237 25,049
December 31, 1997 24,804 122 24,926
Total Equity
June 30, 1998 (33,652) (3,042) (36,694)
December 31, 1997 (28,456) (2,225) (30,681)
Company's Investment
June 30, 1998 7,207 -- 7,207
December 31, 1997 8,657 -- 8,657
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended June 30, 1998 7,671 10 7,681
Three Months Ended June 30, 1997 7,595 485 8,080
Six Months Ended June 30, 1998 15,590 93 15,683
Six Months Ended June 30, 1997 15,204 1,093 16,297
Net Income (Loss)
Three Months Ended June 30, 1998 (247) (532) (779)
Three Months Ended June 30, 1997 (321) (70) (391)
Six Months Ended June 30, 1998 (285) (818) (1,103)
Six Months Ended June 30, 1997 (311) 70 (241)
Company's recognition of equity in
earnings and developer fees
Three Months Ended June 30, 1998 240 -- 240
Three Months Ended June 30, 1997 300 (35) 265
Six Months Ended June 30, 1998 483 -- 483
Six Months Ended June 30, 1997 647 35 682
<PAGE>
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY OF CASH FLOWS:
Cash flows from operating activities
Three Months Ended June 30, 1998 1,056 (1,302) (246)
Three Months Ended June 30, 1997 1,463 270 1,733
Six Months Ended June 30, 1998 3,117 (1,706) 1,411
Six Months Ended June 30, 1997 2,373 437 2,810
Company's share of cash flows
from operating activities
Three Months Ended June 30, 1998 399 (651) (252)
Three Months Ended June 30, 1997 448 135 583
Six Months Ended June 30, 1998 1,120 (853) 267
Six Months Ended June 30, 1997 956 219 1,175
Cash distributions
Three Months Ended June 30, 1998 362 -- 362
Three Months Ended June 30, 1997 417 9,222 9,639
Six Months Ended June 30, 1998 4,813 -- 4,813
Six Months Ended June 30, 1997 856 9,292 10,148
Company's share of cash distributions
Three Months Ended June 30, 1998 46 -- 46
Three Months Ended June 30, 1997 -- 4,636 4,636
Six Months Ended June 30, 1998 1,796 -- 1,796
Six Months Ended June 30, 1997 296 4,671 4,967
The unconsolidated rental properties partnerships as of March 31, 1998
include 19 partnerships owning 4,563 rental units in 22 apartment complexes
owned by Alturas Del Senorial Associates Limited Partnership, Bannister
Associates Limited Partnership, Bayamon Gardens Associates Limited
Partnership, Brookside Gardens Limited Partnership, Carolina Associates
Limited Partnership, Chastleton Apartments Associates, Coachman's Limited
Partnership, Colinas de San Juan Associates Limited Partnership, Crossland
Associates Limited Partnership, Essex Apartments Associates Limited
Partnership, Huntington Associates Limited Partnership, Jardines de Caparra
Associates Limited Partnership, Lakeside Apartments Limited Partnership,
Monserrate Associates Limited Partnership, Monte de Oro Associates Limited
Partnership, New Center Associates Limited Partnership, San Anton
Associates Limited Partnership, Turabo Limited Dividend Partnership and
Valle del Sol Limited Partnership. The Company holds a general partner
interest in these partnerships and generally shares in zero to 5% of
profits, losses and cash flow from operations until such time as the
limited partners have received cash distributions equal to their capital
contributions. Thereafter, IGC generally shares in 50% of cash
distributions from operations. Pursuant to the partnership agreements, the
general partners of the unconsolidated partnerships are prohibited from
selling or refinancing the apartment complexes without majority limited
partner approval. Due to the absence of control and non-majority
ownership, these partnerships are accounted for under the equity method of
accounting.
<PAGE>
During 1997, the rental complexes owned by Monte de Oro and New Center
were refinanced to provide distributions to their partners and funds to
convert the rental units into condominiums. Rental revenues started to
decline in 1997 as the units were vacated in preparation for conversion.
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. It purchased land to construct 118
units in 1997 and land to construct 98 units in 1996. The profit on these
lots are deferred until sold by Escorial Builders to a third party. The
following tables summarize Escorial Builders' financial information (in
thousands):
SUMMARY OF FINANCIAL POSITION: AS OF
------------------------
June 30, December 31,
1998 1997
--------- ------------
Total assets $13,105 $13,374
Total liabilities 11,597 12,191
Total equity 1,508 1,183
Company's investment 754 591
SUMMARY OF OPERATIONS: FOR THE SIX FOR THE THREE
MONTHS ENDED MONTHS ENDED
------------------ ------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Total revenue $ 4,481 $ -- $ 2,296 $ --
Net income (loss) 326 (95) (198) (48)
Company's recognition of equity
in earnings (losses) 163 (48) (99) (24)
SUMMARY OF OPERATING CASH FLOWS: FOR THE SIX FOR THE THREE
MONTHS ENDED MONTHS ENDED
------------------ ------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Cash flows from operating
activities $ 1,378 $(5,630) $ 745 $(2,185)
Company's share of cash flows
from operating activities 689 (2,815) 373 (1,093)
Operating cash distributions -- -- -- --
Company's share of operating cash
distributions -- -- -- --
<PAGE>
(4) DEBT
Debt
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of IGC
at June 30, 1998 and December 31, 1997 (in thousands):
Outstanding
Maturity Interest ----------------------
Dates Rates (a) June 30, December 31,
From/To From/To 1998 1997
-------- --------- --------- ------------
Related to community development:
Recourse debt Demand/ P+2.5%/ $27,229 $35,176
07-31-04 10.0% (b)
Non-recourse debt 08-02-09 P+1.5% 2,369 2,295
Related to investment properties:
Recourse debt Demand 7.35% 917 969
Non-recourse debt 10-01-19/ 6.85%/ 38,886 39,101
10-01-28 8.5%
Related to homebuilding projects:
Recourse debt Demand P+1.5% 221 159
General:
Recourse debt Demand P+1.25%/ 619 615
04-01-03 12% ------- -------
Total debt $70,241 $78,315
======= =======
(a) P = Prime lending interest rate.
(b) Approximately $14,109,000 of this debt requires additional
interest payments on each annual anniversary date. The amount
due is 1% of the outstanding balance in 1998 and 1999, and
increases 1/2% each year thereafter, through 2003.
As of June 30, 1998, the $27,241,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $14,358,000 of this
amount is further secured by investments in apartment rental partnerships.
As of June 30, 1998, recourse investment property debt is secured by
cash receipts received by the Company pursuant to the terms of a sales
contract. The non-recourse investment properties debt is collateralized by
apartment projects and secured by FHA or the Maryland Housing Fund.
Mortgage notes payable of $7,180,000 have stated interest rates of 7.5% and
7.75%; however, after deducting interest subsidies provided by HUD, the
effective interest rate over the life of the loans is 1%.
The homebuilding debt is secured by three homes under construction.
<PAGE>
(5) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of the Company
have ownership interests in various entities that conducted business with
IGC during the last two years. The financial impact of the related party
transactions on the accompanying financial statements are reflected below:
<TABLE>
<CAPTION>
INCOME STATEMENT IMPACT:
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Community Development - Land Sales (A)
Homebuilding joint venture $ 620 $ -- $ 297 $ --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director (A2) -- 3,000 -- 3,000
------ ------ ------ ------
$ 620 $3,000 $ 297 $3,000
====== ====== ====== ======
Cost of Land Sales
Homebuilding joint venture $ 490 $ -- $ 240 $ --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director (A2) -- 1,689 -- 1,689
------ ------ ------ ------
$ 490 $1,689 $ 240 $1,689
====== ====== ====== ======
Management and Other Fees (B)
Unconsolidated subsidiaries $1,265 $1,755 $ 626 $ 601
Affiliate of IBC, general partner of IGC (B1,2) 125 234 67 180
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, and James
J. Wilson, director 77 74 39 37
Affiliate of James Michael Wilson, director,
Thomas B. Wilson, director, James J. Wilson,
director, and an Affiliate of IBC, general
partner of IGC 40 37 23 25
------ ------ ------ ------
$1,507 $2,100 $ 755 $ 843
====== ====== ====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 24 $ 24 $ 12 $ 12
Affiliate of a former director 57 91 14 68
Affiliate of IBC, general partner of IGC 39 -- -- --
Affiliate of Thomas B. Wilson, director -- 9 -- 5
------ ------ ------ ------
$ 120 $ 124 $ 26 $ 85
====== ====== ====== ======
General and Administrative Expense
Affiliate of IBC, general partner of IGC (D1) $ 162 $ 155 $ 73 $ 76
Reserve additions and other write-offs-
Affiliate of IBC, general partner of IGC 64 57 32 29
Unconsolidated subsidiaries (D4) 105 55 31 28
------ ------ ------ ------
$ 331 $ 267 $ 136 $ 133
====== ====== ====== ======
<PAGE>
<CAPTION>
BALANCE SHEET IMPACT:
Increase Increase
Balance (Decrease) Balance (Decrease)
June 30, in Reserves December 31, in Reserves
1998 1998 1997 1997
-------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $ 751 $ 56 $ 552 $ 111
Affiliate of IBC, general partner
of IGC (B1,2) 85 59 51 (9)
Affiliate of James Michael Wilson,
director and James J. Wilson,
director 55 -- 20 --
------ ----- ------ -----
$ 891 $ 115 $ 623 $ 102
====== ===== ====== =====
Assets Related to Community Development
Notes receivable and accrued interest-
Affiliate of a former director, Interest 10%
secured by land matured April 1,
1998, paid (A1) $ -- $ -- $ 980 $ --
Affiliate of a former director, Interest 10%
secured by land payments per month
$27,000, matures
April 1, 1999 (A1) 2,111 -- 2,088 388
Affiliate of IBC, general partner Interest P+1.5%
of IGC, secured by land matured June 29,
1998, paid (A2) -- -- 2,520 --
------ ----- ------ -----
$2,111 $ -- $5,588 $ 388
====== ===== ====== =====
Other Assets
Receivables - All unsecured
IBC, general partner of IGC Payable from IGC
distributions, paid (D2) $ -- $ -- $ 681 $ --
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
director (C) 34 -- 12 --
IBC, general partner of IGC demand (33) -- (39) --
------ ----- ------ -----
$ 1 $ -- $ 654 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Accounts payable
Whitman, Requardt (D3) $ 188 $ -- $ 121 $ --
====== ===== ====== =====
</TABLE>
<PAGE>
(A) Land Sales
IGC sells land to affiliates and non-affiliates with similar terms.
The sales prices to affiliates are based on third party appraisals, payable
in cash or a combination of a 20% cash down payment and a note for the
balance. The notes receivable are secured by deeds of trust on the land
sold, and bear an interest rate equal to those charged at that time for
land sales. The notes mature in one year or mature in five or less years
with annual amortizations. As circumstances dictate, the maturity dates
and repayment terms of the notes receivable due from affiliates or non-
affiliates have been modified. Any sales transactions that vary from these
terms are described below:
(1) The notes receivable due from an affiliate of a former director
did not bear interest until certain infrastructure improvements
were completed. This infrastructure was delayed and the interest
commencement dates modified. These delays created the additional
discount reflected above.
(2) On June 30, 1997, IGC sold 374 acres to an affiliate of IBC for
$3,000,000 and recognized a profit of $1,311,000. As payment for
this parcel, IGC received a 20% down payment and assumption of a
note payable.
(B) Management and Other Services
IGC provides management and other support services to its
unconsolidated subsidiaries and other related entities in the normal course
of business. These fees are typically collected on a monthly basis, one
month in arrears. These receivables are unsecured and due upon demand.
Certain partnerships experiencing cash shortfalls have not paid timely. As
such, these receivable balances are reserved until satisfied or the
prospects of collectibility improves. Decreases to the reserves for other
than routine cash payments are discussed below:
(1) During the second quarter of 1997, an affiliate of IBC purchased
the management fees receivable of $190,000 due from Chastleton,
Coachman's, Rolling Hills, and Village Lake for a cash payment of
$190,000. The collection of these receivables had previously been
questionable and they had been fully reserved. This transaction
resulted in income recognition of $190,000.
(2) During the second quarter of 1997, IGC sold to IBC its 49% limited
partner interest and 99% of its 1% general partner interest in
Coachman's Limited Partnership. This transaction had no financial
effect on the Company's 1997 annual results of operation.
(C) Operations Distributed to Unitholders
The Company's 99% limited partnership interest in Equus was
distributed to its unitholders in February 1995 (the "Equus Distribution").
Since that time through April 1996, the Company continued to manage and
provided certain reimbursable administrative services and support to Equus
pursuant to a Master Support and Services Agreement.
<PAGE>
Pursuant to the Transfer Control Agreement effective December 31, 1996
(the "Transfer Agreement"), IGC transferred its remaining interests in and
control over EMC and Equus (subject to NASDAQ's approval) to IBC. In
addition, the Transfer Agreement called for IGC to issue 75,000 IGC Units
to Equus to satisfy the outstanding employee option and incentive rights
for the employees who were transferred to EMC. The Transfer Agreement was
amended in December 1997 to allow IGC to withdraw as a general partner of
Equus provided it granted a guarantee to EMC. IGC agreed to guarantee
$20,000,000 of EMC's liabilities in excess of assets should Equus or EMC
become insolvent.
(D) Other
Other transactions with related parties are as follows:
(1) IGC rents executive office space and other property from
affiliates both in the United States and Puerto Rico pursuant to
leases that expire through 2005. In management's opinion, all
leases with affiliated persons are on terms generally available
from unaffiliated persons for comparable property.
(2) During 1996, the sale of four properties in Puerto Rico triggered
a taxable gain, a portion of which is passed through to the
predecessor of IGC that contributed those assets. IGC's
partnership agreement provides for (1) an allocation to that
predecessor of the income tax payable in Puerto Rico on such
portion of the gain and (2) a reduction from its cash
distributions in an amount equivalent to the Puerto Rico income
tax specifically allocated to the predecessor. In accordance with
these provisions, IGC recorded a receivable from IBC of $881,000
and will recover the amount from future distributions due to IBC.
(3) Thomas J. Shafer became a director of IGMC in 1998 after his
retirement from Whitman, Requardt, where he was a Senior Partner.
Whitman, Requardt provides engineering services to IGC. In
management's opinion, services performed are on terms available to
other clients.
(4) James J. Wilson, as a general partner of 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.
(6) COMPANY RESTRUCTURING
The proposed restructure plan has been finalized and presented in
American Community Properties Trust's registration statement on Form S-11
which became effective with the Securities and Exchange Commission ("SEC")
on August 10, 1998. Copies of the Proxy Statement/Prospectus were mailed
on August 11, 1998 to Unitholders of record as of August 10, 1998
soliciting their approval of the restructure. The Unitholder meeting is
scheduled for August 31, 1998.
<PAGE>
(7) SUBSEQUENT EVENT
On July 30, 1998, the Company redeemed the 20% minority interest in
Land Development Associates S.E. ("LDA") from an outside partner for
$3,000,000. LDA also repaid a $2,400,000 note due to an affiliate of this
unrelated partner. This transaction was financed with a $5,600,000 loan
from a commercial bank. The loan bears interest at prime plus 1%, matures
in one year and is collateralized by an assignment of the 20% partnership
interest in LDA and a second mortgage on Parque El Comandante land held by
LDA.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General:
Historically, the Company's financial results have been significantly
affected by the cyclical nature of the real estate industry. Accordingly,
the Company's historical financial statements may not be indicative of
future results.
For the Six Months Ended June 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue increased $6,641,000 to
$12,260,000 during the six months ended June 30, 1998, compared to sales of
$5,619,000 during the six months ended June 30, 1997. The increase was
attributable to residential lot sales in Puerto Rico of $7,900,000 which
are sold to homebuilders in bulk. The gross profit margin for the six
months ended June 30, 1998 increased to 42%, as compared to 37% in the same
period of 1997. This increase was due primarily to the sales mix. During
the first six months of 1997, 53% of the sales revenue was generated by an
undeveloped bulk parcel with a low acquisition cost. In addition, during
the first two quarters of 1998, 29% of the sales revenue was generated by
sales of commercial parcels, compared to 15% in the first two quarters of
1997. Commercial parcels have historically produced higher gross profits
due to their high sales prices and relatively low development costs.
Seventy-one percent of the sales were generated by residential sales in the
six months ended June 30, 1998, as compared to 31% in the same period of
1997.
Homebuilding Operations.
Revenues from home sales decreased 3% to $3,630,000 during the six
months ended June 30, 1998, as compared to $3,760,000 during the six months
ended June 30, 1997. The decrease is primarily due to the phase out of its
tract homebuilding operations. The number of homes sold decreased 14%
during the first six months of 1998, as compared to the same period in
1997. The gross profit margins increased to 10% during the first six
months of 1998, as compared to 3% in the comparable 1997 period. During
the six months ended June 30, 1997, the Company closed seven homes that
incurred additional costs to cure non-recurring construction problems.
<PAGE>
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 5% to
$2,651,000 for the six months ended June 30, 1998, as compared to
$2,532,000 in the same period in 1997. The increase is primarily
attributable to a 3% increase in rental revenues offset by a less than 1%
increase in operating expenses. The increase in rental revenues is a
result of a reduction in vacancies and an increase in rental rates.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased 2% to $646,000 during the first six
months of 1998, as compared to $635,000 during the first six months of
1997. The increase is primarily attributable to an increase of earnings
generated from the homebuilding joint venture during the first six months
of 1998, as compared to the first six months of 1997, offset in part by
reduced earnings from partnerships that paid refinancing fees or had
reduced income due to a temporary reduction in occupancy in the first two
quarters of 1998 as compared to the same period in 1997.
Management and Other Fees.
Management and other fees decreased 30% to $1,749,000 in the first six
months of 1998, as compared to $2,269,000 in the same period in 1997. This
decrease is primarily due to a reduction of $435,000 in fees earned from
the refinancing of certain apartment complexes and a reduction of $208,000
in fees recognized related to prior periods earned during the six months
ended June 30, 1997, offset by $100,000 of incentive fees earned during the
first six months of 1998.
Interest Expense.
Interest expense decreased 9% to $1,654,000 during the six months
ended June 30, 1998, as compared to $1,817,000 for the six months ended
June 30, 1997. This decrease is primarily attributable to a $3,873,000
decrease in outstanding debt from June 30, 1998 as compared to June 30,
1997.
General and Administrative Expense.
General and administrative expenses decreased 2% to $3,457,000 for the
six months ended June 30, 1998, as compared to $3,532,000 for the same
period of 1997. This decrease is a result of management's continued focus
on cost efficiency and the reduction of expenses.
Spin-off Costs.
Costs of $1,048,000 related to the restructuring of the Company were
recognized as an expense for the six months ended June 30, 1998. There
were no such costs in the first six months of 1997.
<PAGE>
For the Three Months Ended June 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue increased $2,098,000 to
$6,268,000 during the three months ended June 30, 1998, compared to sales
of $4,170,000 during the three months ended June 30, 1997. The increase
was attributable to a sale of residential lots in Puerto Rico of $3,190,000
during the second quarter of 1998 and no such sale in the comparable 1997
period. The gross profit margin for the three months ended June 30, 1998
increased to 42%, as compared to 37% in the same period of 1997. This
increase was due primarily to the sales mix. During the second quarter of
1998, 27% of the sales revenue was generated by sales of commercial
parcels, with no comparable sales in the second quarter of 1997.
Commercial parcels have historically produced higher gross profits due to
their high sales prices and relatively low development costs. Sixty-nine
percent of the sales were generated by residential sales in the three
months ended June 30, 1998, as compared to 96% in the same period of 1997.
Homebuilding Operations.
Revenues from home sales decreased 14% during the second quarter of
1998 compared to the same period in 1997 due to there being four fewer
settlements in 1998 as a result of the reduced backlog carried over from
1997 in the Virginia area. The gross profit margins increased during the
second three months of 1998 to 8% compared to 2% earned during the same
period in 1997. During the three months ended June 30, 1997, the Company
incurred additional costs to cure non-recurring construction problems on
seven homes.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 11% to
$1,338,000 for the three months ended June 30, 1998, as compared to
$1,209,000 in the same period in 1997. This increase is primarily due to a
4% increase in rental revenues and a 5% decrease in operating expenses.
The increase in rental revenues is primarily a result of a reduction in
vacancies and an increase in rental rates. The decrease in operating
expenses is a result of a decrease in maintenance expenses and timing
difference of utility costs.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings decreased $98,000 to $141,000 during the three
months ended June 30, 1998, as compared to $239,000 during the three months
ended June 30, 1997. This decrease is primarily attributable to a
reduction in earnings from the homebuilding joint venture during the three
months ended June 30, 1998, as compared to the same period of 1997 due to
construction cost overruns.
Management and Other Fees.
Management and other fees decreased 16% to $773,000 in the second
quarter of 1998, as compared to $926,000 in the second quarter of 1997.
This decrease is primarily attributable to a reduction of deferred
management fees recognized during the second quarter of 1998, as compared
to the second quarter of 1997.
<PAGE>
Interest Expense.
Interest expense decreased 12% to $788,000 during the three months
ended June 30, 1998, as compared to $895,000 for the three months ended
June 30, 1997. This decrease is a result of reduced outstanding loan
balances during the second quarter of 1998 as compared to the same quarter
in 1997.
General and Administrative Expense.
General and administrative expenses decreased 6% to $1,762,000 for the
three months ended June 30, 1998, as compared to $1,871,000 for the same
period of 1997. This decrease is primarily attributable to management's
continued focus on cost efficiency and the reduction of expenses.
Spin-off Costs.
Costs of $291,000 related to the restructuring of the Company were
recognized as an expense for the three months ended June 30, 1998. There
were no such costs in the three months ended June 30, 1997.
Liquidity and Capital Resources
Cash and cash equivalents were $2,590,000 and $2,273,000 at June 30,
1998 and December 31, 1997, respectively. This increase was attributable
to $18,158,000 provided by operating activities, offset by $9,558,000 and
$8,283,000 used in investing and financing activities, respectively. The
cash inflow from operating activities was primarily attributable to
distributions from unconsolidated partnerships, land sales, collection of
wetlands fines previously paid and other notes receivable. The cash
outflow for investing activities was primarily attributable to land
improvements put in place for future land sales and deposits into escrow
accounts. During the first six months of 1998, the Company paid down debt
by $8,074,000, net of advances, and distributed $209,000 to the
Unitholders.
IGC has historically met its liquidity requirements principally from
cash flow generated from home and land sales, property management fees,
distributions from residential rental partnerships and from bank financing
providing funds for development and working capital.
Over the past several years, IGC's cash flows have been constrained
because of the terms of its existing debt agreements and the reluctance of
lenders to provide financing in the U.S. as a result of the wetlands
litigation. As a result, substantially all of the cash generated has been
used to pay debt service requirements with existing lenders. This resulted
in limited opportunities for new construction and development in the U.S.
The recently closed Banc One financing provided funding to commence
construction in Fairway Village, the third village in St. Charles, and will
allow IGC to retain a greater portion of its U.S. land sales proceeds. IGC
currently has other development projects in various stages of completion.
Substantially all of the projects under construction have sufficient
development loans in place to complete the construction.
<PAGE>
IGC's principal demands for liquidity are expected to be the continued
funding of its current debt service and operating costs, including capital
for its waste technology investments as well as potential fines that may be
imposed should the Company and the U.S. Attorney's office reach a
settlement approved by the court to the Wetlands Litigation. Management
believes that the cost of such a settlement would not be materially greater
than the $1,500,000 reserved by IGC for the Wetlands Litigation (see Part
III, Item 1 to this Form 10-Q). After the Restructuring, management
expects to obtain additional funding which can be used by ACPT to fund new
community development projects. Such sources of funding may include, but
are not limited to, excess operating cash flows, secured or unsecured
financings, private or public offerings of debt or equity securities and
proceeds from sales of properties. IGC's anticipated cash provided by
operations, new and existing financing facilities, and extension or
refinancing of $9,000,000 of loans that are due in the next twelve months
are expected to satisfy the Company's capital needs in 1998. However,
there are no assurances that these funds will be generated.
Debt Summary
As of June 30, 1998, the consolidated rental properties with a net
asset book value of $39,000,000 were encumbered by $39,000,000 of non-
recourse debt. The remaining assets with a book value of $99,000,000 are
substantially all collateralized by $28,000,000 of recourse debt and
$2,000,000 of non-recourse debt. The significant terms of IGC's recourse
debt financing arrangements are shown below (dollars in thousands):
Balance
Maximum Interest Maturity Outstanding
Descriptions Borrowings Rate Date 6/30/98
------------ ---------- -------- -------- -----------
Banc One-term loan (a) $11,000 P+2.5% 7/31/04 $10,000
Banc One-development loan (a) 4,000 P+2.5% 7/31/04 931
Banc One-remediation loan (a) 5,000 P+2.5% 7/31/04 3,428
First Bank-term loan (b) 9,865 P+1.5% 8/31/98 6,399
First Bank-construction loan (b) 5,500 P+1.5% 9/30/98 347
First Bank-construction loan (b) 8,350 P+1.5% 12/31/00 1,292
RG-Premier Bank (c) 1,641 P+1.5% 4/30/99 1,398
Citibank (d) 969 (e) demand 917
Washington Savings Bank (e) 1,317 9.5% 9/30/99 844
Miscellaneous land and
development loans 2,165 Various Various 2,278
Other miscellaneous 346 Various Various 533
------- -------
$50,153 $28,367
======= =======
(a) The three notes are cross-collateralized by substantially all
of the U.S. land and the U.S. and Puerto Rico future cash
entitlements pursuant to its ownership interest in the housing
partnerships. Interest is paid monthly. The loan agreement
calls for a minimum of $2,000,000 principal curtailments in
1998, and $3,000,000 in each of the following six years. In
addition, IGC is to establish a $1,000,000 development reserve
during 1998. It is IGC's intention to meet the required
payments from land sales and proceeds from the refinancing of a
<PAGE>
rental property. On each anniversary date, IGC is to pay an
additional fee, 1% in 1998 and 1999, increasing 1/2% in the
following four years, and grant an option to the lender to
purchase an additional 75,000 Units at a strike price to be
determined after the restructure. The loan agreement covenants
include restrictions on additional indebtedness of IGC and St.
Charles Community LLC. The loan agreement contains a cross
default provision for any amounts in excess of $1,000,000 past
due for 45 days after demand notification.
(b) The three notes are cross collateralized by the Puerto Rico
land assets. The interest is paid monthly from an interest
reserve. Principal payments are funded through the partial
release prices of the collateral. IGC expects to extend the
maturity date of these loans. The loan agreement covenants
include restrictions on distributions by LDA and additional
indebtedness of LDA and cross default provisions for other loan
payment defaults.
(c) The note requires monthly principal payments of $27,000 and is
secured by three mortgage notes receivable totalling
$2,717,600. Interest is paid monthly by advances under the
loan agreement.
(d) The note requires monthly payments of interest calculated at
250 basis points over the cost of funds, 8.406% at December 31,
1997. The note was secured by a letter of credit that expired
in January 1998. Management is currently renegotiating the
terms of this loan.
(e) The note requires monthly payments of interest and is
collateralized by the land under development for 115 townhome
lots in St. Charles, Maryland. The loan is to be repaid from
the sale of townhome lots that are currently under an option
contract.
Year 2000
IGC has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications and other systems using
computer chips currently use two-digit fields to designate a year. As the
century date occurs, date sensitive systems may recognize the year 2000 as
1900 or not at all. This inability to recognize or properly treat the year
2000 may cause the systems to process critical financial and operations
information incorrectly.
IGC's reporting systems are Year 2000 compliant with the exception of
one module. The Company has engaged a programmer at a nominal cost to
bring this module into compliance. Management is continuing to review the
remaining operating systems and computer systems that affect the properties
the Company manages. This review is continuing and management has not yet
determined whether these remaining systems are Year 2000 compliant, and if
not, whether the failure to correct them would have a material effect on
the operations or financial performance of IGC.
<PAGE>
Forward-Looking Statements
Certain matters discussed and statements made within this Form 10-Q
are forward-looking statements within the meaning of the Private Litigation
Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance or achievements of the company to be different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Although the Company believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Company's
filings with the Securities and Exchange Commission or other public
statements.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in Registrant's 10-K for December 31, 1997, convictions in
the Wetlands litigation in the United States District Court for the
District of Maryland were reversed by the United States Court of Appeals
for the Fourth Circuit and the case remanded to the District Court for a
new trial.
Counsel for Registrant is currently engaged in negotiations with the
U.S. Attorney's office on a possible disposition of the Wetlands litigation
that would require payment of a fine by Registrant, remediation of a
portion of two parcels in St. Charles and Registrant's undertaking an
environmental compliance program. Registrant would also plead guilty to a
single felony count. All other criminal charges in the indictment against
Registrant and its president, James J. Wilson, would be dropped. The
foregoing settlement proposal has not as yet been agreed upon by either
Registrant or the U.S. Government, and there are a number of issues that
are still under discussion. If agreement is reached, the disposition must
be approved by the court. Management believes that the cost of such a
settlement would not be materially greater than the amount ($1.5 million)
reserved by IGC for the Wetlands litigation. If such a settlement is
reached, a portion of the land in St. Charles presently encumbered by the
Wetlands litigation would become available for development.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Securities and Exchange Commission
Section 601 of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- ------- ----------------------------------------- ----------------------
10(a) Trust Agreement dated November 10, 1997 Filed herewith
by and between Interstate General Company
L.P. and Mark Augenblick, Hans Hertell,
Thomas B. Wilson and J. Michael Wilson
10(b) Memorandum of Agreement dated July 16, Filed herewith
1998 between The Wilson Family Limited
Partnership, Interstate Business
Corporation and Interstate General
Company L.P.
10(c) Agreement dated July 8, 1998 between Filed herewith
Land Development Associates S.E., Supra
and Company, S.E., Supra Development
Corporation, Rexach Construction Company,
Inc. and Ruben Velez Lebron.
(b) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
-------------------------------
(Registrant)
By: Interstate General Management
Corporation
Managing General Partner
Dated: August 14, 1998 By: /s/ James J. Wilson
----------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Dated: August 14, 1998 By: /s/ J. Michael Wilson
----------------- -----------------------------
J. Michael Wilson
Vice Chairman, Chief Financial
Officer and Director
Dated: August 14, 1998 By: /s/ Cynthia L. Hedrick
----------------- -----------------------------
Cynthia L. Hedrick
Vice President and Controller
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10(a) Trust Agreement dated November 10, 1997 by and between
Interstate General Company L.P. and Mark Augenblick, Hans
Hertell, Thomas B. Wilson and J. Michael Wilson
10(b) Memorandum of Agreement dated July 16, 1998 between The
Wilson Family Limited Partnership, Interstate Business
Corporation and Interstate General Company L.P.
10(c) Agreement dated July 8, 1998 between Land Development
Associates S.E., Supra and Company, S.E., Supra Development
Corporation, Rexach Construction Company, Inc. and Ruben
Velez Lebron.
<PAGE>
Exhibit 10(a)
THIS TRUST AGREEMENT, dated as of November 10, 1997, by and
between INTERSTATE GENERAL COMPANY L.P., a Delaware limited partnership
("IGC") and MARK AUGENBLICK, HANS HERTELL, THOMAS B. WILSON, and J. MICHAEL
WILSON (the "Trustees").
W I T N E S S E T H:
WHEREAS, IGC is the owner of 870,000 shares of the outstanding
common stock, $0.10 par value per share ("CWT Common Stock"), of Caribe
Waste Technologies, Inc., a Puerto Rico corporation ("CWT");
WHEREAS, IGC is the owner of 870,000 shares of the outstanding
common stock, $0.10 par value per share ("IWT Common Stock"), of Interstate
Waste Technologies, Inc., a Delaware corporation ("IWT");
WHEREAS, IGC wishes to deposit all such shares of the CWT Common
Stock and the IWT Common Stock currently held by IGC (collectively, the
"Common Stock") in an independent, irrevocable trust (the "Trust");
WHEREAS, the Common Stock represents all of the issued and
outstanding shares of CWT and IWT except for founder shares held by certain
key employees of CWT and IWT ("Founder Stock");
WHEREAS, the Trustees are willing to act as trustees pursuant to
the terms of this Trust Agreement and to carry out its purposes.
NOW, THEREFORE, the parties hereto agree as follows:
1. IGC hereby appoints Mark Augenblick, Hans Hertell, Thomas B.
Wilson, and J. Michael Wilson as Trustees hereunder, and Mark Augenblick,
Hans Hertell, Thomas B. Wilson, and J. Michael Wilson each hereby accepts
said appointment and agrees to act as Trustee under this Trust Agreement as
provided herein.
2. (a) IGC agrees that it will cause to be delivered to the
Trustees the certificate or certificates representing the Common
Stock, which certificates shall be duly endorsed or accompanied by
proper instruments duly executed for transfer thereof to the Trustees.
All shares of the Common Stock at any time deposited hereunder are
hereinafter called the "Trust Stock". The Trustees shall cause all
certificates representing Trust Stock to be surrendered to and
cancelled by CWT and IWT, and new certificates therefor to be issued
and delivered to the Trustees. Such certificates shall be registered
in the names of the Trustees, as trustees under this Trust. The
Trustees shall hold the Trust Stock until the Trust terminates as
provided in Paragraph 7 or as otherwise provided in Paragraph 8.
(b) The Trustees shall also hold such assets as may from
time to time be delivered to them pursuant to this Trust Agreement.
The Trust Stock and all other assets held by the Trustees under this
Trust Agreement are referred to herein as the Trust Assets.
<PAGE>
3. This Trust Agreement shall be irrevocable by IGC and its
affiliates, except in accordance with Paragraph 7 hereof, and shall
terminate only in accordance with the provisions of Paragraph 7 hereof.
4. The Trustees shall manage the Trust Assets in a prudent
manner, provided that they are specifically authorized to retain the Trust
Stock as a Trust Asset subject to Paragraph 7. Unless otherwise directed
by a court of competent jurisdiction, the Trustees shall be entitled and it
shall be their duty to exercise any and all voting rights in respect of the
Trust Stock either in person or by proxy, as hereinafter provided. Except
as provided in Paragraph 10, the Trustees shall not exercise voting or any
other powers under this Trust Agreement to create dependence or an
intercorporate relationship between (i) IGC and its affiliates, on the one
hand, and (ii) CWT, IWT and their affiliates, on the other hand, or to
elect any person as a director of CWT or IWT who has been found by a court
of competent jurisdiction to have violated any federal or state
environmental law. This Paragraph 4 shall be construed in a manner
consistent with the intention of the parties that the conduct of the
business and affairs of CWT and IWT shall be separate from and in no way
under the control of IGC but shall be independently managed and directed by
the Trustees who shall have full power and authority to act as owners of
the Trust Stock. (Wherever used in this Trust Agreement, the term
"affiliate" or "affiliates" shall mean a person controlling, controlled by
or under common control with such entity.) The provisions of this
Paragraph 4 shall not prohibit a Trustee from serving as a director or
officer of IGC or one or more of its affiliates.
5. Subject to the provisions of Paragraphs 4 and 6 hereof, the
Trustees shall have the following powers and authority in the investment
and administration of the Trust Assets, in their discretion:
(a) To purchase, receive, or subscribe for securities or
other property and to retain in trust such securities or other
property.
(b) To sell for cash or on credit or otherwise to dispose
of any securities or other property at any time held by them; to grant
options, convert, redeem, exchange for other securities or other
property; to write call options against or other forms of options
directly related to any such call option outstanding; or to enter into
stand-by agreements for future investment, either with or without a
stand-by fee.
(c) To settle, compromise, or submit to arbitration, any
claims, debts, or damage, due or owing with respect to Trust Assets,
to commence or defend suits or legal proceedings and to represent the
Trust in all suits or legal proceedings with respect to Trust Assets.
(d) To exercise any conversion privilege or subscription
right available in connection with any securities or other property at
any time held by them; to oppose or to consent to the reorganization,
consolidation, merger, or readjustment of the finances of any
corporation, company, or association any of the securities of which
may at any time be held by them and to do any act with reference
thereto, including the exercise of options and the making of
agreements or subscriptions, which may be deemed necessary or
advisable in connection therewith; and to hold and retain any
securities or other property which it may so acquire.
<PAGE>
(e) To exercise, personally or by general or limited power
of attorney, any right, including the right to vote, appurtenant to
any securities or other property held by them at any time.
(f) To borrow money in such amounts and upon such terms and
conditions as shall be deemed advisable or proper to carry out the
purposes of this Trust Agreement and to pledge any securities or other
property for the repayment of any such loan; provided, however, that
no such loans shall be made by the Trustees individually.
(g) To hold part or all of the Trust Assets uninvested as
the Trustees may from time to time deem to be in the best interest of
the Trust.
(h) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation.
(i) To register any securities held by them hereunder in
their names or in the name of a nominee with or without the addition
of words indicating that such securities are held in a fiduciary
capacity and to hold any securities in bearer form and to deposit any
securities or other property in a depository or clearing corporation.
(j) To employ advisors, including investment advisors,
which may, but need not, be affiliates of any person serving as
Trustee hereunder.
(k) To form corporations and to create trusts to hold title
to any securities or other property, all upon such terms and
conditions as may be deemed advisable.
(l) To make, execute, and deliver any and all deeds,
leases, mortgages, conveyances, contracts, waivers, releases, or other
instruments in writing necessary or proper for the accomplishment of
any of the foregoing powers.
(m) Generally to do all acts, whether or not expressly
authorized, which the Trustees are legally authorized to do as
shareholders under applicable corporate law and which they deem
necessary or desirable for the protection or enhancement of the Trust
Assets and which are not otherwise expressly prohibited under this
Trust Agreement.
6. Prior to the termination of this Trust as hereinafter
provided, the Trustees shall, immediately following the receipt of each
cash dividend or other monetary distribution as may be declared and paid
upon the Trust Stock, pay the same over to IGC. The Trustees shall receive
and hold dividends other than cash upon the same terms and conditions as
the Trust Stock.
7. (a) IGC may terminate this Trust at any time by notice in
writing to the Trustees. Such termination shall not take effect until
the Trustees shall have disposed of the Trust Assets in accordance
with Paragraph 7(d).
(b) In the event IGC determines to liquidate and dissolve,
IGC shall immediately notify the Trustees of such intent which shall
be deemed a notice of termination under Paragraph 7(a) hereof.
<PAGE>
(c) Unless sooner terminated pursuant to any other
provision herein contained, this Trust Agreement shall terminate on
June 30, 2018.
(d) Upon receipt of notice under Paragraphs 7(a) or 7(b)
or, in the case of termination under Paragraph 7(c), the Trustees
shall immediately commence and use their best efforts to complete as
promptly as possible such disposition of Trust Assets as follows:
(i) the Trustees shall negotiate the private sale of
the Trust Assets for cash on such terms and conditions as the Trustees
in their sole discretion shall determine, provided that neither IGC
nor any affiliate of IGC shall be eligible to purchase the Trust
Stock, and the Trustees shall distribute such proceeds to IGC, or
(ii) the Trustees shall distribute the Trust Stock
(either or both of the CWT Common Stock and the IWT Common Stock)
directly to the Unitholders of IGC as of a date determined by the
Trustees, shall sell all other Trust Assets for cash and distribute
such proceeds directly to IGC, and shall cause CWT and/or IWT, as
applicable, to use their reasonable best efforts to make such filings
with the Securities and Exchange Commission and state securities
commissions and to take all such other actions as may be necessary or
appropriate to effect such distribution of the Trust Stock to the
Unitholders of IGC.
The determination of which course of action to pursue shall be solely in
the discretion of the Trustees.
8. Notwithstanding the provisions of Paragraph 7 above, at such
time as the Trustees determine in the exercise of their judgment that the
economic performance of CWT or IWT is sufficient to create a viable public
market for the common stock of such company, the Trustees shall: (a)
distribute the Trust Stock of such company to IGC's unitholders, (b) effect
a public sale of the Trust Stock of such company and remit the net proceeds
to IGC, (c) effect a private sale of such shares or effect a merger with or
acquisition of such company by an unrelated third party and remit the net
cash received to IGC. Unless directed by the Board of Directors of IGC to
distribute any proceeds other than cash to IGC's Unitholders, the Trustees
shall hold any proceeds other than cash upon the same terms and conditions
as the Trust Stock. Any agreement for the disposition of Trust Stock,
other than to IGC or its unitholders, shall offer the same rights to the
holders of Founder Stock in such company.
9. Each of the Trustees who is not a director of CWT or IWT
shall be entitled to receive $15,000 per year as compensation for all
services rendered by him as Trustee under the terms hereof, together with
the reimbursements of all counsel fees or other expenses reasonably
incurred by him hereunder. All such amounts shall be promptly paid by IGC.
IGC shall be entitled to reasonable documentation of such expenses. Each
Trustee who serves as a director of CWT and/or IWT shall also be entitled,
if provided, to directors fees and reimbursement of expenses of attending
meetings of CWT or IWT, as the case may be.
<PAGE>
10. IGC, from time to time as reasonably requested by the
Trustees, shall advance or cause to be advanced to the Trust such funds as
may be required to pay the expenses of the Trustees and such additional
funds as may be required to pay any additional expenses of the Trust,
including any cash requirements of the Trust in excess of its available
cash. Nothing in this Trust Agreement shall preclude CWT or IWT from
borrowing from IGC such sums as they may require. Such advances shall be
subject to the approval of the Board of Directors of IGC. All advances
under this Paragraph 10 shall be in the form of loans to the Trust on the
following terms: (i) the loan shall bear interest at 1% over the Prime Rate
published from time to time in The Wall Street Journal on the outstanding
balance of an advance; and (ii) the maturity of each advance shall be not
less than 36 months from the date of such advance.
11. (a) The Trustees shall pay out of the Trust Assets all
income taxes and other taxes of any kind levied or assessed against
the Trust under existing or future laws.
(b) The Trustees shall withhold from all amounts
distributed, or deemed distributed, from the Trust any withholding
taxes that they are required to withhold by law and shall remit such
taxes to the appropriate government agency.
(c) Any and all reasonable and proper expenses of
administration of the Trust, including counsel fees, shall be paid by
the Trust.
12. The Trustees shall keep full and accurate records of all
Trust receipts and disbursements. Any financial statements, books, and
records with respect to the Trust shall be open to inspection by IGC or its
representatives at all reasonable times during business hours of the
Trustees. Within ninety (90) days of the close of each calendar year, or
termination of the Trust, the Trustees shall render to IGC a written report
of their acts and transactions as Trustees hereunder since the end of the
last such reporting period.
13. The Trustees shall be liable only for the Trustees' own acts
or omissions occasioned by the gross negligence or intentional wrongdoing
of the Trustees and shall not be responsible for the acts or omissions of
any predecessor or successor Trustee. The Trustees shall not be personally
liable for any obligations or liabilities of the Trust.
14. The Trustees shall not be answerable for the default or
misconduct of any agent or attorney appointed by them in pursuance hereof
if such agent or attorney shall have been selected with reasonable care.
The duties and responsibilities of the Trustees shall be limited to those
expressly set forth in this Trust Agreement. The Trustees shall not be
responsible for the sufficiency or accuracy of the form, execution,
validity or genuineness of the Trust Stock, or of any documents, or of any
endorsement thereon, or for any lack of endorsement thereof, or for any
description therein, nor shall the Trustees be responsible or liable in any
respect on account of the identity, authority or rights of the persons
executing or delivering or purporting to execute or deliver any such Trust
Stock or document or endorsement on this Trust Agreement, except for the
execution and delivery of this Trust Agreement by the Trustees. IGC agrees
that it will at all times protect, indemnify and save harmless the Trustees
from any loss, cost, or expense of any kind or character whatsoever in
connection with this Trust except those, if any, growing out of the gross
<PAGE>
negligence or willful misconduct of the Trustees, and will at all times
itself undertake, assume full responsibility for, and pay all cost and
expense of any suit or litigation of any character, with respect to the
Trust Stock or this Trust Agreement, and if the Trustees shall be made a
party thereto, IGC will pay all costs and expenses, including counsel fees,
to which the Trustees may be subject by reason thereof. The Trustees may
consult with counsel of their choosing and the opinion of such counsel
shall be full and complete authorization and protection in respect of any
action taken or omitted or suffered by the Trustees hereunder in good faith
and in accordance with such opinion.
15. Actions may be taken by the Trustees on behalf of the Trust
upon approval by a majority of the Trustees.
16. To the extent requested to do so by IGC, the Trustees shall
from time to time furnish to IGC full information with respect to (i) all
property theretofore delivered to them as Trustees, (ii) all property then
held by them as Trustees, and (iii) all action theretofore taken by it as
Trustees. The Trustees or any of them may at any time, or from time to
time, submit to the Board of Directors of IGC an accounting showing the
receipts and disbursements of the Trust for the period shown in sufficient
detail to identify the source of all receipts and the payees of any
disbursement and the nature thereof. The Board of Directors of IGC shall
have sixty (60) days from the date of receipt of such accounting to object,
by notice to the Trustee or Trustees submitting such accounts, to any item
included therein. The acceptance by the Board of Directors of IGC of such
accounting, or, in lieu of such acceptance, the failure of the Board of
Directors of IGC to notify the Trustee or Trustees submitting such
accounting of any objection by notice within such sixty (60) days shall be
deemed to be an acceptance thereof, and the Trustee or Trustees submitting
such accounting shall thereafter be relieved and forever discharged from
any responsibility with respect to the matters disclosed in such
accounting. Any notice provided for in this paragraph shall be in writing
and shall be sent to the addressee at his regular business address or, in
lieu thereof, to his principal residence by registered mail, return receipt
requested, by facsimile transmission with telephonic acknowledgment of
receipt or by hand delivery by courier or other service. The date of
receipt shall be the date of such notice.
17. A Trustee, or any trustee hereafter appointed, may at any
time resign by giving sixty (60) days' written notice of resignation to
each other Trustee and IGC. Upon receiving such notice of resignation, the
remaining Trustee(s) shall within 15 days appoint a successor trustee. To
the extent practical, at all times at least one Trustee shall be a person
who is not affiliated as a director, officer or employee of IGC or of any
of its affiliates other than CWT or IWT. If the resigning Trustee is the
last Trustee in office, such resignation shall not become effective until
at least one successor Trustee shall have been appointed and shall have
accepted appointment. Upon receipt by the remaining Trustee(s) of the
resignation of a Trustee or, if the resigning Trustee is the last remaining
Trustee upon written assumption by the successor trustee of the Trustee's
powers and duties hereunder, a copy of the assumption shall be delivered by
the Trustees to IGC, whereupon the resigning Trustee shall be discharged of
his powers and duties hereunder and the successor trustee shall become
vested therewith. No person shall be appointed as Trustee who would not be
eligible under this Trust Agreement to be elected as a director of CWT or
IWT.
<PAGE>
18. This Trust Agreement may not be modified or amended and
shall remain in full force and effect until terminated as provided herein.
19. The provisions of this Trust Agreement and of the rights and
obligations of the parties hereunder shall be governed by the laws of
Maryland.
20. The establishment of this Trust Agreement shall not be
construed as conferring any legal rights upon any person not a party to
this Trust Agreement.
21. This Trust Agreement is executed in quintuplicate, each of
which shall constitute an original, and one of which shall be retained by
IGC, the others of which shall be held by the Trustees. A copy of this
Trust shall be lodged at the registered office of CWT and IWT.
22. This Trust Agreement shall be binding upon the successors
and assigns of the parties hereto, including without limitation successors
to IGC by merger, consolidation or otherwise.
IN WITNESS WHEREOF, Interstate General Company L.P. has caused
this Trust Agreement to be executed, and each of the Trustees has executed
this Trust Agreement the day and year first above written.
INTERSTATE GENERAL COMPANY L.P.
By /s James J. Wilson
__________________________
/s/ Mark Augenblick
___________________________
MARK AUGENBLICK
/s/ Hans Hertell
___________________________
HANS HERTELL
/s/ Thomas B. Wilson
___________________________
THOMAS B. WILSON
/s/ J. Michael Wilson
___________________________
J. MICHAEL WILSON
<PAGE>
Exhibit 10(b)
MEMORANDUM OF AGREEMENT
The Wilson Family Limited Partnership (WFLP) is a Delaware
limited partnership, all the partnership interest of which are owned
directly or indirectly by James J. Wilson, his wife Barbara and their six
children (Wilson Family).
Interstate Business Corporation (IBC) is a Delaware corporation.
A majority of the stock of IBC is owned directly or indirectly by the
Wilson Family.
Interstate General Company L.P. (IGC) is a Delaware limited
partnership, the units of which are publicly traded on the American Stock
Exchange and on the Pacific Stock Exchange. IBC is a general partner of
IGC.
WFLP is currently indebted to IBC under a note in the original
principal amount of $1,895,482 due February 25, 2000 (WFLP Indebtedness).
IBC is currently indebted to WFLP under notes totaling $3,112,217
due on various maturity dates, and IBC is currently indebted to James J.
Wilson in the amount of $2,116,877 under a note due October 31, 1999
(collectively, the IBC Indebtedness).
IBC is a general partner of IGC and is secondarily liable as a
matter of law for the obligations of IGC.
In October 1995, IGC, its affiliate, St. Charles Associates L.P.
(SCA) and James J. Wilson were indicted by a federal grand jury for alleged
violations of the Clean Water Act ("Act") with respect to four parcels of
land in St. Charles, Maryland. In February 1996, the three defendants were
found guilty of four felony violations of the Act. In June 1996 the court
sentenced Mr. Wilson to imprisonment, imposed fines on all three defendants
and ordered IGC and SCA to implement a restoration and mitigation plan. On
appeal to the United States Court of Appeals for the Fourth Circuit, the
convictions of the defendants were reversed and the case remanded for
retrial to the U.S. District Court for the District of Maryland where the
matter is now pending (Wetlands Litigation).
On March 11, 1998, IGC and three of its affiliates entered into
an employment agreement with Mark Augenblick under which Mr. Augenblick is
employed by IGC and its stated affiliates for a term of four years
(Augenblick Agreement). The obligations of IGC and its stated affiliates
under the Augenblick Agreement are guaranteed by IBC.
IBC has agreed to lend to IGC such amounts as may be necessary to
meet IGC's Wetlands Litigation expenses and to meet the obligations of IGC
and its stated affiliates under the Augenblick Agreement in the event that
IGC itself is unable to pay these expenses currently.
<PAGE>
In furtherance of the foregoing undertaking by IGC, WFLP and
James J. Wilson have agreed, until the Wetlands Litigation is concluded and
the obligations of IGC and its stated affiliates under the Augenblick
Agreement are current, to defer collections on the IBC Indebtedness and to
accelerate payments ont he WFLP Indebtedness as may be required to meet
such obligations.
NOW, THEREFORE, in consideration of the foregoing, the
undertakings of the parties as set forth in this Memorandum of Agreement
and for other good and valuable consideration, the receipt of which each of
the parties acknowledges it has received, IGC, IBC, James J. Wilson and
WFLP agree as follows:
1. IBC agrees to lend to IGC on commercially reasonable terms
such amount(s) as may be necessary to enable IGC to pay IGC's Wetlands
Litigation expenses in the event that IGC itself is unable to pay those
expenses currently.
2. WFLP and James J. Wilson agree that until the Wetlands
Litigation is concluded and IGC's expenses related thereto are paid and the
obligations of IGC and its stated affiliates under the Augenblick Agreement
are current, it shall defer collection on the IBC Indebtedness as may be
needed to enable IBC to meet its obligations as a general partner of IGC
and as a guarantor under the Augenblick Agreement.
3. WFLP agrees to accelerate payments on the WFLP Indebtedness
as may be needed to enable IBC to meet its obligations under Paragraph 1 of
this Memorandum of Agreement and as guarantor under the Augenblick
Agreement.
4. This Memorandum of Agreement shall be construed under the
laws of the State of Delaware.
5. This Memorandum of Agreement is solely for the benefit of
the parties hereto, and no persons not a signatory to this Memorandum of
Agreement shall be considered a beneficiary hereof or have any rights of
enforcement hereunder.
6. The parties hereto waive trial by jury in any proceeding,
legal or otherwise, under this Memorandum of Agreement.
7. This Memorandum of Agreement shall be valid and legally
enforceable when signed on behalf of each of the parties hereto. Each of
the persons signing this Memorandum of Agreement represents and warrants
that he is fully authorized to sign this Memorandum of Agreement on behalf
of the respective parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Memorandum of Agreement as of this 16th day of July, 1998.
INTERSTATE GENERAL COMPANY L.P.
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION, its managing general
partner
By: /s/ James J. Wilson
---------------------------------
James J. Wilson
CEO
INTERSTATE BUSINESS CORPORATION
By: /s/ J. Michael Wilson
--------------------------------
J. Michael Wilson
President
WILSON FAMILY LIMITED PARTNERSHIP
By: /s/ J. Michael Wilson
--------------------------------
J. Michael Wilson
General Partner
<PAGE>
Exhibit 10(c)
Land Development Associates S.E.
650 Munoz Rivera Avenue, 7th Floor
Hato Rey, PR 00918
July 8, 1998
Supra and Company, S.E.
A Street #23
Julia Industrial Park
Puerto Nuevo, Puerto Rico 00922
Attention: Ruben Velez Lebron, President
Re: Purchase of Supra's Interest in LDA and Related Matters
Dear Mr. Velez:
This letter sets forth the agreement between Land Development Associates
S.E., a Puerto Rico special partnership ("LDA"), Supra and Company, S.E., a
Puerto Rico special partnership ("Supra"), Supra Development Corporation
("Supra Development"), Rexach Construction Company, Inc. ("Rexach"), and
Ruben Velez Lebron ("Velez"), regarding the exercise by LDA of its right of
first refusal to purchase Supra's partnership interest in LDA pursuant to
Article Nineteen of LDA's Partnership Agreement, and certain related
transactions.
1. Purchase, Sale, Assignment, Lien Releases
a. Supra hereby agrees to on the Closing Date sell, grant, assign
and transfer to LDA all of Supra's right, title and interest as a partner
in and to LDA (the "Partnership Interest") and the "Subordinated Cash Flow
Note" issued by LDA to Supra on August 2, 1994 (the "Cash Flow Note") free
and clear of any lien, encumbrance, assignment, or security interest. Supra
on even date hereof delivers to San Juan Abstract Company (the "Escrow
Agent") the Assignment of Partnership Interest attached hereto as Exhibit
1A.1 (the "Partnership Interest Assignment") and the original of the Cash
Flow Note duly endorsed to the order of LDA (Exhibit 1A.2).
b. Rexach hereby agrees to release the Cash Flow Note from the
assignment to it made by Supra subject to the payment of Two Million Four
Hundred Thousand Dollars ($2,400,000).
2. Purchase Price
a. The purchase price for the Partnership interest and the Cash
Flow Note is Five Million Five Hundred Thousand Dollars ($5,500,000)
divided as follows:
(i) Cash Flow Note Two Million Four Hundred Thousand Dollars
($2,400,000), and
(ii) Partnership Interest Three Million One Hundred Thousand
Dollars ($3,100,000).
<PAGE>
b. On even date hereof LDA delivers to Rexach in partial payment
of the amount shown in (i) above, the amount of One Million Dollars
($1,000,000) of which Rexach hereby acknowledges receipt.
3. Closing
a. At the Closing (defined in Section 6.a below), LDA shall
deliver to the Escrow Agent the amount of Four Million Five Hundred
Thousand Dollars ($4,500,000) by manager or cashier check as follows:
(i) in the amount shown in the Bank Release (defined below),
payable to the order of First Bank of Puerto Rico (the "Bank");
(ii) in the amount of One Million Four Hundred Thousand Dollars
($1,400,000) to the order of Rexach; and
(iii) in an amount equal to the difference, if any, between Four
Million Five Hundred Thousand Dollars ($4,500,000) and the sum of the
amounts referred to in (i) and (ii), payable to the order of Supra.
b. At the Closing, Supra shall deliver to the Escrow Agent the
release attached hereto as Exhibit 3B duly executed by the Bank (the "Bank
Release").
c. At the Closing, the Escrow Agent, upon receipt of the checks
mentioned in a. above and the document mentioned in b. above, shall deliver
to:
(i) LDA, the Partnership Interest Assignment, the Cash Flow
Note, and the Bank Release;
(ii) the Bank, the check mentioned in a. (i) above;
(iii) Rexach, the check mentioned in a. (ii) above; and
(iv) Supra, the check, if any, mentioned in a. (iii) above.
4. Representations and Warranties
a. LDA represent and warrant to Supra that (i) it has all
necessary partnership power and authority to execute, deliver and perform
its obligations under this Agreement and the agreements and instruments
contemplated hereby to which it is a party, (ii) such execution, delivery
and performance will not violate or conflict with any applicable statute,
law, regulation or governmental order, or, any agreement to which LDA is a
party; and (iii) this Agreement evidences the legal valid and binding
agreements of LDA enforceable against LDA in accordance with their terms
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors rights
and by general equitable principles.
b. Each of Supra, Supra Development, Rexach, and Velez represents
and warrants to LDA that, as of this date and the Closing Date, (i) Supra,
Rexach, and Supra Development have all necessary power and authority to
execute, deliver and perform their obligations under this Agreement and the
agreements and instruments contemplated hereby to which each is a party,
(ii) such execution, delivery and performance will not violate or conflict
<PAGE>
with any applicable statute, law, regulation or governmental order, or,
assuming the pledge or assignment releases referred to herein are obtained,
any agreement to which Supra, Rexach, Supra Development or Velez is a
party; (iii) this Agreement evidences the legal valid and binding agreement
of Supra, Supra Development, Rexach, and Velez enforceable against them, in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by general equitable principles; (iv) Supra
is the owner of the Partnership Interest and the Cash Flow Note subject to
no liens, encumbrances, security interest, or assignments, except the ones
held by the Bank and Rexach hereinbefore mentioned; (v) Supra Development
is the managing partner (Socio Gestor) of and owner (beneficially and of
record) of 10% interest in Supra with all the necessary power and authority
to execute and deliver on behalf of Supra this Agreement and the agreements
and instruments contemplated hereby to which Supra is a party; (vi) Velez
is the owner (beneficially and of record) of all of the issued and
outstanding stock of Supra Development and has the necessary power and
authority to cause the execution, delivery and performance by Supra
Development, as managing partner (Socio Gestor) of Supra, of this Agreement
and the agreements and instruments contemplated hereby to which Supra is a
party; (v) Velez is the owner of 90% partnership interest in Supra; and (v)
the grant, sale, assignment, and transfer by Supra of the Cash Flow Note
and the Partnership Interest as contemplated herein and in the Partnership
interest Assignment, will convey to LDA fee simple (pleno dominio) title to
the Cash Flow Note and the Partnership Interest subject to no liens,
encumbrances, security interests, or assignments.
c. The foregoing representations and warranties shall survive the
Closing Date.
5. Closing Conditions:
a. The obligations of LDA hereunder to be completed in connection
with the Closing are subject to (i) the representations and warranties of
Supra, Supra Development and Velez set forth herein being true in all
material respects as of the Closing Date, (ii) delivery of the agreements,
documents and instruments described in Section 3b and, (iii) delivery to
LDA of an opinion of counsel to Supra in form and substance satisfactory to
LDA as to the due authorization, execution and delivery and enforceability
of this Agreement and the other agreements and instruments contemplated
hereby, and (iv) the absence of any injunction, governmental order, or
proceeding prohibiting the consummation, or questioning the validity or
legality, of the transactions contemplated hereby.
b. The obligations of Supra hereunder to be completed in
connection with the Closing are subject to (i) the representations and
warranties of LDA set forth herein being true in all material respects as
of the Closing Date; (ii) delivery by LDA of the checks described in
Section 3a hereof; (iii) delivery to Supra of opinions of counsel to LDA as
to the due authorization, execution, and delivery and enforceability of
this Agreement; and (iv) the absence of any injunction, governmental order,
or proceeding prohibiting the consummation, or questioning the validity or
legality, of the transactions contemplated hereby.
<PAGE>
6. Closing/Termination.
a. The closing of the transactions contemplated by Section 1
hereof(the Closing") shall be held at the offices of Fiddler Gonzalez &
Rodriguez on the Closing Date, which shall be at 10:00 a.m. San Juan time
on July 31, 1998 (the "Closing Date"), or such other date as shall be
mutually agreed by the parties hereto.
b. Prior to the Closing, this Agreement may be terminated and the
transactions contemplated hereby abandoned:
(i) upon mutual agreement in writing by the parties hereto;
(ii) by LDA, in the event that as of the Closing Date the
conditions under Section 5a of its obligations to close have not been
satisfied, by reason other than those under the control of LDA, or
(iii) by Supra, in the event that as of the Closing Date, the
conditions under Section 5b to its obligation to close have not been
satisfied by reason other than those under the control of Supra.
7. Remedies.
a. In the event LDA shall fail to fulfill its obligations
hereunder for causes other than the ones established as events of
termination in Section 6b(ii) and the Closing shall not occur, this
Agreement shall be resolved as of the date hereof and the Escrow Agent
shall deliver to Supra and Rexach the documents and Cash Flow Note
delivered by Supra and Rexach to it pursuant to Sections 2a and 3b hereof;
and Supra's sole remedy shall be to forfeit the One Million Dollars
($1,000,000) mentioned in Section 1a. hereof; and no other remedy shall
accrue to Supra, including without limitation, specific performance. Hence
forth, Supra shall be entitled to sell and transfer the Partnership
Interest to Mr. Candido Gonzalez under the same terms and conditions
notified to by Supra to LDA by letter dated May 26, 1998, without having to
comply with Article 19 of the Partnership Agreement.
b. In the event Supra shall fail to fulfill its obligations
hereunder for causes other than the ones established as events of
termination in Section 4b(i) and (iii) hereof and the Closing shall not
occur:
(i) Rexach shall, on demand, pay to LDA the One Million
Dollars ($1,000,000) mentioned in Section 2 hereof; plus ten percent
interest thereon from the date of such demand until full payment thereof;
and LDA shall keep possession of and hold a security interest on the Cash
Flow Note as collateral to secure the payment obligation of Rexach
hereunder, upon the payment of which LDA shall deliver the Cash Flow Note
to Rexach; and
(ii) Supra, Supra Development and Velez shall reimburse LDA for
all direct expenses incurred in the negotiation and preparation of; and
compliance with this Agreement (including, without limitation, attorneys
fees and costs, and financing fees and costs).
<PAGE>
c. In the event that, the Closing having occurred, any of Supra,
Supra Development, Rexach, or Velez shall have breached any representation,
warranty, covenant or obligation made by it in this Agreement or any
document delivered pursuant hereto:
(i) LDA shall have the right to traditional contract remedies,
including injunctive relief and actual (excluding consequential and
compensatory) damages (including attorneys fees and costs necessary to
enforce this Agreement or to defend any claims asserted in violation of
this Agreement) proximately caused by such breach; and
(ii) Supra, Supra Development, and Rexach, jointly and
severally (solidariamente), will indemnify, defend and hold harmless LDA
and its partners, employees, officers, attorneys, servants,
representatives, affiliates, predecessors, administrators, beneficiaries,
agents, successors, and assigns (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of; any loss,
liability, claim, actual (excluding consequential and compensatory) damage,
expense (including costs of investigation and defense and reasonable
attorneys' fees), whether or not involving a third-party claim
(collectively, "Damages"), proximately caused by such breach.
8. Miscellaneous.
a. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
b. This Agreement may be executed in counterparts.
c. This Agreement and the agreements and instruments to be
delivered pursuant hereto set forth the entire agreement among the parties
regarding the subject matter hereof and supersede all prior agreements
relating to the subject matter hereof. This Agreement and the agreements
and instruments to be delivered pursuant hereto may not be amended or
modified except by a written instrument executed by the party against whom
enforceability is sought.
d. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Puerto Rico, without regard to the
conflict-of-laws rules thereof.
<PAGE>
If you agree to the terms outlined above, please countersign in the
spaces provided below.
Very truly yours,
LAND DEVELOPMENT ASSOCIATES S.E.
By: Interstate General Properties Limited Partnership S.E.,
its managing partner
By: Interstate General Company L.P.,
its managing general partner
By: Interstate General Management Corporation,
its managing general partner
By: /s/ Francisco Arrivi
---------------------------------------------------------
Francisco Arrivi
Senior Vice President
Agreed to: Agreed to:
SUPRA AND COMPANY, S E. REXACH CONSTRUCTION COMPANY
By: Supra Development Corp. By: /s/ Ruben Velez Lebron
its managing general partner -------------------------
Ruben Velez Lebron
By: /s/ Ruben Velez Lebron President
----------------------
Ruben Velez Leron
Presidnet
Agreed to:
Ruben Velez Lebron
/s/ Ruben Velez Lebron
- ---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,942<F1>
<SECURITIES> 0
<RECEIVABLES> 4,799
<ALLOWANCES> (606)
<INVENTORY> 76,767
<CURRENT-ASSETS> 0
<PP&E> 3,470
<DEPRECIATION> 2,369
<TOTAL-ASSETS> 138,208
<CURRENT-LIABILITIES> 0
<BONDS> (70,241)
0
0
<COMMON> 0
<OTHER-SE> 45,618
<TOTAL-LIABILITY-AND-EQUITY> 138,208
<SALES> 15,890
<TOTAL-REVENUES> 23,521
<CGS> 10,420
<TOTAL-COSTS> 12,869
<OTHER-EXPENSES> 5,368
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 1,654
<INCOME-PRETAX> 3,043
<INCOME-TAX> 504
<INCOME-CONTINUING> 2,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,539
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>Balance includes $2,352 of restricted cash.
</FN>
</TABLE>
