SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 1-9393
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.)
5160 Parkstone Drive, Suite 110
Chantilly, Virginia 20151
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(703) 263-1191
----------------------------------------------------
(Registrant's telephone number, including area code)
222 Smallwood Village Center
St. Charles, Maryland 20602
-------------------------------------------------------
(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 Nine Months Ended September 30, 1998
and 1997. (Unaudited) 3
Consolidated Statements of Loss for
the Three Months Ended September 30, 1998
and 1997. (Unaudited) 4
Consolidated Balance Sheets at September 30, 1998
(Unaudited) and December 31, 1997. 5
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1998 and 1997.
(Unaudited) 7
Consolidated Statements of Cash Flow for the
Three Months Ended September 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 Nine
and Three Months Ended September 30, 1998 and 1997. 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Material Modifications of Rights of Registrant's 33
Securities
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
Signatures 35
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1998 1997
---------- -----------
REVENUES
Community development-land sales
Non-affiliates $ 11,986 $ 4,529
Affiliates 1,179 3,000
Homebuilding-home sales 5,455 5,576
Equity in earnings from partnerships
and developer fees 1,144 922
Investment in gaming properties 549 549
Rental property revenues 6,693 6,540
Management and other fees, substantially
all from related entities 2,518 3,038
Interest and other income 1,054 640
---------- ----------
Total revenues 30,578 24,794
---------- ----------
EXPENSES
Cost of land sales 7,954 4,873
Cost of home sales 4,922 5,457
Selling and marketing 979 906
General and administrative 4,850 5,079
Interest expense 2,590 2,683
Rental properties operating expense 2,748 2,784
Depreciation and amortization 1,493 1,582
Wetlands litigation expenses -- 68
Write-off of deferred project costs -- 6
Spin-off costs 1,831 300
---------- ----------
Total expenses 27,367 23,738
---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 3,211 1,056
PROVISION FOR INCOME TAXES 740 558
---------- ----------
INCOME BEFORE MINORITY INTEREST 2,471 498
MINORITY INTEREST (446) (129)
---------- ----------
NET INCOME $ 2,025 $ 369
========== ==========
BASIC NET INCOME PER UNIT $ .20 $ .04
========== ==========
NET INCOME
General Partners $ 20 $ 4
Limited Partners 2,005 365
---------- ----------
$ 2,025 $ 369
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,327 10,274
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per unit amounts)
(Unaudited)
1998 1997
---------- -----------
REVENUES
Community development-land sales
Non-affiliates $ 346 $ 1,910
Affiliates 559 --
Homebuilding-home sales 1,825 1,816
Equity in earnings from partnerships
and developer fees 498 287
Investment in gaming properties 549 --
Rental property revenues 2,261 2,240
Management and other fees, substantially
all from related entities 769 769
Interest and other income 250 152
---------- ----------
Total revenues 7,057 7,174
---------- ----------
EXPENSES
Cost of land sales 815 1,318
Cost of home sales 1,641 1,845
Selling and marketing 311 335
General and administrative 1,393 1,547
Interest expense 936 866
Rental properties operating expense 967 1,016
Depreciation and amortization 504 493
Spin-off costs 783 300
---------- ----------
Total expenses 7,350 7,720
---------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST (293) (546)
PROVISION FOR INCOME TAXES 236 446
---------- ----------
LOSS BEFORE MINORITY INTEREST (529) (992)
MINORITY INTEREST 15 (116)
---------- ----------
NET LOSS $ (514) $ (1,108)
========== ==========
BASIC NET LOSS PER UNIT $ (.05) $ (.11)
========== ==========
NET LOSS
General Partners $ (5) $ (11)
Limited Partners (509) (1,097)
---------- ----------
$ (514) $ (1,108)
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 10,318 10,274
========== ==========
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
September 30, December 31,
1998 1997
------------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,721 $ 2,273
Restricted cash 2,591 508
-------- --------
4,312 2,781
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 31,941 32,918
St. Charles, Maryland 32,284 28,417
Other United States locations 16,061 14,698
Notes receivable on lot sales and other 2,879 6,476
-------- --------
83,165 82,509
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Operating properties, net of accumulated
depreciation of $22,343 and $21,392 as
of September 30, 1998 and December 31,
1997, respectively 37,321 37,829
Investment in unconsolidated rental property
partnerships, net of deferred income of
$1,901 and $2,193 as of September 30,
1998 and December 31, 1997, respectively 7,376 8,657
Other receivables, net of reserves of
$128 and $223 as of September 30,
1998 and December 31, 1997, respectively 1,378 805
-------- --------
46,075 47,291
-------- --------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction and land 2,077 1,914
Investment in joint venture 976 591
Receivables and other 121 68
-------- --------
3,174 2,573
-------- --------
OTHER ASSETS
Deferred costs regarding waste technology and
other projects, receivables and other 6,635 8,797
Property, plant and equipment, less accumulated
depreciation of $2,426 and $2,460 as of
September 30, 1998 and December 31, 1997,
respectively 1,057 1,087
-------- --------
7,692 9,884
-------- --------
Total assets $144,418 $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
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt $ 35,242 $ 35,176
Non-recourse debt -- 2,295
Accounts payable and accrued liabilities 3,368 4,648
Deferred income 355 597
-------- --------
38,965 42,716
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 905 969
Non-recourse debt 38,775 39,101
Accounts payable and accrued liabilities 3,482 3,331
-------- --------
43,162 43,401
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 490 159
Accounts payable, accrued liabilities
and deferred income 2,640 2,501
-------- --------
3,130 2,660
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 5,936 6,330
Notes payable and capital leases 613 615
Accrued income tax liability - current 2,459 1,541
Accrued income tax liability - deferred 4,781 4,487
-------- --------
13,789 12,973
-------- --------
Total liabilities 99,046 101,750
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,366 4,345
Limited partners' capital-10,312 and 10,332
Units issued and outstanding as of September
30, 1998 and December 31, 1997, respectively 41,006 38,943
-------- --------
Total partners' capital 45,372 43,288
-------- --------
Total liabilities and partners' capital $144,418 $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 NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,025 $ 369
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation and amortization 1,493 1,582
Provision (benefit) for deferred income taxes 294 (441)
Equity in earnings from gaming properties (549) (549)
Equity in earnings from unconsolidated
partnerships and developer fees (759) (988)
Distributions from unconsolidated partnerships 1,912 5,142
Cost of sales-community development
and homebuilding 12,876 10,330
Homebuilding construction expenditures (5,085) (5,380)
Equity in loss from homebuilding joint venture (385) 66
Write-off of deferred project cost -- 6
Collection (payment) of fines (see Note 6) 3,212 (3,212)
Changes in notes and accounts receivable, due
from affiliates changed $4,000 and $(259) 3,652 (755)
Changes in accounts payable, accrued liabilities
and deferred income 2,101 (2,128)
------- -------
Net cash provided by operating activities 20,787 4,042
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (11,367) (4,381)
Change in assets related to unconsolidated
rental property partnerships 128 (740)
Change in restricted cash (2,083) 250
Additions to rental operating properties, net (780) (396)
Acquisitions of other assets, net (1,906) (1,461)
Contributions to homebuilding joint venture -- (245)
------- -------
Net cash used in investing activities (16,008) (6,973)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 12,689 19,332
Payment of debt (14,979) (16,105)
Purchase of minority interest in subsidiary (3,100) --
Distributions to Unitholders (209) --
Issuance of Warrants 268 --
------- -------
Net cash (used in) provided by financing activities (5,331) 3,227
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (552) 296
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,273 2,212
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 1,721 $ 2,508
======= =======
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 SEPTEMBER 30,
(In thousands)
(Unaudited)
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (514) $(1,108)
Adjustments to reconcile net loss to net cash
provided by (used by) operating activities:
Depreciation and amortization 504 493
Provision for deferred income taxes 836 554
Equity in earnings from gaming properties (549) --
Equity in earnings from unconsolidated
partnerships and development fees (276) (305)
Distributions from unconsolidated partnerships 116 175
Cost of sales-community development
and homebuilding 2,456 3,163
Homebuilding construction expenditures (2,157) (2,206)
Equity in loss from homebuilding joint venture (222) 18
Payment of Fines (see Note 6) -- (2,962)
Changes in notes and accounts receivable, due
from affiliates changed $(46) and $(49) (210) (24)
Changes in accounts payable, accrued liabilities
and deferred income 2,645 (1,668)
------- -------
Net cash provided by (used in) operating activities 2,629 (3,870)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land improvements for future sales (5,055) (791)
Change in assets related to unconsolidated
rental property partnerships (14) 1
Change in restricted cash (239) 162
Additions to rental operating properties, net (224) (46)
Acquisitions of other assets, net (918) (1,625)
Contributions to homebuilding joint venture -- (20)
------- -------
Net cash used in investing activities (6,450) (2,319)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 8,535 16,011
Payment of debt (2,751) (8,889)
Purchase of minority interest in subsidiary (3,100) --
Issuance of Warrants 268 --
------- -------
Net cash provided by financing activities 2,952 7,122
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (869) 933
CASH AND CASH EQUIVALENTS, JUNE 30 2,590 1,575
------- -------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $ 1,721 $ 2,508
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended
September 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. Diluted earnings per Unit for the
three and nine months ended September 30, 1998 and 1998 does not differ
from basic earnings per Unit.
These unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") have been condensed or omitted. While the Managing
General Partner believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the
notes included in the Partnership's Annual Report filed on Form 10-K for
the year ended December 31, 1997.
(2) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, IGC adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income" and will adopt SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" at December 31, 1998.
The adoption of SFAS No. 130 did not have a material effect on IGC's
financial statements.
<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
September 30, 1998 $122,426 $10,791 $133,217
December 31, 1997 129,332 9,509 138,841
Total Non-Recourse Debt
September 30, 1998 131,396 12,014 143,410
December 31, 1997 132,984 11,612 144,596
Total Other Liabilities
September 30, 1998 25,050 2,253 27,303
December 31, 1997 24,804 122 24,926
Total Equity
September 30, 1998 (34,020) (3,476) (37,496)
December 31, 1997 (28,456) (2,225) (30,681)
Company's Investment
September 30, 1998 7,376 -- 7,376
December 31, 1997 8,657 -- 8,657
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended September 30, 1998 7,809 10 7,819
Three Months Ended September 30, 1997 7,618 324 7,942
Nine Months Ended September 30, 1998 23,399 103 23,502
Nine Months Ended September 30, 1997 22,822 1,417 24,239
Net Loss
Three Months Ended September 30, 1998 (118) (433) (551)
Three Months Ended September 30, 1997 (207) (169) (376)
Nine Months Ended September 30, 1998 (403) (1,251) (1,654)
Nine Months Ended September 30, 1997 (518) (99) (617)
Company's recognition of equity in
earnings and developer fees
Three Months Ended September 30, 1998 277 -- 277
Three Months Ended September 30, 1997 341 (35) 306
Nine Months Ended September 30, 1998 760 -- 760
Nine Months Ended September 30, 1997 988 -- 988
<PAGE>
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY OF CASH FLOWS:
Cash flows from operating activities
Three Months Ended September 30, 1998 $ 1,363 $ (899) $ 464
Three Months Ended September 30, 1997 1,050 136 1,186
Nine Months Ended September 30, 1998 4,480 (2,605) 1,875
Nine Months Ended September 30, 1997 3,423 573 3,996
Company's share of cash flows
from operating activities
Three Months Ended September 30, 1998 438 (450) (12)
Three Months Ended September 30, 1997 344 67 411
Nine Months Ended September 30, 1998 1,558 (1,303) 255
Nine Months Ended September 30, 1997 1,300 286 1,586
Cash distributions
Three Months Ended September 30, 1998 261 -- 261
Three Months Ended September 30, 1997 479 -- 479
Nine Months Ended September 30, 1998 5,074 -- 5,074
Nine Months Ended September 30, 1997 1,335 9,292 10,627
Company's share of cash distributions
Three Months Ended September 30, 1998 116 -- 116
Three Months Ended September 30, 1997 204 (25) 179
Nine Months Ended September 30, 1998 1,912 -- 1,912
Nine Months Ended September 30, 1997 500 4,646 5,146
The unconsolidated rental properties partnerships as of September 30,
1998 include 19 partnerships owning 4,563 rental units in 22 apartment
complexes owned by Alturas Del Senorial Associates Limited Partnership,
Bannister Associates Limited Partnership, Bayamon Gardens Associates
Limited Partnership, Brookside Gardens Limited Partnership, Carolina
Associates Limited Partnership, 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.
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.
<PAGE>
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. It purchased land to construct 118
units in 1997 and land to construct 98 units in 1996. The profit on these
lots are deferred until sold by Escorial Builders to a third party. The
following tables summarize Escorial Builders' financial information (in
thousands):
SUMMARY OF FINANCIAL POSITION:
AS OF
----------------------------
September 30, December 31,
1998 1997
------------- ------------
Total assets $11,660 $13,374
Total liabilities 9,709 12,191
Total equity 1,951 1,183
Company's investment 976 591
SUMMARY OF OPERATIONS:
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Total revenue $ 8,431 $ 2 $3,950 $ 2
Net income (loss) 768 (136) 442 (41)
Company's recognition of
equity in earnings (losses) 384 (68) 221 (20)
SUMMARY OF OPERATING CASH FLOWS:
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Cash flows from operating
activities $ 3,801 $(7,642) $ 2,423 $(2,012)
Company's share of cash flows
from operating activities 1,900 (3,821) 1,211 (1,006)
Operating cash distributions -- -- -- --
Company's share of operating
cash distributions -- -- -- --
<PAGE>
(4) DEBT
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of IGC
at September 30, 1998 and December 31, 1997 (in thousands):
Outstanding
Maturity Interest --------------------------
Dates Rates (a) September 30, December 31,
From/To From/To 1998 1997
-------- --------- ------------- ------------
Related to community
development:
Recourse debt Demand(b)/ P+6.5%/ $35,242 $35,176
07-31-04 10.0% (c)
Non-recourse debt Paid P+1.5% -- 2,295
Related to investment
properties:
Recourse debt Demand 8.19% 905 969
Non-recourse debt 10-01-19/ 6.85%/ 38,775 39,101
10-01-28 8.5%
Related to homebuilding
projects:
Recourse debt Demand/ P+1.5% 490 159
08-03-99
General:
Recourse debt Demand P+1.25%/ 613 615
04-01-03 18.5% ------- -------
Total debt $76,025 $78,315
======= =======
(a) P = Prime lending interest rate.
(b) $1,050,000 is due on demand.
(c) Approximately $15,484,000 of this debt requires additional
interest payments on each annual anniversary date. The amount
due is 1% of the outstanding balance in 1998 and 1999, and
increases 1/2% each year thereafter, through 2003.
As of September 30, 1998, the $35,242,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $15,484,000 of this
amount is further secured by investments in apartment rental partnerships.
As of September 30, 1998, recourse investment property debt is secured
by cash receipts received by the Company pursuant to the terms of a sales
contract. The non-recourse investment properties debt is collateralized by
apartment projects and secured by FHA or the Maryland Housing Fund.
Mortgage notes payable of $7,147,000 have stated interest rates of 7.5% and
7.75%; however, after deducting interest subsidies provided by HUD, the
effective interest rate over the life of the loans is 1%.
The homebuilding debt is secured by eight homes under construction.
(5) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of the Company
have ownership interests in various entities that conducted business with
<PAGE>
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:
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Community Development - Land Sales (A)
Homebuilding joint venture $1,179 $ -- $ 559 $ --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director (A2) -- 3,000 -- --
------ ------ ------ ------
$1,179 $3,000 $ 559 $ --
====== ====== ====== ======
Cost of Land Sales
Homebuilding joint venture $ 936 $ -- $ 446 $ --
Affiliate of IBC, general partner of IGC,
and James Michael Wilson, director (A2) -- 1,689 -- 30
------ ------ ------ ------
$ 936 $1,689 $ 446 $ 30
====== ====== ====== ======
Investment in Gaming Properties
IBC, general partner of IGC, affiliate of Thomas B.
Wilson, director (C) $ 549 $ 549 $ 549 $ --
====== ====== ====== ======
Management and Other Fees (B)
Unconsolidated subsidiaries $1,795 $2,282 $ 530 $ 527
Affiliate of IBC, general partner of IGC (B1,2) 183 291 58 57
Affiliate of James Michael Wilson, director, Thomas B.
Wilson, director, and James J. Wilson, director 118 113 41 39
Affiliate of James Michael Wilson, director, Thomas B.
Wilson, director, James J. Wilson, director, and an
Affiliate of IBC, general partner of IGC 62 52 22 15
------ ------ ------ ------
$2,158 $2,738 $ 651 $ 638
====== ====== ====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 42 $ 36 $ 18 $ 12
Affiliate of a former director 97 126 40 35
Affiliate of IBC, general partner of IGC 39 -- -- --
Affiliate of Thomas B. Wilson, director -- 13 -- 4
------ ------ ------ ------
$ 178 $ 175 $ 58 $ 51
====== ====== ====== ======
General and Administrative Expense
Affiliate of IBC, general partner of IGC (D1) $ 246 $ 246 $ 84 $ 91
Reserve additions and other write-offs-
Affiliate of IBC, general partner of IGC (B3) (59) 88 (123) 31
Unconsolidated subsidiaries (B3,D4) 8 86 (97) 31
------ ------ ------ ------
$ 195 $ 420 $ (136) $ 153
====== ====== ====== ======
Interest Expense
IBC, general partner of IGC $ 8 $ -- $ 8 $ --
====== ====== ====== ======
<PAGE>
<CAPTION>
BALANCE SHEET IMPACT:
Increase Increase
Balance (Decrease) Balance (Decrease)
September 30, in Reserves December 31, in Reserves
1998 1998 1997 1997
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $ 823 $ (35) $ 552 $ 111
Affiliate of IBC, general partner
of IGC (B1,2) 79 (60) 51 (9)
Affiliate of James Michael Wilson,
director and James J. Wilson,
director 69 -- 20 --
------ ----- ------ -----
$ 971 $ (95) $ 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) 2,077 -- 2,088 388
Affiliate of IBC, general partner Interest P+1.5%
of IGC, secured by land matured June 29,
1998, paid (A2) -- -- 2,520 --
------ ----- ------ -----
$2,077 $ -- $5,588 $ 388
====== ===== ====== =====
Other Assets
Receivables - All unsecured
IBC, general partner of IGC Payable from IGC
distributions, paid (D2) $ -- $ -- $ 681 $ --
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
director (C) 35 -- 12 --
IBC, general partner of IGC demand (25) -- (39) --
------ ----- ------ -----
$ 10 $ -- $ 654 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Accounts payable
Whitman, Requardt (D3) $ 277 $ -- $ 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.
(3) The collectibility of management fee receivables are evaluated
quarterly. Any increase or decrease in the reserves are reflected
as additional expenses or recovery of such expenses.
(C) 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. As a
result of this transfer, IGC recognized as income its $549,000 negative
basis in Equus during the second quarter of 1997. 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. As a result of this
guarantee, IGC reversed its $549,000 income recognition during the fourth
quarter of 1997. Equus was transferred to NASDAQ's Small Cap Companies on
August 7, 1998 and no longer requires IGC's guarantee. As a result of the
release from the guarantee, IGC recognized as income the $549,000 negative
basis. 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. On July 29, 1998
20,000 of these Units were returned to the Company and in turn retired.
(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
which was subsequently paid.
(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.
<PAGE>
(6) PURCHASE OF MINORITY INTEREST IN LDA
On July 30, 1998, the Company redeemed the 20% minority interest in
Land Development Associates S.E. ("LDA") from an outside partner for
$3,100,000 and assumed a $472,000 deferred tax obligation. LDA also repaid
a $2,400,000 note due to an affiliate of this unrelated partner. This
transaction was financed with a $5,600,000 loan from a commercial bank.
The loan bears interest at prime plus 1%, matures in one year and is
collateralized by an assignment of the 20% partnership interest in LDA and
a second mortgage on Parque El Comandante land held by LDA.
(7) SUBSEQUENT EVENT - COMPANY RESTRUCTURE
On October 1, 1998, in connection with the restructuring plan, Banc
One released its lien on the investment properties in exchange for a pledge
of the stock in four of the major subsidiaries and an increased interest
rate to prime plus 6.5%. The interest rate reverted back to prime plus
2.5% when the security interests in the investment properties were
reestablished on November 13, 1998.
On October 1st and 2nd of 1998, in connection with the Company's
restructure plan, IGC transferred its principal real estate operations and
assets to American Community Properties Trust ("ACPT") in exchange for all
of ACPT's common shares. On October 5, 1998, the Company distributed
ACPT's shares to IGC's owners. The following Pro Forma Consolidated
Financial Data reflects IGC and its continuing businesses subsequent to the
Restructuring and distribution for the nine months ended September 30, 1998
and for the year ended December 31, 1997, as if the restructuring and
distribution had been completed on January 1, 1997. The Pro Forma
Consolidated Financial Data of IGC are provided for information purposes
only and do not purport to be indicative of the results that actually would
have been obtained if the restructuring and distribution had been effected
on the dates indicated or the results that may be obtained in the future.
(8) PUERTO RICO EXPROPRIATION
During the third quarter 1998, a Puerto Rico government agency
expropriated 52 cuerdas located in Parque El Comandante and deposited
$784,000 into an account for the Company. The $784,000 was based on
appraisals that were over five years old that do not reflect the current
market value. The Company believes that the market value is significantly
higher and therefore has begun the appeal process to increase the amount of
payment received for this land to the current market price. As a result of
this transaction during the third quarter, the basis of the land was
removed from inventory but no corresponding income was recorded. This
transaction will be recorded as a sale in the period that the Company and
the government agree upon the fair market value of this property.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands)
(Unaudited)
Reclassi- IGC Pro
IGC fication Reclas- Forma
Historical Entries sified ACPT(D) IGC(E)
---------- --------- ------- ------- ------
REVENUES
Community development-
land sales $13,165 $ -- $13,165 $12,955 $ 210
Homebuilding-home sales 5,455 -- 5,455 -- 5,455
Equity in earnings from
partnerships and
developer fees 1,144 117 (B) 1,261 1,144 117
Investment in gaming
properties 549 -- 549 -- 549
Rental property revenues 6,693 -- 6,693 6,693 --
Management and other fees,
substantially all from
related entities 2,518 -- 2,518 2,518 --
Interest and other income 1,054 545 (C) 1,599 892 707
------- ------- ------- ------- -------
Total revenues 30,578 662 31,240 24,202 7,038
------- ------- ------- ------- -------
EXPENSES
Cost of land sales 7,954 316 (C) 8,270 8,011 259
Cost of home sales 4,922 -- 4,922 -- 4,922
Selling and marketing 979 -- 979 54 925
General and administrative 4,850 -- 4,850 4,289 561
Interest expense 2,590 174 (C) 2,764 2,726 38
Rental properties
operating expense 2,748 -- 2,748 2,748 --
Depreciation and
amortization 1,493 -- 1,493 1,420 73
Spin-off costs 1,831 -- 1,831 1,831 --
------- ------- ------- ------- -------
Total expenses 27,367 490 27,857 21,079 6,778
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST 3,211 172 3,383 3,123 260
PROVISION FOR INCOME TAXES 740 -- 740 582 158
------- ------- ------- ------- -------
INCOME BEFORE MINORITY
INTEREST 2,471 172 2,643 2,541 102
MINORITY INTEREST (446) (117)(B) (563) (607) 44
------- ------- ------- ------- -------
NET INCOME $ 2,025 $ 55 $ 2,080 $ 1,934 $ 146
======= ======= ======= ======= =======
BASIC NET INCOME PER
UNIT/SHARE $ .19 $ .01 $ .20 $ .37 $ .01
======= ======= ======= ======= =======
WEIGHTED AVERAGE
UNITS/SHARES OUTSTANDING 10,327 10,327 10,327 5,216 10,327
======= ======= ======= ======= =======
The accompanying notes are an integral part of this
pro forma consolidated statement of income.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclassi- IGC Pro
IGC fication Reclas- Forma
Historical Entries sified ACPT(D) IGC(E)
---------- --------- ------- ------- ------
REVENUES
Community development-
land sales $13,357 $105 (A) $13,462 $13,165 $ 297
Homebuilding-home sales 7,805 -- 7,805 -- 7,805
Equity in earnings from
partnerships and
developer fees 1,494 161 (B) 1,655 1,509 146
Rental property revenues 8,737 -- 8,737 8,737 --
Management and other fees,
substantially all from
related entities 3,775 -- 3,775 3,775 --
Interest and other income 1,044 716 (C) 1,760 943 817
------- ------- ------- ------- -------
Total revenues 36,212 982 37,194 28,129 9,065
------- ------- ------- ------- -------
EXPENSES
Cost of land sales 8,881 71 (A) 9,139 8,494 645
187 (C)
Cost of home sales 7,486 (23)(A) 7,463 -- 7,463
Selling and marketing 1,232 -- 1,232 127 1,105
General and administrative 7,034 -- 7,034 6,607 427
Interest expense 3,609 270 (C) 3,879 3,820 59
Rental properties
operating expense 3,597 -- 3,597 3,597 --
Depreciation and
amortization 2,128 -- 2,128 1,850 278
Wetlands litigation
expenses 1,772 -- 1,772 -- 1,772
Write-off of deferred
project costs 6 -- 6 6 --
Write-off of goodwill 1,843 -- 1,843 -- 1,843
Spin-off costs 1,164 -- 1,164 1,164 --
------- ------- ------- ------- -------
Total expenses 38,752 505 39,257 25,665 13,592
------- ------- ------- ------- -------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES AND
MINORITY INTEREST (2,540) 477 (2,063) 2,464 (4,527)
PROVISION FOR INCOME TAXES 606 -- 606 470 136
------- ------- ------- ------- -------
(LOSS) INCOME BEFORE MINORITY
INTEREST (3,146) 477 (2,669) 1,994 (4,663)
MINORITY INTEREST (439) (161)(B) (600) (600) --
------- ------- ------- ------- -------
NET (LOSS) INCOME $(3,585) $ 316 $(3,269) $ 1,394 $(4,663)
======= ======= ======= ======= =======
The accompanying notes are an integral part of this
pro forma consolidated statement of income.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED STATEMENT OF (LOSS) INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
(Unaudited)
Reclassi- IGC Pro
IGC fication Reclas- Forma
Historical Entries sified ACPT(D) IGC(E)
---------- --------- ------- ------- ------
BASIC NET (LOSS) INCOME
PER SHARE $ (.35) $ .03 $ (.32) $ .27 $ (.45)
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,289 10,289 10,289 5,196 10,289
======= ======= ======= ======= =======
The accompanying notes are an integral part of this
pro forma consolidated statement of income.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(In thousands)
(Unaudited)
ASSETS
Reclassi- IGC Pro
IGC fication Reclas- Forma
Historical Entries sified ACPT(D) IGC(E)
---------- --------- ------- ------- ------
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,721 $ -- $ 1,721 $ 1,451 $ 270
Restricted 2,591 -- 2,591 2,467 124
-------- ------- -------- -------- -------
4,312 $ -- 4,312 3,918 394
-------- ------- -------- -------- -------
ASSETS RELATED TO COMMUNITY
DEVELOPMENT
Land and development costs
Puerto Rico 31,941 1,405 (C) 33,346 33,346 --
St. Charles, Maryland 32,284 -- 32,284 25,584 6,700
Other United States
locations 16,061 -- 16,061 -- 16,061
Notes receivable on lot sales
and other, substantially
all due from affiliates 2,879 -- 2,879 2,066 813
-------- ------- -------- -------- -------
83,165 1,405 84,570 60,996 23,574
-------- ------- -------- -------- -------
ASSETS RELATED TO RENTAL PROPERTIES
Operating properties, net 37,321 314 (B) 37,635 37,635 --
Investment in unconsolidated
rental property partnerships 7,376 -- 7,376 7,376 --
Other receivables, net 1,378 -- 1,378 1,314 64
-------- ------- -------- -------- -------
46,075 314 46,389 46,325 64
-------- ------- -------- -------- -------
ASSETS RELATED TO HOMEBUILDING
Homebuilding construction
and land 2,077 -- 2,077 -- 2,077
Investment in joint venture 976 -- 976 976 --
Receivables and other 121 -- 121 -- 121
-------- ------- -------- -------- -------
3,174 $ -- 3,174 976 2,198
OTHER ASSETS -------- ------- -------- -------- -------
Receivables, deferred costs
regarding waste technology and
other projects and other 6,635 7,318 (C) 13,953 2,417 11,536
Property, plant and
equipment, net 1,057 -- 1,057 428 629
-------- ------- -------- -------- -------
7,692 7,318 15,010 2,845 12,165
-------- ------- -------- -------- -------
TOTAL ASSETS $144,418 $ 9,037 $153,455 $115,060 $38,395
======== ======= ======== ======== =======
The accompanying notes are an integral part of this
pro forma consolidated balance sheet.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(In thousands)
(Unaudited)
LIABILITIES AND PARTNERS' CAPITAL
Reclassi- IGC Pro
IGC fication Reclas- Forma
Historical Entries sified ACPT(D) IGC(E)
---------- --------- ------- ------- ------
LIABILITIES RELATED TO
COMMUNITY DEVELOPMENT
Recourse debt $ 35,242 $ 7,318 (C) $42,560 $ 40,213 $ 2,347
Non-recourse debt -- -- -- -- --
Accounts payable and
accrued liabilities 3,368 -- 3,368 3,019 349
Deferred income 355 -- 355 356 (1)
-------- ------- -------- -------- -------
38,965 7,318 46,283 43,588 2,695
-------- ------- -------- -------- -------
LIABILITIES RELATED TO RENTAL
PROPERTIES
Recourse debt 905 -- 905 905 --
Non-recourse debt 38,775 -- 38,775 38,775 --
Accounts payable and accrued
liabilities 3,482 314 (B) 3,796 2,905 891
-------- ------- -------- -------- -------
43,162 314 43,476 42,585 891
-------- ------- -------- -------- -------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 490 -- 490 -- 490
Accounts payable, accrued
liabilities and deferred
income 2,637 -- 2,637 -- 2,637
-------- ------- -------- -------- -------
3,127 -- 3,127 -- 3,127
OTHER LIABILITIES -------- ------- -------- -------- -------
Accounts payable and
accrued liabilities 5,939 -- 5,939 4,302 1,637
Notes payable and capital
leases 613 -- 613 183 430
Accrued income tax liability-
current 2,459 -- 2,459 2,457 2
Accrued income tax liability-
deferred 4,781 -- 4,781 4,256 525
-------- ------- -------- -------- -------
13,792 -- 13,792 11,198 2,594
-------- ------- -------- -------- -------
TOTAL LIABILITIES 99,046 7,632 106,678 97,371 9,307
-------- ------- -------- -------- -------
PARTNERS' CAPITAL 45,372 1,405 (C) 46,777 17,689 29,088
-------- ------- -------- -------- -------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $144,418 $ 9,037 $153,455 $115,060 $38,395
======== ======= ======== ======== =======
The accompanying notes are an integral part of this
pro forma consolidated balance sheet.
<PAGE>
INTERSTATE GENERAL COMPANY L.P. ("IGC")
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
(A) Land sales occurred during the year ended December 31, 1997, as IGC's
land business sold lots to its homebuilding business. Gross profit on
these sales, historically eliminated in consolidation, has been
included in IGC and ACPT's historical results for these periods based
upon the estimated fair market value of the land (based on comparable
sales to third parties).
(B) As of September 30, 1998 and during the first nine months of 1998 and
the year ended December 31, 1997, the investment in the four rental
properties are eliminated upon consolidation. Sixty percent of the
general partners' interest in these partnerships will remain in IGC
until one year and one day after the Restructure, at which time they
will be transferred to ACPT. IGC will not consolidate these
partnerships, creating a need to reclassify sixty percent of the
general partners' investment from operating assets and the applicable
minority interest expense to equity in earnings from unconsolidated
subsidiaries. The basis in the general partners interest is negative
and further reclassified to accrued liabilities.
(C) As of September 30, 1998 and during the first nine months of 1998 and
the year ended December 31, 1997, an intercompany note receivable and
intercompany debt existed between IGC and LDA. Interest income and
expense and the note receivable and payable amounts, historically
eliminated in consolidation, have been included in IGC's and ACPT's
historical results.
(D) Reflects the registration, initiation of operations, and distribution
of all Common Shares of American Community Properties Trust ("ACPT").
ACPT, which was formed on March 17, 1997. In October 1998, IGC
transferred its principal operations to ACPT's subsidiaries and
distributed to the partners of IGC, including its Unitholders, all the
Common Shares of ACPT.
(E) Column balances equal "IGC Reclassified" column balances less "ACPT"
column balances. IGC's remaining operations include the U.S.
homebuilding business, waste technology business, land subject to the
wetlands litigation and certain other parcels of land.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
General:
Historically, the Company's financial results have been significantly
affected by the cyclical nature of the real estate industry. Accordingly,
the Company's historical financial statements may not be indicative of
future results.
For the Nine Months Ended September 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue increased $5,636,000 to
$13,165,000 during the nine months ended September 30, 1998, compared to
sales of $7,529,000 during the nine months ended September 30, 1997. The
increase was attributable to residential lot sales in Puerto Rico of
$7,900,000 which are sold to homebuilders in bulk. The gross profit margin
for the nine months ended September 30, 1998 increased to 40%, as compared
to 35% in the same period of 1997. This increase was due primarily to the
sales mix. During the first nine months of 1998, 28% of the sales revenue
was generated by sales of U.S. commercial parcels, compared to 10% in the
first three quarters of 1997. Commercial parcels have historically
produced higher gross profits due to their high sales prices and relatively
low development costs.
Homebuilding Operations.
Revenues from home sales decreased 2% to $5,455,000 during the nine
months ended September 30, 1998, as compared to $5,576,000 during the nine
months ended September 30, 1997. The number of homes sold by the scatter
site operations and the average sales price both increased by 4% during the
first nine months of 1998, as compared to the same period in 1997.
However, the benefits of these increases were reversed by the elimination
of the tract homebuilding operations. The gross profit margins increased
to 10% during the first nine months of 1998, as compared to 2% in the
comparable 1997 period. During the nine months ended September 30, 1997,
the Company closed seven homes that incurred additional costs to cure non-
recurring construction problems.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 5% to
$3,945,000 for the nine months ended September 30, 1998, as compared to
$3,756,000 in the same period in 1997. The increase is primarily
attributable to a 2% increase in rental revenues and a less than 1%
decrease in operating expenses. The increase in rental revenues is a
result of a reduction in vacancies and an increase in rental rates.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased 19% to $1,144,000 during the first nine
months of 1998, as compared to $922,000 during the first nine months of
1997. The increase is primarily attributable to an increase of earnings
generated from the homebuilding joint venture during the first nine months
of 1998, as compared to the first nine months of 1997, offset in part by
reduced earnings from partnerships that paid refinancing fees.
<PAGE>
Management and Other Fees.
Management and other fees decreased 21% to $2,518,000 in the first
nine months of 1998, as compared to $3,038,000 in the same period in 1997.
This decrease is primarily due to a reduction of $435,000 in fees earned
from the refinancing of certain apartment complexes and a reduction of
$230,000 in fees recognized related to prior periods earned during the nine
months ended September 30, 1997, offset by $100,000 of incentive fees
earned during the first nine months of 1998.
Interest Expense.
Interest expense decreased 4% to $2,590,000 during the nine months
ended September 30, 1998, as compared to $2,683,000 for the nine months
ended September 30, 1997. This decrease is primarily attributable to a
$5,211,000 decrease in outstanding debt from September 30, 1998 as compared
to September 30, 1997.
General and Administrative Expense.
General and administrative expenses decreased 5% to $4,850,000 for the
nine months ended September 30, 1998, as compared to $5,079,000 for the
same period of 1997. This decrease is a result of the recognition of
receivables previously reserved.
Spin-off Costs.
Costs of $1,831,000 related to the restructuring of the Company were
recognized as an expense for the nine months ended September 30, 1998, as
compared to $300,000 for the same period of 1997.
For the Three Months Ended September 30, 1998 and 1997
Community Development Operations.
Community development land sales revenue decreased $1,005,000 to
$905,000 during the three months ended September 30, 1998, compared to
sales of $1,910,000 during the three months ended September 30, 1997. The
decrease was attributable to a commercial sale in Puerto Rico of $1,500,000
during the third quarter of 1997 and no such sale in the comparable 1998
period. The gross profit margin for the nine months ended September 30,
1998 decreased to 10%, as compared to 41% in the same period of 1997. This
decrease was due primarily to the absorption of period costs by less sales
revenue during the third quarter 1998 compared to the same quarter in 1997
and the sales mix. During the third quarter of 1998, 10% of the sales
revenue was generated by sales of commercial parcels, as compared to 79% in
the third quarter of 1997. Commercial parcels have historically produced
higher gross profits due to their high sales prices and relatively low
development costs. Ninety percent of the sales were generated by
residential sales in the three months ended September 30, 1998, as compared
to 21% in the same period of 1997.
<PAGE>
Homebuilding Operations.
Revenues from home sales increased to $1,825,000 during the third
quarter of 1998 compared to $1,816,000 during the same period in 1997. This
increase is due to 18 homes settled in the third quarter of 1998 as
compared to 16 in the third quarter of 1997, offset by the sales mix. The
gross profit margins increased during the third three months of 1998 to 10%
compared to 2% earned during the same period in 1997. This increase is
primarily attributable to a decrease in overhead.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 5% to
$1,294,000 for the three months ended September 30, 1998, as compared to
$1,224,000 in the same period in 1997. This increase is primarily due to a
1% increase in rental revenues and a 5% decrease in operating expenses.
The decrease in operating expenses is a result of a decrease in maintenance
expenses and timing difference of utility costs.
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings increased $211,000 to $498,000 during the three
months ended September 30, 1998, as compared to $287,000 during the three
months ended September 30, 1997. This increase is primarily attributable
to an increase in earnings from the homebuilding joint venture during the
three months ended September 30, 1998, as compared to the same period of
1997.
Management and Other Fees.
Management and other fees remained constant at $769,000 for the three
months ended September 30, 1998, as compared to the three months ended
September 30, 1997.
Interest Expense.
Interest expense increased 7% to $936,000 during the three months
ended September 30, 1998, as compared to $866,000 for the three months
ended September 30, 1997. This increase is a result of increased
outstanding loan balances during the third quarter of 1998 as compared to
the same quarter in 1997.
General and Administrative Expense.
General and administrative expenses decreased 11% to $1,393,000 for
the three months ended September 30, 1998, as compared to $1,547,000 for
the same period of 1997. This decrease is primarily attributable to the
recognition of receivables previously reserved.
Spin-off Costs.
Costs of $783,000 related to the restructuring of the Company were
recognized as an expense for the three months ended September 30, 1998, as
compared to $300,000 for the three months ended September 30, 1997.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents were $1,721,000 and $2,273,000 at September
30, 1998 and December 31, 1997, respectively. This decrease was
attributable to $16,008,000 and $5,331,000 used in investing and financing
activities, respectively, offset by $20,787,000 provided by operating
activities. 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 nine months of 1998, the Company paid
down debt by $2,290,000 net of advances, purchased a subsidiary's minority
interest for $3,100,000 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 Banc One financing closed in 1997 which provided funding to commence
construction in Fairway Village, the third village in St. Charles, and
allows 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.
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 $1,100,000 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 $14,702,000 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.
<PAGE>
Debt Summary
As of September 30, 1998, the consolidated rental properties with a
net asset book value of $37,000,000 were encumbered by $39,000,000 of non-
recourse debt. The remaining assets with a book value of $107,000,000 are
substantially all collateralized by $37,000,000 of recourse debt. The
significant terms of IGC's recourse debt financing arrangements are shown
below (dollars in thousands):
Balance
Maximum Interest Maturity Outstanding
Descriptions Borrowings Rate Date 9/30/98
------------ ---------- -------- -------- -----------
Banc One-term loan (a) $11,000 P+6.5% 7/31/04 $10,000
Banc One-development loan (a) 4,000 P+6.5% 7/31/04 1,905
Banc One-remediation loan (a) 5,000 P+6.5% 7/31/04 3,578
First Bank-term loan (b) 9,865 P+1.5% 6/30/99 6,399
First Bank-construction loan (b) 5,500 P+1.5% 9/30/98 463
First Bank-construction loan (b) 8,350 P+1.5% 12/31/00 2,523
RG-Premier Bank (c) 1,641 P+1.5% 4/30/99 1,317
Citibank (d) 969 (e) demand 905
Washington Savings Bank (e) 1,317 9.5% 9/30/99 923
Banco Popular (f) 5,600 P+1.0% 7/30/99 5,600
Miscellaneous land and
development loans 3,560 Various Various 2,160
Other miscellaneous 2,287 Various Various 865
------- -------
$59,089 $36,638
======= =======
(a) The three notes are cross-collateralized by substantially all
of the U.S. land and the U.S. and Puerto Rico future cash
entitlements pursuant to its ownership interest in the housing
partnerships. Interest is paid monthly. The loan agreement
calls for a minimum of $2,000,000 principal curtailments in
1998, and $3,000,000 in each of the following six years. In
addition, IGC is to establish a $1,000,000 development reserve
during 1998. It is IGC's intention to meet the required
payments from land sales and proceeds from the refinancing of a
rental property. On each anniversary date, IGC is to pay an
additional fee, 1% in 1998 and 1999, increasing 1/2% in the
following four years, and grant an option to the lender to
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.
<PAGE>
(c) The note requires monthly principal payments of $27,000 and is
secured by three mortgage notes receivable totalling
$2,717,600. Interest is paid monthly by advances under the
loan agreement.
(d) The note requires monthly payments of interest calculated at
250 basis points over the cost of funds, 8.1875% at September
30, 1998. The note is secured by receivables and distributions
from two apartment projects currently being converted to
condominiums.
(e) The note requires monthly payments of interest and is
collateralized by the land under development for 115 townhome
lots in St. Charles, Maryland. The loan is to be repaid from
the sale of townhome lots that are currently under an option
contract.
(f) The note requires monthly payment of interest, calculated at 1%
over the prime rate, 9.5% at September 30, 1998. The note is
secured by 549 acres comprising Parque El Comandante, and the
assignment of the purchased 20% partnership interest in LDA.
Year 2000
What is Year 2000?:
The Year 2000 "Y2K" issue exists because many computer systems and
applications and other electronically controlled systems and equipment
currently use two-digit fields to designate a year. As the century date
occurs, date sensitive systems with this deficiency may recognize the year
2000 as 1900 or not at all. This inability to recognize or properly treat
the year 2000 can cause the systems to process critical financial and
operations information incorrectly.
The Company has assessed and continues to assess the impact of the Y2K
issue on its reporting systems and operations.
Current State of Readiness:
The systems and applications that can critically affect the Company's
operations due to the Y2K issue are its financial reporting and billing
systems and those electronically controlled systems and equipment installed
at the commercial and residential properties managed by the Company, many
of which the Company holds an ownership interest. These systems include
five accounting/billing applications, two time and attendance applications
and the computer network systems on which they are installed and the
telephone, security, elevator, HVAC, and other like systems installed at
the Company's properties. Of secondary importance are those administrative
systems and equipment not directly involved in revenue production but can
still minimally impact the Company's operations.
Of the five software financial applications employed by the Company,
three are currently certified by their respective publishers to be Y2K
compliant. Of the two non-compliant applications, the first is in minimal
use and will not be used for active financial reporting after December 31,
1998. The second application, the property management billing system for
the Puerto Rico properties, is non Y2K compliant and is scheduled for
upgrade during the first quarter of 1999. Active testing to verify the Y2K
<PAGE>
compliance of the Company's financial systems will be conducted after
December 31, 1998. "Dummy" companies will be setup in the critical systems
with dates forwarded to beyond 2000 for these tests.
The U.S. and Puerto Rico operations rely on separate time and
attendance systems for payroll processing. The U.S. payroll system
utilizes the services of a third party provider and is certified Y2K
compliant. The Puerto Rico payroll system is not Y2K compliant. The
Company is currently evaluating its options and costs in either upgrading
or replacing the Puerto Rico payroll system. This evaluation is expected
to be completed by December 31, 1998.
The hardware component of the Company's financial systems consists of
industry standard PC operating systems, servers, desktop computers, and
networking hardware. These systems have been evaluated and tested for Y2K
compliance. It has been found that two of the network operating systems
maintained by the Puerto Rico division require minor upgrades to achieve
Y2K compliance. These upgrades are available from the publisher at no cost
and are expected to be installed and tested by December 1998. The
remaining information technology "IT" hardware has been verified to be Y2K
compliant.
The non-IT related electronically controlled systems installed at the
Company's owned and managed properties are currently being inventoried and
evaluated for Y2K exposure. This evaluation is expected to be completed by
January 1999. Once the extent of Y2K exposure is determined for these
systems, costs will be ascertained and procedures implemented to bring non-
compliant systems into Y2K compliance. Since it has already been
determined that a majority of these systems are not "date sensitive" and do
not perform data logging, it is expected that Y2K exposure and related
costs in this area will be minimal.
The administrative applications (word processing, spreadsheet,
messaging, etc) utilized by the Company have been certified by the various
publishers to be Y2K compliant. Testing is currently in progress to verify
compliance of these applications and is expected to be completed by
December 31, 1998.
Third Party Impact on Company Operations:
The Company performs all financial and revenue production procedures
in house with the exception of U.S. rental payment processing. Failure to
timely process and deposit tenant payments indirectly impacts the Company's
cash flow. Statements of Y2K compliance have been requested from those
vendors supplying these services to the Company.
Of the administrative procedures, only U.S. payroll processing is
performed by a third party vendor. A statement of Y2K compliance has been
obtained from the vendor in question and ACPT considers Y2K exposure with
U.S. payroll processing to be minimal.
With the exception of payment processing, the Company does not foresee
any adverse impact to company fiscal operations due to third party non-
compliance.
<PAGE>
Costs to Achieve Y2K Compliance:
Because of the Company's almost exclusive use of "off the shelf"
applications and hardware and that the Company maintains service
maintenance agreements on all critical business systems, costs to achieve
Y2K compliance have been nominal. Y2K upgrades for a majority of the
Company's financial and billing systems have been included with standard
system updates as part of the normal maintenance procedures.
Costs to upgrade the Puerto Rico property management system is
expected to be in the range of $4,000 to $5,000.
The Company does not separately track the internal costs incurred for
the Y2K project. These costs are principally related to payroll costs for
the Company's information systems and property management groups. The
costs for the financial departments to perform the scheduled tests of the
accounting and billing systems for Y2K compliance has not been ascertained,
though it is expected that these costs will be nominal.
Risks of the Company's Y2K Issues:
The failure of one or all of the Company's financial systems for more
than a few days would create a hardship on company operations. Failure of
the basic accounting systems will affect the Company's general ledger,
accounts payable, accounts receivable, and reporting functions. Of utmost
importance is the correct operation of the Company's property management
systems. Failure of these systems could jeopardize the Company's cash flow
from these rental operations.
Failure of the various non-IT systems installed at the Company's owned
and managed properties could seriously affect employee/tenant ingress and
egress and could affect environmental conditions at these properties.
The Company has not obtained insurance specific to Y2K liability
issues and is evaluating whether current policies will cover damages due to
Y2K non-compliance.
The Company's Contingency Plans:
The Company is currently evaluating its various Y2K failure scenarios
and developing contingency plans to ensure continued company operations.
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.
<PAGE>
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, a portion of which will
be abated by a contribution of approximately two acres of land for
wetlands, 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 ($1.1 million) currently 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.
On October 30, 1998, St. Charles Community, LLC filed a complaint in
the Circuit Court for Charles County, Maryland against the County
Commissioners of Charles County and five individual members of the
commission. The complaint presents a challenge to Charles County Ordinance
No. 98-69, which became effective on October 1, 1998. That ordinance
places a moratorium on the issuance of building permits for multi-family or
townhouse developments in Charles County for the period of October 2, 1998
through March 15, 1999. The complaint alleges that the County's
enforcement of the moratorium against St. Charles Community, LLC amounts to
a breach of a 1989 settlement agreement between St. Charles Associates and
the County. St. Charles Community, LLC is a successor in interest to the
rights of St. Charles Associates under that agreement. The October 30,
1998 complaint also alleges that the procedure by which the moratorium
ordinance was enacted violated Maryland law relating to open government
meetings. The complaint seeks in excess of $7,000,000 in damages and an
injunction preventing enforcement of the moratorium.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Securities and Exchange Commission
Section 601 of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- - ------- ----------------------------------------- ----------------------
10(a) Trust Agreement dated September 1, 1998 Filed herewith
by and between Interstate General Company
L.P. and Mark Augenblick, Hans Hertell,
Thomas B. Wilson and J. Michael Wilson
10(b) First Amendment to Master Loan Agreement Filed herewith
between Interstate General Company L.P.,
American Community Properties Trust, St.
Charles Community, LLC and Banc One Capital
Partners, IV, Ltd dated September 30, 1997
10(c) First Modification to Credit Facility and Filed herewith
Second Amendment to Master Loan Agreement
between Banc One Capital Partners IV, Ltd.,
Interstate General Company L.P., American
Community Properties Trust, St. Charles
Community, LLC, James J. Wilson, J. Michael
Wilson, Edwin L. Kelly, American Rental
Properties Trust, American Rental Management
Company, American Land Development U.S.,
Inc., IGP Group Corp., and American Housing
Properties L.P. dated October 1, 1998
10(d) Release of Guaranty Agreement between Filed herewith
Equus Management Company and Interstate
General Company L.P. dated December 31, 1997
(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: November 16, 1998 By: /s/ James J. Wilson
----------------- -----------------------------
James J. Wilson
Chairman, Chief Executive
Officer and Chief Financial
Officer
Dated: November 16, 1998 By: /s/ Mark Augenblick
----------------- -----------------------------
Mark Augenblick
President and Chief Operating
Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
10(a) Trust Agreement dated September 1, 1998 by and between
Interstate General Company L.P. and Mark Augenblick, Hans
Hertell, Thomas B. Wilson and J. Michael Wilson
10(b) First Amendment to Master Loan Agreement between Interstate
General Company L.P., American Community Properties Trust,
St. Charles Community, LLC and Banc One Capital Partners,
IV, Ltd dated September 30, 1997
10(c) First Modification to Credit Facility and Second Amendment
to Master Loan Agreement between Banc One Capital Partners
IV, Ltd., Interstate General Company L.P., American
Community Properties Trust, St. Charles Community, LLC,
James J. Wilson, J. Michael Wilson, Edwin L. Kelly, American
Rental Properties Trust, American Rental Management Company,
American Land Development U.S., Inc., IGP Group Corp., and
American Housing Properties L.P. dated October 1, 1998
10(d) Release of Guaranty Agreement between Equus Management
Company and Interstate General Company L.P. dated December
31, 1997
27. Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10(a)
THIS TRUST AGREEMENT, dated as of September 1, 1998, 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 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.
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.
<PAGE>
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.
(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.
<PAGE>
(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 only terminate this Trust in accordance with
the provisions of this Paragraph 7(a).
(i) IGC may terminate this Trust at any time by notice
in writing to the Trustees, but such termination shall not take effect
until the Trustees have disposed of the Trust Assets in accordance
with Paragraph 7(b).
(ii) 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)(i)
hereof.
<PAGE>
(iii) Unless sooner terminated pursuant to any
other provision herein contained, this Trust Agreement shall terminate
on June 30, 2018.
(b) Upon receipt of notice under Paragraphs 7(a)(i) or (ii)
or, in the case of termination under Paragraph 7(a)(iii), the Trustees
shall immediately commence and use their best efforts to complete as
promptly as possible the 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 if
held by the Trust) 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
<PAGE>
connection with this Trust except those, if any, growing out of the gross
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)
FIRST AMENDMENT TO MASTER LOAN AGREEMENT
THIS FIRST AMENDMENT TO MASTER LOAN AGREEMENT (this "Amendment"),
effective as of September 30, 1997, by and among INTERSTATE GENERAL COMPANY
L.P., a Delaware limited partnership ("IGC"), and AMERICAN COMMUNITY
PROPERTIES TRUST, a Maryland real estate investment trust ("ACPT") (IGC and
ACPT are collectively herein the "Borrower"), ST. CHARLES COMMUNITY, LLC, a
Delaware limited liability company ("Property Owner"), and BANC ONE CAPITAL
PARTNERS, IV, LTD, an Ohio limited liability company (the "Lender");
WITNESSETH:
RECITALS
WHEREAS, effective on or about August 1, 1997, the Borrower, Property
Owner, and Lender entered into that certain Master Loan Agreement (the
"Loan Agreement") whereby, among other things, Lender agreed to provide
financing to Borrower in the principal amount of up to Twenty Million
Dollars ($20,000,000.00), and Property Owner guaranteed such obligations of
Borrower and granted to Lender a first lien on certain real property owned
by Property Owner, all as more fully set forth in the Loan Agreement and
the documents executed in connection therewith; and
WHEREAS, in September, 1995, James J. Wilson ("Wilson") IGC and St.
Charles Associates, L.P., a Delaware limited partnership ("SCA"), were
indicted by the United States District Court for the District of Maryland
for four (4) felony and four (4) misdemeanor violations of the Clean Water
Act, 33 U.S.C. Section 1311(a) (collectively the "Criminal Actions"); and
WHEREAS, on February 29, 1996, a jury convicted Wilson, IGC and SCA of
the aforementioned felony charges; and
WHEREAS, as a result thereof, inter alia, IGC was fined Two Million
Dollars ($2,000,000.00) and SCA was fined One Million Dollars
($1,000,000.00) and each of IGC and SCA was placed on probation for five
(5) years in order to implement a wetlands restoration mitigation plan
proposed by the United States government; and
WHEREAS, IGC and SCA have appealed the convictions and the
accompanying punishments to the United States Court of Appeals for the
Fourth Circuit.
WHEREAS, the Borrower, Property Owner and Lender anticipated that the
Fourth Circuit would rule on IGC's and SCA's appeal of the Criminal Action
on or before September 30, 1997; and
WHEREAS, pursuant to Section 5.2 of the Loan Agreement, upon the
earlier of September 30, 1997 or a determination by the United States Court
of Appeals for the Fourth Circuit regarding the Criminal Action, the
Borrower was to provide Lender with a management succession plan. If a
decision rendered by the United States Court of Appeals for the Fourth
Circuit was unfavorable to IGC, or if a decision was not rendered on or
before September 30, 1997, then IGC was required to demand the resignation
of Wilson as an officer and Chairman of the Board of Directors of IGC or
any successor company; and
<PAGE>
WHEREAS, the Borrower and Property Owner have requested, and Lender
has agreed, pursuant to the terms hereof, to extend the time deadline for
resolution of the appeal of the Criminal Action and/or the removal of
Wilson as an officer and Chairman of the Board of Directors of the managing
general partner of IGC, and to reestablish the outside date thereof to be
the earlier of March 31, 1998, the decision of the Fourth Circuit
unfavorable to IGC concerning the appeal of the Criminal Action or the
Restructuring (as defined in the Loan Agreement).
NOW, THEREFORE, for consideration of the aforementioned premises, and
such other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower, Property Owner, and Lender
hereby agree as follows:
1. Section 5.22 of the Loan Agreement entitled, "Resolution of
Pending Litigation" shall be deleted in its entirety and replaced as
follows:
"5.22. Resolution of Pending Litigation. Upon the earlier of
(i) March 31, 1998, (ii) determination by the United States Court of
Appeals for the Fourth Circuit regarding the Criminal Action, or (iii)
the Restructuring, provide Lender with a management succession plan.
If the decision rendered by the United States Court of Appeals for the
Fourth Circuit is unfavorable to IGC, or if a decision is not rendered
on or before March 31, 1998, then IGC shall demand the resignation of
James J. Wilson as an officer and Chairman of the Board of Directors
of the managing general partner of IGC, or any successor company.
Notwithstanding the foregoing, following the Restructuring, James J.
Wilson may continue or resume his position as an officer and Chairman
of the Board of Directors of the managing general partner of IGC.
2. Except as herein provided above, the Loan Agreement shall remain
unmodified and in full force and effect, as if this Amendment had not been
made.
3. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one and the same document.
4. All costs incurred by Lender in conjunction with the preparation
and execution of this Amendment and the First Amendment to Guaranty
Agreement between Lender and Wilson, including legal fees, shall be paid by
the Borrower.
IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and
year first written above.
INTERSTATE GENERAL COMPANY LP
WITNESS:
By: INTERSTATE GENERAL MANAGEMENT
CORPORATION, a Delaware corporation
/s/ Martha Haupt By: /s/ James Michael Wilson
- - ------------------------- -----------------------------(SEAL)
Name: James Michael Wilson
Title: Chief Financial Officer
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
/s/ Martha Haupt By: /s/ Edwin L. Kelly
- - ------------------------- -----------------------------(SEAL)
Name: Edwin L. Kelly
Title: Managing Trustee
ST. CHARLES COMMUNITY, LLC
/s/ Martha Haupt By: /s/ Edwin L. Kelly
- - ------------------------- -----------------------------(SEAL)
Name: Edwin L. Kelly
Title: Management Committee Chair
BANC ONE CAPITAL PARTNERS IV, LTD.
By: BOCP Holdings Corporation, its
Manager
By: /s/ Michael S. Wood
- - ------------------------- -----------------------------(SEAL)
Name: Michael S. Wood
Title: Authorized Signer
<PAGE>
Exhibit 10(c)
FIRST MODIFICATION TO CREDIT FACILITY AND
SECOND AMENDMENT TO MASTER LOAN AGREEMENT
THIS FIRST MODIFICATION TO CREDIT FACILITY AND SECOND AMENDMENT TO
MASTER LOAN AGREEMENT (this "Agreement") is made as of this 1st day of
October, 1998, and is effective as of the 1st day of October, 1998, by and
among the following entities: (i) BANC ONE CAPITAL PARTNERS IV, LTD., an
Ohio limited liability company (the "Lender"), (ii) INTERSTATE GENERAL
COMPANY, L.P., a Delaware limited partnership ("IGC"), (iii) AMERICAN
COMMUNITY PROPERTIES TRUST, a Maryland real estate investment trust
("ACPT"), (iv) ST. CHARLES COMMUNITY, LLC, a Delaware limited liability
company ("St. Charles"), (v) JAMES J. WILSON ("James Wilson"), (vi) J.
MICHAEL WILSON ("Michael Wilson"), (vii) EDWIN L. KELLY ("Edwin Kelly")
(James Wilson, Michael Wilson, and Edwin Kelly are herein the "Original
Guarantors"), (viii) AMERICAN RENTAL PROPERTIES TRUST, a Maryland real
estate investment trust ("American Rental"), (ix) AMERICAN RENTAL
MANAGEMENT COMPANY, a Delaware corporation ("American Management"), (x)
AMERICAN LAND DEVELOPMENT U.S., INC., a Maryland corporation ("American
Land"), (xi) IGP GROUP CORP., a Puerto Rico corporation ("IGP Group") and
(xii) AMERICAN HOUSING PROPERTIES, L.P., a Delaware limited partnership
("American Housing") (American Rental, American Management, American Land,
American Housing and IGC Group are herein, the "Subsidiary Entities").
RECITALS
I. ORIGINAL LOAN STRUCTURE.
WHEREAS, pursuant to that certain Master Loan Agreement, dated as of
August 1, 1997, by and among IGC, ACPT, St. Charles and Lender, as amended
by that certain First Amendment to Master Loan Agreement, dated as of
September 30, 1997, by and among IGC, ACPT, St. Charles and Lender (the
Master Loan Agreement, as amended by the First Amendment to Master Loan
Agreement is herein, the "Original Loan Agreement"), Lender agreed to
provide IGC and ACPT a credit facility in the principal sum of up to Twenty
Million Dollars ($20,000,000) (the "Original Credit Facility" and the
Original Credit Facility as amended pursuant to the terms herein, the
"Credit Facility"); and
WHEREAS, the obligations of ACPT and IGC under the Original Loan
Agreement were evidenced by that certain Promissory Note dated as of August
1, 1997, in the original principal sum of Twenty Million Dollars
($20,000,000) executed and delivered by IGC and ACPT to Lender (the
"Original Promissory Note"); and
WHEREAS, pursuant to the terms of the Original Loan Agreement, IGC and
ACPT have re-loaned a portion of the Original Credit Facility proceeds to
St. Charles to fund St. Charles' development of certain of the Real
Property (as defined below); and the obligations of St. Charles to repay
such sums to IGC and ACPT are evidenced by that certain Mirror Promissory
Note dated as of August 1, 1997, in the original principal sum of Twenty
Million Dollars ($20,000,000) executed and delivered by St. Charles to IGC
and ACPT (the "Original Mirror Promissory Note"); and
<PAGE>
A. Real Estate Collateral.
WHEREAS, pursuant to that certain Property Owner Guaranty
Agreement, dated as of August 1, 1997, from St. Charles to Lender (the
"Original Property Guaranty"), St. Charles guaranteed the obligations of
IGC and ACPT under the Original Loan Agreement and Original Promissory
Note; St. Charles secured its obligations under the Original Property
Owner Guaranty pursuant to (i) that certain Indemnity Deed of Trust,
Security Agreement and Assignment of Leases and Rents, from St. Charles to
Charles R. Moran and Thomas A. Hauser, as Trustees (the "Trustees") for the
benefit of Lender and recorded among the Land Records of Charles County
(the "Original Deed of Trust"), thereby encumbering approximately 4,400
acres of improved and unimproved real estate located in Charles County (the
"Real Property"); (ii) that certain Assignment of Contracts dated as of
August 1, 1997, from IGC and St. Charles for the benefit of Lender (the
"Original Assignment of Contracts"); and (iii) that certain Assignment of
Plans, Specifications and Permits, dated as of August 1, 1997, from IGC and
St. Charles for the benefit of Lender (the "Original Assignment of Plans,
Specifications and Permits", and together with the Original Property
Guaranty, Original Deed of Trust, and Original Assignment of Contracts, the
"Original Real Estate Collateral Documents"); and
B. Partnership Interest Collateral.
WHEREAS, IGC further secured its obligations to Lender under the
Original Credit Facility pursuant to that certain Assignment and Pledge of
Partnership Interest, dated as of August 1, 1997, by and between Lender and
IGC (the "IGC Partnership Pledge Agreement"), whereby IGC conveyed to
Lender and granted to Lender a security interest in, all of IGC's right,
title and interest in certain partnerships formed under Maryland law
(herein collectively, the "Maryland Partnerships"), and pursuant to that
certain Assignment and Pledge of Partnership Interest, dated as of August,
1998, by and between Lender and IGC (the "IGPLP Partnership Pledge
Agreement", and together with the IGC Partnership Pledge Agreement, the
"Partnership Pledge Agreements"), whereby IGPLP conveyed to Lender and
granted to Lender a security interest in, all of IGC's right, title and
interest in Interstate General Properties Limited Partnership S.E., a
Maryland limited partnership ("IGPLP"); and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment and Pledge of Management Fees, dated as of August 1,
1997, between Lender and IGC (the "Pledge of IGC Management Fees"), whereby
IGC conveyed to Lender and granted to Lender a security interest in, all of
IGCs right, title and interest in and to the management fees (the "American
Partnership Management Fees") payable to IGC by the Maryland partnerships
and certain other partnerships (herein collectively, the "American
Partnerships"); and pursuant to that certain Assignment and Pledge of
Management Fees, dated as of August 1, 1997, between Lender and IGPLP (the
"Pledge of IGPLP Management Fees", and together with the Pledge of IGC
Management Fees, the "Pledge of Management Fees"), whereby IGPLP conveyed
to Lender and granted to Lender a security interest in, all of IGPLP's
right, title and interest in and to the management fees (the "Puerto Rico
Management Fees", and together with the American Partnership Management
Fees, the "Partnership Management Fees") payable to IGPLP by certain
partnerships (herein collectively, the "Puerto Rico Partnerships"); and
<PAGE>
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to (i)
that certain Assignment of Incentive Management Fees, dated as of August 1,
1997, by and between IGC and Lender (the "IGC Assignment of Incentive
Management Fees"), whereby IGC conveyed to Lender and granted to Lender a
security interest in, all of IGC's right, title and interest in and to all
incentive management fees (the "IGC Incentive Management Fees") payable to
IGC by the American Partnerships; (ii) that certain Assignment of Incentive
Management Fees, dated as of August 1, 1997, by and between IGPLP and
Lender (the "IGPLP Assignment of Incentive Management Fees"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to all management fees (the "IGPLP
Incentive Management Fees") payable to IGPLP by all of the Puerto Rico
Partnerships except for Carolina Associates Limited Partnership; and (iii)
that certain Assignment and Pledge of Excluded Incentive Management Fees,
dated as of August 1, 1997, between Lender and IGPLP (the "Pledge of IGPLP
Excluded Incentive Management Fees", and together with the IGC Assignment
of Incentive Management Fees and IGPLP Assignment of Incentive Management
Fees, the "Assignment of Incentive Management Fees"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to the incentive management fees
(the "IGPLP Excluded Incentive Management Fees", together with the IGC
Incentive Management Fees and IGPLP Incentive Management Fees, the
"Incentive Management Fees") payable to IGPLP by Carolina Associates
Limited Partnership; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment and Pledge of Operating Deficit Loans, dated as of
August 1, 1997, by and between Lender and IGC (the "IGC Deficit Loans
Pledge"), whereby IGC conveyed to Lender and granted to Lender a security
interest in, all of IGC's right, title and interest in and to all amounts
due to IGC relating to those certain short term operating deficit loans
(the "American Partnership Deficit Loans") made from time to time by IGC to
the American Partnerships; and pursuant to that certain Assignment and
Pledge of Operating Deficit Loans, dated as of August 1, 1997, by and
between Lender and IGPLP (the "IGPLP Deficit Loans Pledge", and together
with the IGC Deficit Loans Pledge, the "Deficit Loans Pledge"), whereby
IGPLP conveyed to Lender and granted to Lender a security interest in, all
of IGPLP's right, title and interest in and to all amounts due to IGPLP
relating to those certain short term operating deficit loans (the "Puerto
Rico Partnership Deficit Loans" together with the American Partnership
Deficit Loans, are herein the "Partnership Deficit Loans") made from time
to time by IGPLP to the Puerto Rico Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Proceeds from Sale of Partnership Interest, dated as
of August 1, 1997, by and between IGC and Lender (the "IGC Assignment of
Sale Proceeds"), whereby IGC conveyed to Lender and granted to Lender a
security interest in, all of IGC's right, title and interest in and to all
proceeds received by or payable to IGC from the sale or transfer of IGC's
partnership interests in the American Partnerships; and pursuant to that
certain Assignment of Proceeds from Sale of Partnership Interest, dated as
of August 1, 1997, by and between IGPLP and Lender (the "IGPLP Assignment
of Sale Proceeds", and together with the IGC Assignment of Sale Proceeds,
<PAGE>
the "Assignment of Sale Proceeds"), whereby IGPLP conveyed to Lender and
granted to Lender a security interest in, all of IGPLP's right, title and
interest in and to all proceeds received by or payable to IGC from the sale
or transfer of IGPLP's partnership interests in the Puerto Rico
Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Proceeds, dated as of August 1, 1997, by and between
IGC and Lender (the "IGC Assignment of Proceeds"), whereby IGC conveyed to
Lender and granted to Lender a security interest in, all of IGC's right,
title and interest in and to all distributions and other amounts received
by or payable to IGC certain of the Maryland Partnerships; and pursuant to
that certain Assignment of Proceeds, dated as of August 1, 1997, by and
between IGPLP and Lender (the "IGPLP Assignment of Proceeds", and together
with the IGC Assignment of Proceeds, the "Assignment of Proceeds" ),
whereby IGPLP conveyed to Lender and granted to Lender a security interest
in, all of IGPLP's right, title and interest in and to all distributions
and other amounts received by or payable to IGPLP from the Puerto Rico
Partnerships; and
WHEREAS, IGC, either directly or indirectly, further secured its
obligations to Lender under the Original Credit Facility pursuant to that
certain Assignment of Long Term Receivables, dated as of August 1, 1997, by
and between IGC and Lender (the "IGC Assignment of Long Term Receivables"),
whereby IGC conveyed to Lender and granted to Lender a security interest
in, all of IGC's right, title and interest in and to all proceeds payable
to or received by Assignor relating to long-term loans made by Assignor to
the American Partnerships (the "IGC Long Term Receivables"); and pursuant
to that certain Assignment of Long Term Receivables, dated as of August 1,
1997, by and between IGPLP and Lender (the "IGPLP Assignment of Long Term
Receivables", and together with the IGC Assignment of Long Term
Receivables, the "Assignment of Long Term Receivables"), whereby IGPLP
conveyed to Lender and granted to Lender a security interest in, all of
IGPLP's right, title and interest in and to all proceeds payable to or
received by Assignor relating to long-term loans made by Assignor to the
Puerto Rico Partnerships (the "IGPLP Long Term Receivables", and together
with the IGC Long Term Receivables, the "Long Term Receivables"); and
WHEREAS, the Partnership Pledge Agreements, Pledge of Management
Fees, Assignment of Incentive Management Fees, Deficit Loans Pledge,
Assignment of Proceeds, and Assignment of Long Term Receivables all as
amended to date are herein collectively, the "Original Partnership
Collateral Documents"; and Lender's rights pursuant to the Original
Partnership Collateral Documents, the Maryland Partnerships, IGPLP, the
Partnership Management Fees, the Incentive Management Fees, the Partnership
Deficit Loans, and the Long Term Receivables are herein collectively the
"Partnership Collateral"; and
C. Guaranties, Indemnifications and Warrants.
WHEREAS, certain of the obligations of IGC and ACPT are
guaranteed by (i) James Wilson, Michael Wilson, and Edwin Kelly pursuant to
that certain Guaranty Agreement dated as of August 1, 1998 from James
Wilson, Michael Wilson, and Edwin Kelly to and for the benefit of Lender
(the "Original Principal Guaranty"); and (ii) James Wilson pursuant to that
certain Guaranty Agreement dated as of August 1, 1997 from James Wilson to
<PAGE>
and for the benefit of Lender, as amended by that certain First Amendment
to Guaranty Agreement dated as of September 30, 1997 by and between James
Wilson and Lender (the Guaranty Agreement, as amended by the First
Amendment to Guaranty Agreement is herein, the "Original Wilson Guaranty");
and
WHEREAS, pursuant to that certain letter dated as of August 1,
1997, from IGC, ACPT, St. Charles, James Wilson, Michael Wilson, and Edwin
Kelly to Lender (the "Original Environmental Indemnification"), each IGC,
ACPT, St. Charles, James Wilson, Michael Wilson, and Edwin Kelly agreed to
indemnify and hold Lender harmless against certain environmental claims
which may arise relating to the Real Property; and
WHEREAS, as additional consideration for agreeing to provide the
Credit Facility, IGC granted Lender a right to purchase units of limited
partnership interest of IGC pursuant to that certain Warrant Certificate,
dated as of August 1, 1997, from IGC to Lender (the "Original Warrant
Certificate") (the Original Loan Agreement, the Original Promissory Note,
the Original Mirror Promissory Note, the Original Real Estate Collateral
Documents, the Original Partnership Collateral Documents, the Original
Principal Guaranty, the Original Wilson Guaranty, the Original
Environmental Indemnification and the Original Warrant Certificate are
herein the "Original Loan Documents"); and
II. RESTRUCTURING OF IGC AND ACPT.
WHEREAS, IGC holds all of the issued and outstanding shares of
American Rental, American Management, American Land and IGP Group; and
American Rental owns a 99% limited partnership interest in American Housing
and is the sole stockholder of American Housing Management Company, a
Delaware corporation ("American Housing"), which owns a 1% general
partnership interest in American Housing; and
WHEREAS, as set forth in the Registration Statement of ACPT on Form S-
11 Registration No. 333-58835 as filed with the Securities and Exchange
Commission (the "Registration Statement") IGC and ACPT will consummate the
terms of the "Restructuring" as defined therein (the "Restructuring")
whereby, among other things, IGC will (i) transfer and convey to American
Land, all of its right, title and interest in all of the membership
interests of St. Charles, and then subsequently transfer and convey to ACPT
all of its right, title and interest in all of the issued and outstanding
shares of American Land; (ii) transfer and convey to IGP Group, American
Land and American Housing, all of IGC's right, title and interest in 100%
of the partnership interests in IGPLP and then subsequently transfer and
convey to ACPT, all of IGC's right, title and interest in all of the issued
and outstanding shares of IGP Group; and (iii) pursuant to the Partnership
Transfer Documents (as defined in Schedule 4 hereto) transfer and convey to
American Housing all of IGC's right, title and interest in certain of the
American Partnerships which will result in American Housing holding all of
IGC's right, title and interest in the American Partnerships and then
subsequently convey to ACPT all of IGC's right, title and interest in all
of the issued and outstanding shares of American Rental; and
<PAGE>
WHEREAS, in connection with the Restructuring, IGC, ACPT and the
Lender wish to (i) modify and amend the terms of the Original Credit
Facility and the Original Loan Documents and release ACPT as a primary
obligor of the Original Credit Facility, a co-maker of the Original
Promissory Note and a borrower under the Original Loan Agreement, (ii)
permit American Land to assume all of the obligations of ACPT under the
Original Credit Facility and Original Loan Documents, and (iii) release all
of Lender's interest in the Released Partnership Collateral (defined
below); and
WHEREAS each of IGC, ACPT, American Land, American Rental, American
Housing, IGP Group and American Management will receive substantial
benefits in connection with the Restructuring, and Lender wishes to modify
the Original Credit Facility and the Original Loan Documents as hereinafter
provided, so that upon transfer of the Released Partnership Collateral, the
Released Partnership Collateral will not be subject to the Obligations;
and
WHEREAS, in consideration for the release of ACPT by Lender of its
direct obligations under the Original Credit Facility, Lender's agreement
to release all of its interests in the Partnership Collateral and Lender's
agreement to otherwise modify and amend the Original Credit Facility, as
hereinafter provided, American Land has agreed to assume all obligations of
ACPT under the Original Credit Facility and the Original Loan Documents,
ACPT has agreed to unconditionally guarantee the obligations of IGC and
American Land under the Credit Facility and the Original Loan Documents, as
amended hereby, and ACPT and IGC have further agreed to secure its
obligations to Lender by pledging to Lender all of the issued and
outstanding shares of American Rental, American Management, American Land
and IGP Group to be held by ACPT; and
WHEREAS, as additional consideration for Lender's agreement to modify
and amend the Original Credit Facility as hereinafter provided, American
Housing, IGP Group and American Management have agreed to guarantee the
obligations of IGC and American Land under the Credit Facility and the
Original Loan Documents and ACPT under the ACPT Guaranty Agreement (as
defined herein) and have further agreed that their respective guaranty
agreements shall include certain negative covenants whereby each will
agree, among other things, that it shall not directly or indirectly
encumber or otherwise pledge any of the Partnership Collateral owned by
such entity; and James Wilson and his wife, Barbara A. Wilson have agreed
to unconditionally guarantee the obligations of IGC, ACPT and American Land
to Lender.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows without in any way or
manner whatsoever affecting, limiting, impairing, releasing, changing or
evading any of the provisions of the Original Loan Documents except to the
extent expressly and specifically amended or modified by the provisions of
this Agreement or by instruments or agreements executed and delivered
pursuant to this Agreement.
<PAGE>
ARTICLE I
Section 1. Definitions and Rules of Construction, Recitals.
1.1. Definitions. As used in this Agreement, the terms defined in
the Recitals hereto shall have the respective meaning specified therein.
Terms used herein but not otherwise defined shall have the meanings given
to them under in the Original Loan Agreement.
1.2. Rules of Construction. All accounting terms which are not
expressly defined herein shall have the meanings given to them under
generally accepted accounting principles ("GAAP"), consistently applied to
applicable persons. Unless otherwise defined herein or in he Original Loan
Agreement, all terms used herein which are defined by the Maryland Uniform
Commercial Code shall have the same meanings as given to them by the
Maryland Uniform Commercial Code unless and to the extent varied by this
Agreement or the Original Loan Agreement. The words "hereof", "herein",
and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and "Section", "Subsection", "Schedule" and
"Exhibit" references to sections or subsections of, or schedules or
exhibits to, as the case may be, of this Agreement unless otherwise
specified. As used herein, the singular number shall include the plural,
the plural shall include the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may
require.
1.3. Incorporation of Recitals. The Recitals set forth hereinabove
are hereby incorporated into this Agreement as though fully set forth
herein.
Section 2. Assumption of Obligations by American Land. In consideration
for IGC's conveyance of all of its right, title and interest in St. Charles
to American Land, American Land hereby assumes any and all obligations of
ACPT under the Original Credit Facility, the Original Loan Agreement and
all other Original Loan Documents, and succeeds to the rights and
obligations of ACPT thereunder, and further hereby represents, warrants and
covenants that it will perform all of the obligations of ACPT in accordance
with the terms thereof. From and after the date of this Agreement,
American Land shall be deemed one of the Borrowers, together with IGC,
under the Original Loan Agreement, the Original Promissory Note, and all
other Original Loan Documents.
Section 3. Release of ACPT. Lender hereby releases and discharges ACPT as
a direct obligor under the Credit Facility, a Borrower under the Original
Loan Agreement, a co-maker of the Original Promissory Note and as borrower
or obligor under any of the other Original Loan Documents, provided,
however, that such release shall not in any way be deemed nor interpreted
as a release of ACPT as a guarantor of any of the Obligations existing or
arising after the date hereof, pursuant to that certain ACPT Guaranty
Agreement (as hereinafter defined), executed and delivered by ACPT
simultaneously herewith. Notwithstanding the release of ACPT as a Borrower
under the Original Loan Agreement, ACPT shall, and hereby agrees to,
perform, observe and comply with the Affirmative Covenants and the Negative
Covenants set forth in Sections 5 and 6 of the Original Loan Agreement as
if ACPT remains a "Borrower" thereunder.
<PAGE>
Section 4. Release of Partnership Collateral; Consummation of
Restructuring.
4.1 Release of Partnership Collateral. Lender waives, relinquishes
and releases all of its right, title and interest in all of the Partnership
Collateral except for the "Retained Partnership Collateral" as defined on
Schedule 4 hereto (such released portion of the Partnership Collateral
being referred to herein as the "Released Partnership Collateral"),
effective immediately preceding the assignment and transfer of the Released
Partnership Collateral by IGC to American Management, IGP Group and
American Housing pursuant to the Restructuring. Lender agrees to execute
and deliver to IGC and ACPT such UCC-3 Termination Statements and such
other documents necessary to effectuate such relinquishment and release of
the Released Partnership Collateral as reasonably requested by IGC and
ACPT. IGC and ACPT agree to execute and deliver, or cause their affiliates
to execute and deliver, to Lender such documents as Lender may reasonably
request to confirm and ratify Lender's rights with respect to the Retained
Partnership Collateral.
4.2 Consummation of Restructuring. IGC covenants and agrees that
immediately following the relinquishment and release by Lender of all of
its right, title and interest in the Released Partnership Collateral, IGC
will assign and transfer the respective Released Partnership Collateral to
American Management, IGP Group and American Housing and will promptly, in
accordance with the Restructuring, assign and transfer all of the issued
and outstanding shares of stock and beneficial interest in American Land,
American Rental, IGP Group and American Management to ACPT in exchange for
shares of beneficial interest in ACPT, and distributing such shares of
beneficial interest in ACPT to the unitholders of IGC.
Section 5. Amendments and Modifications to Original Loan Documents.
5.1. Modification to Master Loan Agreement. The Original Loan
Agreement shall be and hereby is, modified and amended as follows (all
references in this Section 5.1 to Subsections shall mean Subsections of the
Original Loan Agreement):
5.1.1. Any and all reference to the term "Borrower" shall now
mean both IGC and American Land, jointly and severally.
5.1.2. The definition of "Base Rate" under Subsection 1.8 is
amended by deleting all of the text of such subsection and inserting in
lieu thereof "means the Base Interest Rate under the Note equal to the Bank
One Prime Rate, as in effect from time to time, plus Six Hundred Fifty
(650) Basis Points, provided, however, that if and when Bank One is re-
granted a security interest in the Released Partnership Collateral as more
fully set forth in the Note, then effective as of the first calendar day of
the immediately succeeding calendar month, the Base Interest Rate under the
Note shall be equal to the Bank One Prime Rate, as in effect from time to
time, plus Two Hundred Fifty (250) Basis Points."
5.1.3. The definition of "Borrower" in Subsection 1.10 is
amended by deleting all of the text therefrom and inserting in lieu thereof
"means individually and collectively IGC and American Land".
5.1.4. The definition of "Financing Documents" in Subsection
1.32 is amended to include this Agreement and the other Loan Modification
Documents.
<PAGE>
5.1.5. The definition of "Guarantor" and "Guarantors" in
Subsection 1.38 is amended by adding thereto, Barbara A. Wilson, the spouse
of James Wilson.
5.1.6. The definition of "Loan Agreement" is hereby added and
inserted as Subsection 1.51A, and shall mean collectively, the Original
Loan Agreement as modified and amended by this Agreement.
5.1.7. The definition of "Loan Modification Documents" is
hereby added and inserted as Subsection 1.51B, and shall mean collectively,
this Agreement, the Amended and Restated Promissory Note, the Amendment to
Property Owner Guaranty Agreement, the Amended and Restated Mirror
Promissory Note, the Modification to Deed of Trust, the Modification of
Assignment of Contracts and Assignment of Plans, Specifications and
Permits, the Amended and Restated Principals' Guaranty, the Amended and
Restated Wilson Guaranty, the Amended and Restated Environmental
Indemnification, the ACPT Guaranty, the Stock Pledge Agreement, the IGP
Group Guaranty, the American Housing Guaranty, the American Management
Guaranty, the New Wilson Guaranty, the ACPT Warrant Certificate and any
other documents or agreements executed and delivered in connection with the
first modification of the Original Credit Facility.
5.1.8. The definition of the term "Note" under Subsection 2.5.5
is amended to include the Amended and Restated Promissory Note (as
hereinafter defined).
5.1.9. The definition of the term "Mirror Note" in Subsection
2.5.5 is amended to include the Amended and Restated Mirror Note (as
hereinafter defined).
5.1.10. The definition of the term "Property Owner Guaranty" in
Subsection 2.6.1.1 is amended to include the First Amendment to Property
Owner Guaranty Agreement (as hereinafter defined).
5.1.11. The definition of the term "Key Principals Guaranty" in
Subsection 2.6.1.2 is amended to include the Amended and Restated Key
Principals Guaranty (as hereinafter defined).
5.1.12. The definition of the term "Wilson Guaranty" in
Subsection 2.6.1.3 is amended to include the Amended and Restated Wilson
Guaranty (as hereinafter defined).
5.1.13. Section 2.6.2 entitled "Collateral", is hereby amended
by adding a new subsection (e) as follows: "certain Stock Pledge Agreement
(which Stock Pledge Agreement, as the same may from time to time be
amended, restated, supplemented or otherwise modified, is herein called the
"Stock Pledge Agreement") whereby, IGC and ACPT pledged to Lender their
respective rights, title and interest in the "Pledged Stock" and adding to
the definition of "Collateral" contained therein the words "Pledged Stock".
5.1.14. Section 5.25 is hereby amended by deleting all of the
text therein and inserting in lieu thereof as follows: "For the term of the
Loan, ACPT shall maintain a ratio of aggregate liabilities to tangible net
worth equal to no greater than seven and one-half to one (7.5 to 1), and
the Borrower and ACPT shall maintain a ratio of combined aggregate
liabilities to combined tangible net worth equal to no greater than three
to one (3 to 1). For purposes of this Section 5.25, the term "tangible net
<PAGE>
worth" shall mean the net worth ACPT, or ACPT and the Borrower combined, as
the case may be, less any good will and deferred costs, as calculated on a
GAAP basis."
5.1.15. A new Subsection 8.13 is added to read as follows:
8.13. Failure to Comply With Covenants. The failure by
any Borrower, ACPT or any of the Subsidiary Entities to perform, observe or
comply with any of the Negative Covenants contained in Section 6 of this
Agreement, any of the Negative Covenants contained in the ACPT Guaranty,
the IGP Group Guaranty, the American Housing Guaranty, the American Rental
Guaranty or the American Management Guaranty, or any of the Covenants
contained in the Stock Pledge Agreement.
5.1.16. A new Subsection 8.14 is added to read as follows:
8.14. Failure to Consummate Restructuring. The failure
of IGC to transfer and convey the Released Partnership Collateral to
American Management, IGP Group and American Housing immediately after the
relinquishment and release by Lender of its right, title and interest in
the Released Partnership Collateral, or the failure of IGC to assign and
transfer all of the issued and outstanding shares of stock and beneficial
interest in American Land, American Rental, IGP Group and American
Management to ACPT in exchange for shares of beneficial interest in ACPT
and distribution of such ACPT shares to IGC Unitholders on or before
October 31, 1998.
5.1.17. A new Subsection 8.15 is added to read as follows:
8.15. Other Events of Default. The occurrence of any
Event of Default under any of the other Financing Documents.
5.1.18. Subsection 10.5 is hereby amended by deleting all of
the text therein and inserting in lieu thereof as follows: "Upon completion
of the Restructuring, the parties hereby covenant and agree, that, without
further action by any party, as of such date of the Restructuring, IGC
shall be released from any and all prospective covenants, representations
or warranties arising hereunder, except for and excluding, the affirmative
covenants set forth under Section 5.25."
5.2. Amendment to Original Promissory Note. The Original Promissory
Note shall be amended and restated in accordance with the provisions of
that certain Amended and Restated Promissory Note (which Amended and
Restated Promissory Note, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified, is herein the "Amended
and Restated Promissory Note") in the form attached hereto as Exhibit 5.2
to reflect, inter alia, the Restructuring, an increase in the Base Rate,
and American Land's assumption of ACPT's obligations under the Credit
Facility and Original Loan Documents. The Amended and Restated Promissory
Note has been executed and delivered by IGC and American Land
simultaneously herewith.
5.3. Amendment to Original Property Owner Guaranty Agreement. The
Original Property Owner Guaranty Agreement shall be amended in accordance
with the provisions of that certain First Amendment to Property Owner
Guaranty Agreement (which Amendment to Property Owner Guaranty Agreement,
as the same may from time to time be extended, replaced, amended, restated
<PAGE>
or otherwise modified, is herein the "Amendment to Property Owner Guaranty
Agreement") in the form attached hereto as Exhibit 5.3 to reflect, inter
alia, the Restructuring, American Land's assumption of ACPT's obligations
under the Credit Facility and Original Loan Documents, and the change in
definition of the Base Rate. The Amendment to Property Owner Guaranty
Agreement has been executed and delivered by St. Charles simultaneously
herewith.
5.4. Amendment to Original Mirror Promissory Note. The Original
Mirror Promissory Note shall be amended and restated in accordance with the
provisions of that certain Amended and Restated Mirror Promissory Note
(which Amended and Restated Mirror Promissory Note, as the same may from
time to time be extended, replaced, amended, restated or otherwise
modified, is herein the "Amended and Restated Mirror Promissory Note") in
the form attached hereto as Exhibit 5.4 to reflect, inter alia, the
Restructuring, American Land's assumption of ACPT's obligations under the
Credit Facility and Original Loan Documents and the change in definition of
the Base Rate. The Amended and Restated Mirror Promissory Note has been
executed and delivered by Property Owner; and assigned to Lender by allonge
executed and delivered by St. Charles, simultaneously herewith.
5.5. Amendment to Indemnity Deed of Trust. The Indemnity Deed of
Trust shall be amended in accordance with the terms of that certain
Modification to Indemnity Deed of Trust (which Modification to Indemnity
Deed of Trust, as the same may from time to time be extended, replaced,
amended, restated or otherwise modified, is herein the "Modification to
Deed of Trust") in the form attached hereto as Exhibit 5.5 to reflect the
Restructuring and American Land's assumption of ACPT's obligations under
the Credit Facility. The Modification to Deed of Trust has been executed
and delivered by St. Charles simultaneously herewith.
5.6. Amendment to Assignment of Contracts and Assignment of Plans,
Specifications and Permits. The Assignment of Contracts and Assignment of
Plans, Specifications and Permits shall be amended pursuant to the terms of
that certain Modification of Assignment of Contracts and Assignment of
Plans, Specifications and Permits (which Modification to Assignment of
Contracts and Assignment of Plans, Specifications and Permits, as the same
may from time to time be extended, replaced, amended, restated or
otherwise modified, is herein the "Modification of Assignment of Contracts
and Assignment of Plans, Specifications and Permits") in the form attached
hereto as Exhibit 5.6 to reflect, inter alia, the Restructuring and
American Land's assumption of ACPT's obligations under the Credit Facility
and Original Loan Documents. The Modification of Assignment of Contracts
and Assignment of Plans, Specifications and Permits has been executed and
delivered simultaneously herewith.
5.7. Original Principal's Guaranty. The Original Principal's Guaranty
shall be amended and restated in accordance with the provisions of that
certain Amended and Restated Principals' Guaranty (which Amended and
Restated Principals' Guaranty, as the same may from time to time be
extended, replaced, amended, restated or otherwise modified is herein the
"Amended and Restated Principals' Guaranty") in the form attached hereto as
Exhibit 5.7 to reflect, inter alia, the Restructuring and American Land's
assumption of ACPT's obligations under the Credit Facility and Original
Loan Documents. The Amended and Restated Principals' Guaranty has been
executed and delivered by the Key Principals simultaneously herewith.
<PAGE>
5.8. Original Wilson Guaranty. The Original Wilson Guaranty shall be
amended and restated in accordance with the provisions of that certain
Amended and Restated Wilson Guaranty (which Amended and Restated Wilson
Guaranty, as the same may from time to time be extended, replaced, amended,
restated or otherwise modified is herein the "Amended and Restated Wilson
Guaranty") in the form attached hereto as Exhibit 5.8 to reflect, inter
alia, the Restructuring and American Land's assumption of ACPT's
obligations under the Credit Facility and Original Loan Documents. The
Amended and Restated Wilson Guaranty has been executed and delivered by
James Wilson simultaneously herewith.
5.9. Original Environmental Indemnification. The Original
Environmental Indemnification shall be amended and restated in accordance
with the provisions of that certain Amended and Restated Environmental
Indemnification (which Amended and Restated Environmental Indemnification,
as the same may from time to time be extended, replaced, amended, restated
or otherwise modified is herein the "Amended and Restated Environmental
Indemnification") in the form attached hereto as Exhibit 5.9 to reflect,
inter alia, the Restructuring and American Land's assumption of ACPT's
obligations under the Credit Facility and Original Loan Documents. The
Amended and Restated Environmental Indemnification has been executed and
delivered by the signatories thereto simultaneously herewith.
5.10. Amendment of Partnership Collateral Documents. Each of the
Original Partnership Collateral Documents as amended and in effect as of
the date hereof, is hereby amended (i) to release therefrom all of the
Released Partnership Collateral, without affecting in any way Lender's
rights and the Assignors' obligations with respect to the Retained
Partnership Collateral; and (ii) to acknowledge the Restructuring and this
Agreement.
Section 6. Additional Agreements and New Loan Documents.
6.1. ACPT Guaranty and Pledge of Stock.
6.1.1 ACPT Guaranty. In consideration for the release of
ACPT as a primary obligor under the Credit Facility, as a Borrower under
the Original Promissory Note and the other Original Loan Documents, the
release by Lender of its interest in the Released Partnership Collateral
and Lender's consent to the Restructuring, ACPT shall unconditionally
guarantee all of the obligations of IGC and American Land under the
Original Credit Facility, as amended hereby, and the other Original Loan
Documents, as amended hereby, pursuant to that certain Guaranty Agreement
(which Guaranty Agreement, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified is herein the "ACPT
Guaranty") in the form attached hereto as Exhibit 6.1.1. The ACPT Guaranty
has been executed and delivered by ACPT simultaneously herewith.
6.1.2 Pledge of Stock. ACPT shall secure its obligations
under the ACPT Guaranty, and IGC shall further secure its obligations under
the Amended and Restated Note, by pledging to Lender their respective
right, title and interest in all of the issued and outstanding shares of
stock or beneficial interests, as applicable, of American Land, American
Management, American Rental and IGP Group (the "Pledged Stock"), pursuant
to that certain Stock Pledge Agreement (which Stock Pledge Agreement, as
the same may from time to time be extended, replaced, amended, restated or
<PAGE>
otherwise modified is herein the "Stock Pledge Agreement") in the form
attached hereto as Exhibit 6.1.2. The Stock Pledge Agreement has been
executed and delivered by ACPT and IGC simultaneously herewith.
6.2. IGP Group Guaranty. As additional consideration for Lender
agreeing to release all of its right, title and interest in and to the
Released Partnership Collateral, and to consent to the Restructuring, IGP
Group shall unconditionally guarantee the obligations of IGC and American
Land under the Original Credit Facility, as amended herein, and the
Original Loan Documents, as amended herein, and to further guarantee the
obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "IGP Group Guaranty") in the form attached hereto as Exhibit
6.2. The IGP Group Guaranty has been executed and delivered by IGP Group
simultaneously herewith.
6.3. American Housing Guaranty. As additional consideration for
Lender agreeing to release all of its right, title and interest in and to
the Released Partnership Collateral, and to consent to the Restructuring,
American Housing shall unconditionally guarantee the obligations of IGC and
American Land under the Original Credit Facility, as amended herein, and
the Original Loan Documents, as amended herein, and to further guarantee
the obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "American Housing Guaranty") in the form attached hereto as
Exhibit 6.3. The American Housing Guaranty has been executed and delivered
by American Housing simultaneously herewith.
6.4. American Management Guaranty. As additional consideration for
Lender agreeing to release all of its right, title and interest in and to
the Released Partnership Collateral, and to consent to the Restructuring,
American Management shall unconditionally guarantee the obligations of IGC
and American Land under the Original Credit Facility, as amended herein,
and the Original Loan Documents, as amended herein, and to further
guarantee the obligations of ACPT under the ACPT Guaranty, pursuant to that
certain Guaranty Agreement (which Guaranty Agreement, as the same may from
time to time be extended, replaced, amended, restated or otherwise modified
is herein the "American Management Guaranty") in the form attached hereto
as Exhibit 6.4. The American Management Guaranty has been executed and
delivered by American Management simultaneously herewith.
6.5. American Rental Guaranty. As additional consideration for Lender
agreeing to release all of its right, title and interest in and to the
Released Partnership Collateral, and to consent to the Restructuring,
American Rental shall unconditionally guarantee the obligations of IGC and
American Land under the Original Credit Facility, as amended herein, and
the Original Loan Documents, as amended herein, and to further guarantee
the obligations of ACPT under the ACPT Guaranty, pursuant to that certain
Guaranty Agreement (which Guaranty Agreement, as the same may from time to
time be extended, replaced, amended, restated or otherwise modified is
herein the "American Rental Guaranty") (the IGP Group Guaranty, American
Housing Guaranty, American Management Guaranty, and American Rental
Guaranty are herein collectively the "Subsidiary Entities' Guaranties") in
the form attached hereto as Exhibit 6.5. The American Rental Guaranty has
been executed and delivered by American Rental simultaneously herewith.
<PAGE>
6.6. New Guaranty from James J. Wilson and Barbara A. Wilson. As
additional consideration for Lender agreeing to release all of its right,
title and interest in and to the Released Partnership Collateral, and to
consent to the Restructuring, James J. Wilson and Barbara A. Wilson shall
unconditionally guarantee the obligations of IGC and American Land under
the Original Credit Facility, as amended herein, and the Original Loan
Documents, as amended herein, and to further guarantee the obligations of
ACPT under the ACPT Guaranty, pursuant to that certain Guaranty Agreement
(which Guaranty Agreement, as the same may from time to time be extended,
replaced, amended, restated or otherwise modified is herein the "New Wilson
Guaranty") in the form attached hereto as Exhibit 6.6. The New Wilson
Guaranty has been executed and delivered by James J. Wilson and Barbara A.
Wilson, his wife, simultaneously herewith.
6.7. New Warrant Certificate. In order to reflect the restructuring,
and as required by the Original Warrant Certificate, ACPT shall issue,
execute and deliver Lender a new Warrant Certificate to replace the
Original Warrant Certificate (which new Warrant Certificate, as the same
may from time to time be replaced, amended, restated or otherwise modified
is herein the "ACPT Warrant Certificate") in the form attached hereto as
Exhibit 6.7. The ACPT Warrant Certificate has been executed and delivered
by ACPT simultaneously herewith but shall be effective upon the
consummation of the Restructuring.
Section 7. Ratification, No-Novation, Effect of Amendments and
Modification.
7.1. Ratification and No Novation. Each of IGC, ACPT, St. Charles,
the Original Guarantors and the Subsidiary Entities, individually and
collectively, hereby ratifies and confirms all of its or his respective
obligations, liabilities and indebtedness under the provisions of the
Original Promissory Note, the Original Deed of Trust, and each other
Original Loan Document, as the case may be, as the same are amended hereby
or will be amended pursuant to the terms hereof. Each of IGC, ACPT, St.
Charles, the Original Guarantors and the Subsidiary Entities acknowledge
and agree that to the extent not otherwise specifically provided herein, it
is their intention that nothing in this Agreement or in any of the other
Loan Modification Documents shall be construed to extinguish, release, or
discharge or constitute, create, or effect a novation of, or an agreement
to extinguish, release or discharge, any of the obligations, indebtedness
and liabilities of the IGC, ACPT, St. Charles, the Original Guarantors and
the Subsidiary Entities or any other party under the provisions of the
Original Promissory Note, the Original Deed of Trust, or any of the other
Original Loan Documents. IGC, ACPT, St. Charles, the Original Guarantors
and the Subsidiary Entities, individually and collectively, acknowledge and
agree that all of the provisions of the Original Promissory Note, the
Original Deed of Trust, and each of the other Original Loan Documents shall
remain in full force and effect as the same may be amended hereby or
pursuant to the terms hereof. In the event of any conflict between the
terms of the Original Promissory Note, the Original Deed of Trust, or any
of the other Original Loan Documents and the terms of this Agreement or any
of the other Loan Modification Documents, the terms of this Agreement and
of the other Loan Modification document shall control.
7.2. Effect of Modification. Except as provided above, the Original
Promissory Note, the Original Loan Agreement, and all other Original Loan
Documents shall remain hereinafter unmodified and in full force and effect,
as if this Agreement had not been made.
<PAGE>
7.3. No Waiver. Each of IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities acknowledges that, except to the
extent expressly set forth herein, or as set forth in the Rectification
Agreement among the parties hereto of even date herewith, the execution of
this Agreement by Lender is not intended nor shall it be construed as (i)
an actual or implied waiver of any default under the Original Promissory
Note, or any of the other Original Loan Documents, or (ii) an actual or
implied waiver of any condition or obligation imposed upon each IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities pursuant
to the Original Promissory Note, the Original Loan Agreement or any of the
other Original Loan Documents.
Section 8. Representations and Warranties.
8.1. IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities each, jointly and severally, represents and warrants to
the Lender as of the date hereof, that:
8.1.1. Reaffirmation of IGC, ACPT, St. Charles and Original
Guarantors. Except as otherwise provided herein or as otherwise
effectuated by the Restructuring, all representations and warranties made
by IGC, ACPT, St. Charles and the Original Guarantors in the Original Loan
Documents remain true, complete and correct in all material respects on the
date hereof as if the same were made on the date hereof.
8.1.2. No Actions. As of the date hereof, there are no
actions, suits or proceedings pending, or to the knowledge of IGC, ACPT,
St. Charles, the Original Guarantors, or the Subsidiary Entities,
threatened, (i) against or affecting the Collateral, or (ii) involving the
validity or enforceability of the Deed of Trust or the priority of the lien
thereof, or (iii) against IGC, ACPT, St. Charles, any Original Guarantor or
any of the Subsidiary Entities at law or in equity or before or by any
governmental authority except (a) actions, suits and proceedings against
IGC, ACPT, St. Charles, Original Guarantor or any of the Subsidiary
Entities fully covered by insurance and as to each of which IGC, ACPT, St.
Charles, the Original Guarantor or any of the Subsidiary Entities has
provided information satisfactory to the Lender, (b) actions, suits and
proceedings against IGC, ACPT, St. Charles, Original Guarantor or any of
the Subsidiary Entities which will not materially adversely affect their
business, financial condition or operations, or (c) otherwise previously
disclosed to Lender in the Original Loan Agreement; and to the knowledge of
IGC, ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities,
neither entity is in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
8.1.3. Taxes. All federal, state and local tax returns and
reports of IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities required by law to be filed have been duly filed, and
all taxes, assessments, fees and other governmental charges upon IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities and their
respective properties, assets, income and franchises which are due and
payable have been paid in full. IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities maintain adequate reserves and/or
accruals in respect of federal, state and local taxes for all fiscal
periods, and neither IGC, ACPT, St. Charles, the Original Guarantors and
the Subsidiary Entities know of any unpaid assessments for any taxes or any
basis therefor.
<PAGE>
8.1.4. No Default. Neither IGC, ACPT, St. Charles, the Original
Guarantors or the Subsidiary Entities are in default in the payment of any
of its or their indebtedness or in the performance of any of its
obligations under any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which it is a party or by which it
or any of its assets may be bound, and no Event of Default as provided
under the Original Loan Agreement has occurred and is continuing. Neither
IGC, ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities
are in default under any order, judgment, award or decree of any court,
arbitrator, or governmental authority binding on or affecting it or by
which any of its assets may be bound or affected, and no such order,
judgment, award or decree materially adversely affects the ability of IGC,
ACPT, St. Charles, the Original Guarantors or the Subsidiary Entities to
carry on its business as now conducted or its ability to perform its
obligations under this Agreement, the Original Loan Documents or the Loan
Modification Documents.
8.1.5. Stock, etc. of Subsidiary Entities. Immediately prior to
consummation of the Restructuring, IGC owns, beneficially and of record,
all of the issued and outstanding shares of stock or beneficial interest of
each of the Subsidiary Entities. Immediately following consummation of the
Restructuring, ACPT will own, beneficially and of record, all of the issued
and outstanding shares of stock or beneficial interest of each of the
Subsidiary Entities. All issued and outstanding shares of stock or
beneficial interest of each Subsidiary Entity is duly authorized, validly
issued and fully paid and nonassessable and is, and will, subsequent to
consummation of the Restructuring, be free and clear of all liens, claims
and encumbrances except for the security interest therein granted to Lender
under the Stock Pledge Agreement.
8.1.6. Membership Interests in St. Charles. Immediately prior
to consummation of the Restructuring, American Land is the sole member of,
and the sole beneficial and record owner of membership interests, in St.
Charles. Upon consummation of the Restructuring, American Land will
continue to be the sole member, and the sole beneficial and record owner of
membership interests in St. Charles. All membership interests in St.
Charles are, and subsequent to consummation of the Restructuring, will be
free and clear of all liens, security interests, claims and encumbrances.
8.1.7. Partnership Collateral. Upon consummation of the
Restructuring, the Released Partnership Collateral will be owned by
American Management, IGP Group and American Housing. The Released
Partnership Collateral is, and subsequent to the consummation of the
Restructuring will be, free and clear of all liens, security interests,
claims and encumbrances (other than the security interest of Lender in such
Released Partnership Collateral which is released herein).
8.1.8. Solvency. IGC, ACPT and each of the Subsidiary
Entities are not insolvent and the execution, delivery and performance by
IGC, ACPT and each of the Subsidiary Entities of the Loan Modification
Documents to which each is a party, and the consummation of the
Restructuring, will not render IGC, ACPT, or any of the Subsidiary Entities
insolvent. For purposes of the representations and warranties set forth in
this subsection, the term "insolvent" means either (i) the present fair
market value of each entity's assets is less than the amount necessary to
pay such entity's probable liability on its existing debts as they become
absolute and mature, or (ii) the sum of the entity's debts is greater than
the present fair market value of the entity's assets.
<PAGE>
8.1.9. Title to Properties. Immediately prior to the
Restructuring, ACPT and each of the Subsidiary Entities has good and
marketable title to its assets and properties free and clear of all liens,
securities, claims and encumbrances, except for liens, security interests
or encumbrances in favor of Lender. Immediately following consummation of
the Restructuring, ACPT and each of the Subsidiary Entities will have good
and marketable title to all of its assets and properties, including,
without limitation, the assets and properties transferred to it in
connection with the Restructuring, free and clear of all liens, security
interests and encumbrances except for liens, security interests or
encumbrances in favor of Lender.
8.2. Additional Representations and Warranties. In order to induce
the Lender to enter into this Agreement, IGC, ACPT, St. Charles, the
Original Guarantors or the Subsidiary Entities each represents and warrants
to the Lender that as of the date hereof (a) no default or Event of Default
exists under the Original Promissory Note, or the other Original Loan
Documents, and (b) no event exists which, with the giving of notice or the
lapse of time, or both, could or would constitute a default or an Event of
Default thereunder.
Section 9. Bankruptcy.
9.1. Waiver of Bankruptcy. In consideration for Lender's agreement to
enter into this Agreement, each of IGC, ACPT, St. Charles, the Original
Guarantors and the Subsidiary Entities hereby irrevocably agrees (i) not to
file a voluntary petition under title 11 of the United States Code, as
amended ("the Bankruptcy Code") with any bankruptcy court of competent
jurisdiction; (ii) not to voluntarily become or remain the subject of any
order for relief issued under the Bankruptcy Code; (iii) not to file or
voluntarily remain the subject of any petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any present or future federal or state act or law
relating to bankruptcy, insolvency, or other relief for debtors; (iv) not
to seek or consent to or acquiesce in the appointment of any trustee,
receiver, conservator, or liquidator, except such as may be sought by
Lender; and (v) not voluntarily become or remain the subject of an order,
judgment or decree of any court of competent jurisdiction approving a
petition filed against each IGC, ACPT, St. Charles, the Original Guarantors
and the Subsidiary Entities for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any present or future federal or state act or law relating to
bankruptcy, insolvency or relief for debtors, except as may be permitted by
Lender. This covenant is a material inducement for Lender to enter into
and accept this Agreement.
9.2. Waiver of Automatic Stay. Each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities hereby agrees that, in
consideration for Lender's agreement to enter into this Agreement, and,
notwithstanding the provisions of subsection 9.1 above, if each IGC, ACPT,
St. Charles, the Original Guarantors and the Subsidiary Entities shall (i)
file with any bankruptcy court of competent jurisdiction or be the subject
of any petition under the Bankruptcy Code; (ii) be the subject of any order
for relief issued under the Bankruptcy Code; (iii) file or be the subject
of any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future federal or state act or law relating to bankruptcy, insolvency,
<PAGE>
or other relief for debtors; (iv) have sought or consented to or acquiesced
in the appointment of any trustee, receiver, conservator, or liquidator; or
(v) be the subject of an order, judgment or decree entered by any court of
competent jurisdiction approving a petition filed against such person or
entity for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
federal or state act or law relating to bankruptcy, insolvency or relief
for debtors, then Lender shall thereupon be entitled to file a motion to
seek, and each IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities hereby irrevocably consents to and agrees to stipulate
to any motion filed by Lender seeking, relief from the automatic stay
imposed by Section 362 of the Bankruptcy Code, or any other stay of, on or
against the exercise of the rights and remedies otherwise available to
Lender as provided in this Agreement or any of the other Original Loan
Documents or Loan Modification Documents and/or provided by law, and each
IGC, ACPT, St. Charles, the Original Guarantors and the Subsidiary Entities
hereby irrevocably waives its rights to object to such relief. This
covenant is a material inducement for Lender to enter into and accept this
Agreement.
9.3. Reduction of Exclusive Bankruptcy Plan Filing and Plan Acceptance
Periods. Borrower hereby agrees that, in consideration for Lender's
agreement to enter into and accept this Agreement, and, notwithstanding the
provisions of Section 9.1 above, if each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities shall (i) file with any
bankruptcy court of competent jurisdiction or be the subject of any
petition under the Bankruptcy Code; (ii) be the subject of any order for
relief issued under the Bankruptcy Code; (iii) file or be the subject of
any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future federal or state act or law relating to bankruptcy, insolvency,
or other relief for debtors; (iv) have sought or consented to or acquiesced
in the appointment of any trustee, receiver, conservator, or liquidator; or
(v) be the subject of an order, judgment or decree entered by any court of
competent jurisdiction approving a petition filed against such person or
entity for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
federal or state act or law relating to bankruptcy, insolvency or relief
for debtors, then Lender shall thereupon be entitled to file a motion to
seek, and each IGC, ACPT, St. Charles, the Original Guarantors and the
Subsidiary Entities hereby irrevocably consents to and agrees to stipulate
to any motion filed by Lender seeking, to reduce the exclusive plan filing
and acceptance periods provided by Section 1121 of the Bankruptcy Code or
any similar periods provided by law, and each IGC, ACPT, St. Charles, the
Original Guarantors and the Subsidiary Entities hereby irrevocably waives
its rights to object to such relief. This covenant is a material
inducement for Lender to enter into and accept this Agreement.
Section 9.4. Release. Notwithstanding the foregoing, Subsections 9.1,
9.2, and 9.3 hereof shall be void and of no further effect on the ninety-
first (91st) day following such time as pursuant to a security agreement or
other assignment agreement with the terms substantially identical to the
Partnership Collateral Documents in form and content satisfactory to Lender
in its sole but reasonable discretion, each of IGP Group, American Rental,
American Housing, and American Management has conveyed to Lender a first
priority security interest in all of the Released Partnership Collateral.
<PAGE>
Section 10. Fees, Costs and Expenses. IGC and ACPT shall pay to Banc
One Capital Markets, Inc. ("BOCM"), an affiliate of Lender, prior to or at
the time of execution of this Agreement, a financial advisory fee in the
amount of $100,000 (the "Financial Advisory Fee") in consideration of the
Lender's agreement to modify the Credit Facility as herein provided. BOCM
will credit up to $50,000 of the Financial Advisory Fee against any fees
due to BOCM pursuant to any engagement of BOCM by the Borrower or ACPT to
provide or arrange financing or provide financial advisory services during
the twelve (12) month period immediately following the date hereof. IGC,
ACPT and American Land shall also pay to the Lender upon demand, all costs
and expenses both now and hereafter paid or incurred with respect to the
preparation, negotiation, execution, administration and enforcement of this
Agreement, the Original Loan Documents and the other Loan Modification
Documents including, without limitation, reasonable attorney's fees and
expenses, recording costs, recordation and other taxes, appraisal fees,
costs of record searches and title insurance premiums and other title
costs. IGC and ACPT acknowledge that the provisions of this Agreement and
the other Loan Modification Documents shall not be effective to modify the
Original Loan Documents unless and until the obligation of IGC and ACPT to
pay the Financial Advisory Fee to BOCM and to reimburse Lender for the
expenses incurred through the date of this Agreement in connection with the
preparation, negotiation, execution and administration of this Agreement
are satisfied which such amount shall be set forth in a Closing Statement.
Section 11. Applicable Law, Etc. This Agreement shall be governed by
the laws of the State of Maryland and may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
Section 12. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each party hereto, and their respective successors
and assigns.
Section 13. General.
13.1. Effectiveness. This Agreement shall become effective on and
only on its execution and delivery by each party hereto.
13.2. Headings. The headings of the Sections, subsections,
paragraphs and subparagraphs hereof are provided herein for and only for
convenience of reference, and shall not be considered in construing their
contents.
13.4. Time of Essence. To the extent that it may have been waived
in the past, Lender hereby specifically reinstates that time is of the
essence of this Agreement and of the Original Loan Documents.
13.5. Additional Defaults. If IGC, ACPT, St. Charles, the
Original Guarantors or the Subsidiary Entities shall fail to keep or
perform any of the covenants or agreements contained herein, or if any
statement, representation or warranty contained herein is false, misleading
or erroneous in any material respect, such failure shall be deemed to be an
Event of Default and Lender shall be entitled at its option to exercise any
and all of the rights and remedies granted pursuant to the Deed of Trust,
as amended hereby, or any of the other Financing Documents, or to which
Lender may otherwise be entitled, whether at law or in equity.
<PAGE>
13.6. Lender's Title Policy Endorsement. Contemporaneously with
the execution and delivery hereof, IGC, ACPT or St. Charles shall, at its
sole cost and expense, obtain and deliver to Lender an endorsement dated as
of the date hereof to Lender's existing title insurance policy covering the
Real Property, in form and content acceptable to Lender, insuring that the
Deed of Trust constitutes, and will continue to constitute subsequent to
consummation of the Restructure, a first priority lien on the Real Property
securing the full amount of the Credit Facility.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this
Agreement or caused it to be executed and ensealed on its behalf by its
duly authorized representatives, the day and year first above written.
WITNESS: BANC ONE CAPITAL PARTNERS, IV, LTD.,
an Ohio limited liability company
By: BOCP Holdings Corporation, its Manager
/s/ Linda M. Heller
- - ---------------------------- By: /s/ Michael S. Wood
------------------------------(SEAL)
Name: Michael S. Wood
Title: Authorized Signer
INTERSTATE GENERAL COMPANY, L.P.,
a Delaware limited partnership
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_______________________________(SEAL)
Name: Edwin L. Kelly
Title: President
AMERICAN COMMUNITY PROPERTIES TRUST,
a Maryland real estate investment trust
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: President
ST. CHARLES COMMUNITY, LLC,
a Delaware limited liability company
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Chairman Management Committee
/s/ Patricia A. Wallace
____________________________ By: /s/ James J. Wilson
_______________________________________
JAMES J. WILSON
<PAGE>
/s/ Cynthia L. Hedrick
____________________________ By: /s/ J. Michael Wilson
_______________________________________
J. MICHAEL WILSON
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_______________________________________
EDWIN L. KELLY
AMERICAN RENTAL PROPERTIES TRUST,
a Maryland real estate investment trust
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
AMERICAN RENTAL MANAGEMENT COMPANY,
a Delaware corporation
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: President
AMERICAN LAND DEVELOPMENT U.S., INC.,
a Maryland corporation
/s/ Cynthia L. Hedrick
___________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
IGP GROUP CORP.,
a Puerto Rico corporation
___________________________ By: /s/ Francisco Arrivi
_________________________________(SEAL)
Name: Francisco Arrivi
Title: President
<PAGE>
AMERICAN HOUSING PROPERTIES, L.P.,
a Delaware limited partnership
/s/ Cynthia L. Hedrick
____________________________ By: /s/ Edwin L. Kelly
_________________________________(SEAL)
Name: Edwin L. Kelly
Title: Vice President
STATE OF OHIO: COUNTY OF FRANKLIN: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared
Michael S. Wood, known to me or satisfactorily proven to be the person
whose name is subscribed to the foregoing instrument, who acknowledged that
he/she is authorized signer of BANC ONE CAPITAL PARTNERS IV, LTD., that
he/she has been duly authorized to execute, and has executed, such
instrument on its behalf for the purposes therein set forth, and that the
same is its act and deed as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Linda M. Heller
__________________________________________
Notary Public
My commission expires on September 10, 2002.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of INTERSTATE GENERAL COMPANY, L.P., that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN COMMUNITY PROPERTIES TRUST, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
Chairman of ST. CHARLES COMMUNITY, LLC, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN RENTAL PROPERTIES TRUST, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is
President of AMERICAN RENTAL MANAGEMENT COMPANY, that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is Vice
President of AMERICAN LAND DEVELOPMENT U.S., INC., that he/she has been
duly authorized to execute, and has executed, such instrument on its behalf
for the purposes therein set forth, and that the same is its act and deed
as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF _____________: TO WIT:
I HEREBY CERTIFY that on this ____ day of ______________, 1998, before
me, a Notary Public for the state and county aforesaid, personally appeared
________________________, known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing instrument, who
acknowledged that he/she is __________________ of IGP GROUP CORP., that
he/she has been duly authorized to execute, and has executed, such
instrument on its behalf for the purposes therein set forth, and that the
same is its act and deed as trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
__________________________________________
Notary Public
My commission expires on ________________.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Edwin
L. Kelly, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he is Vice
President of AMERICAN HOUSING PROPERTIES, L.P., that he/she has been duly
authorized to execute, and has executed, such instrument on its behalf for
the purposes therein set forth, and that the same is its act and deed as
trustee.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
__________________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared J.
MICHAEL WILSON, known to me or satisfactorily proven to be the person whose
name is subscribed to the foregoing instrument, who acknowledged that he
has executed the foregoing instrument for the purposes therein set forth,
and that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 25th day of September, 1998, before me,
a Notary Public for the state and county aforesaid, personally appeared
JAMES J. WILSON, known to me or satisfactorily proven to be the person
whose name is subscribed to the foregoing instrument, who acknowledged that
he has executed the foregoing instrument for the purposes therein set
forth, and that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
STATE OF MARYLAND: COUNTY OF CHARLES: TO WIT:
I HEREBY CERTIFY that on this 1st day of October, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared EDWIN
L. KELLY, known to me or satisfactorily proven to be the person whose name
is subscribed to the foregoing instrument, who acknowledged that he has
executed the foregoing instrument for the purposes therein set forth, and
that the same is his act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
/s/ Martha Haupt
___________________________________
Notary Public
My commission expires on 02-01-01.
<PAGE>
<PAGE>
SCHEDULE 4
The "Retained Partnership Collateral" shall consist of the portion of the
Partnership Collateral derived from the following partnership interests
that shall not be transferred until transferred in accordance with the
attached assignment agreements (the "Partnership Transfer Documents").
Headen House Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Palmer Apartments Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Wakefield Terrace Associates Limited Partnership
60% of IGC's beneficial general partnership interest
Wakefield Third Age Associates Limited Partnership
60% of IGC's beneficial general partnership interest
<PAGE>
Exhibit 10(d)
EQUUS MANAGEMENT COMPANY
PO BOX 363908
SAN JUAN, PR 00936-3908
November 12, 1998
Interstate General Company L.P.
5160 Parkstone drive
Suite 110
Chantilly, VA 20151
Re: Guaranty Agreement between Equus Management Company ("EMC") and
Interstate General Company ("IGC") dated as of December 31, 1997.
Gentlemen:
Effective with the close of business Augsut 7, 1998, Equus Gaming Company
L.P. was delisted from the Nasdaq National Market System and moved to the
Nasdaq SmallCap Market, without reliance to the Guaranty provided by IGC
under the Guaranty Agreement. Therefore, pursuant to Section 3 of the
Guaranty Agreement, EMC has elected to terminate the Guaranty provided by
IGC, effective as of August 7, 1998.
Very truly yours,
/s/ Gretchen Gronau
Gretchen Gronau
Vice President and Chief
Financial Officer
CONSENTED BY
INTERSTATE BUSINESS CORPORATION
By: /s/ Thomas B. Wilson
--------------------------
Thomas B. Wilson
Executive Vice President
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,312<F1>
<SECURITIES> 0
<RECEIVABLES> 4,778
<ALLOWANCES> (378)
<INVENTORY> 82,363
<CURRENT-ASSETS> 0
<PP&E> 3,483
<DEPRECIATION> 2,426
<TOTAL-ASSETS> 144,418
<CURRENT-LIABILITIES> 0
<BONDS> (76,026)
0
0
<COMMON> 0
<OTHER-SE> 45,372
<TOTAL-LIABILITY-AND-EQUITY> 144,418
<SALES> 18,620
<TOTAL-REVENUES> 30,577
<CGS> 12,876
<TOTAL-COSTS> 16,603
<OTHER-EXPENSES> 8,267
<LOSS-PROVISION> (94)
<INTEREST-EXPENSE> 2,590
<INCOME-PRETAX> 2,765
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<NET-INCOME> 2,025
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>Balance includes $2,592 of restricted cash.
</FN>
</TABLE>
