SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 1-9393
INTERSTATE GENERAL COMPANY L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1488756
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 Smallwood Village Center
St. Charles, Maryland 20602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 843-8600
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Units representing assignment of American Stock Exchange
beneficial ownership of Class A limited
partnership interest and evidenced by Pacific Stock Exchange
beneficial assignment certificates ("Units")
Securities registered pursuant to Section 12(g) of the Act:
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 1, 1996 the aggregate market value of the Units held by
non-affiliates of the registrant based on the closing price reported on the
American Stock Exchange was $16,085,404.
Class A Units Outstanding at March 1, 1996: 10,256,785 Class A Units
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Item
N/A
2
INTERSTATE GENERAL COMPANY L.P.
1995 Form 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business 3
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote
of Security Holders 20
PART II
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Item 5. Market Prices and Distribution on Units 21
Item 6. Selected Financial and Operating Data 21
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 23
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 86
PART III
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Item 10. Directors and Executive Officers
of the Registrant 87
Item 11. Executive Compensation 91
Item 12. Security Ownership of Certain
Unitholders and Management 95
Item 13. Certain Relationships and Related
Transactions 96
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 97
3
PART I
ITEM 1. BUSINESS DEVELOPMENT
Interstate General Company L.P. ("IGC") was formed as a Delaware limited
partnership in 1986 and directly and through predecessors has been engaged in
business since 1957. IGC directly and through its primary subsidiaries (the
"Company" or "IGC"), Interstate General Properties S.E. ("IGP"), St. Charles
Associates Limited Partnership ("SCA"), Land Development Associates, S.E.
("LDA"), American Family Homes, Inc. ("AFH") and Interstate Waste Technologies,
Inc. ("IWT") own and participate in diversified real estate operations. The
Company is the developer of planned communities in the Washington, D.C. suburbs
and Puerto Rico. IGC engages in homebuilding in Maryland, Virginia, North
Carolina, South Carolina and Puerto Rico. IGC also holds ownership interests
in investment properties, and manages rental apartment projects in Puerto Rico,
Maryland, Virginia, and Washington, D.C. IGC is also engaged in the pre-
development of municipal waste treatment facilities.
The business activities of IGC and its subsidiaries are presented below:
A. COMMUNITY DEVELOPMENT
IGC has extensive experience in developing planned communities. IGC and
its predecessors develop sites for single-family homes, condominiums and
apartments in Puerto Rico and the United States. IGC, through outside
planners, engineers, architects and contractors, obtains necessary approvals
for land development, plans individual neighborhoods in accordance with
regulatory requirements and constructs roads, utility facilities and community
facilities. The Company develops these sites primarily for sale to third
parties and to a lesser extent for use in its homebuilding and investment
property operations. Currently, IGC's development activities are focused on
the remaining two thirds of the 9,100 acre planned community in St. Charles
located in the Washington, D.C. metropolitan area and the remaining phases of
Parque Escorial, a 432 acre planned community in the San Juan, Puerto Rico
metropolitan area. In addition to these two planned communities, IGC holds
approximately 539 acres in Puerto Rico for Parque El Comandante and 1,676 acres
at several locations surrounding suburban Washington, D.C., including Prince
William County, Virginia and Charles County, Prince George's County and St.
Mary's County, Maryland.
Years Ended December 31,
----------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Community Development:
Residential lots sold 134 228 295 80 81
Residential lots used by IGC's
homebuilding division 25 44 91 120 140
Residential lots used by IGC's
investment property division 54 -- 56 -- --
--- --- --- --- ---
Total residential lots used and sold 213 272 442 200 221
=== === === === ===
Commercial and business park acres sold 20 76 12 1 6
=== === === === ===
Undeveloped acres sold 2 20 27 46 --
=== === === === ===
4
St. Charles. IGC is the developer of St. Charles, a 9,100 acre planned
community located 23 miles southeast of Washington, D.C. in Charles County,
Maryland. The comprehensive planned unit development (the "Master Plan") for
St. Charles was originally approved by the Charles County government in 1972.
Since that time a series of amendments have been approved. The Master Plan
contemplates the construction of over 20,000 housing units and over 1,300 bulk
acres of commercial, office and light industrial use. IGC's development plans
include the future addition of 1,186 acres of adjacent land currently owned by
the Company for enhancement of the design and size of the existing approved
residential units. St. Charles is divided by U.S. Route 301 and has Conrail
access.
St. Charles consists of five separate villages: Smallwood, Westlake,
Fairway, Piney Reach and Wooded Glen. Each village consists of individually
planned neighborhoods and includes schools, churches and recreation centers.
Other amenities include parks, lakes, hiking trails and bicycle paths. St.
Charles also includes an 18 hole public golf course and regional park that is
owned and managed by the Charles County Government and a 1.1 million square
foot regional shopping mall. The first two villages, Smallwood and Westlake,
are substantially complete and include over 10,900 completed housing units as
well as schools, recreational facilities, approximately three million square
feet of developed commercial space and 1.4 million square feet of business park
space. The Company currently has 188 mixed use residential lots and 228 acres
of commercial, office and light industrial acres available to deliver in 1996.
Development of the third village, Fairway, is scheduled to begin in 1996.
Including Fairway Village, the Company's remaining inventory in St. Charles is
expected to produce over 13,000 mixed residential units and 271 acres for
business use.
Utilities, Zoning, Environmental, Seasonality, Competition and Other
Concerns - Water supply and sewage treatment for St. Charles are provided by
Charles County under agreements with IGC. In 1989, the Charles County
government and IGC entered into an agreement (the "Water and Sewer Agreement")
which provides for the continued availability of water and sewer services for
the balance of housing units to be developed in St. Charles. For its part, IGC
has agreed to a cumulative limit of the community's growth to 600 units per
year during the 1990's and 650 units thereafter until full buildout. Water is
presently being supplied from county wells. Additionally, the Charles County
government has agreed with neighboring Prince George's County to purchase water
from the Washington Suburban Sanitary Commission, a regional water and sewer
authority, through transmission lines to be constructed during the next few
years. In the opinion of Whitman, Requardt and Associates ("WRA"), an
independent engineering consultant, and IGC, the County will be able to provide
sufficient water and sewer for full planned development of St. Charles.
Pursuant to the Water and Sewer Agreement with Charles County, St. Charles is
permitted to discharge into the existing county sewage facilities.
The Master Plan has been incorporated in Charles County's Comprehensive
Master Plan. Notwithstanding such zoning, county approval of specific plans
for each village is required. Such approval has been obtained with respect to
Smallwood Village, Westlake Village and Fairway Village. Approval has not yet
been sought with respect to the other two villages. IGC believes that the land
in Westlake and Fairway Villages will be sufficient for IGC's development and
homebuilding operations in St. Charles for the next 10-12 years.
In 1977, a full environmental impact statement for the Master Plan was
prepared by the federal government and considered at federal, state and local
levels. The statement included specific consideration of the effect of planned
5
development upon land classified as "wetlands". Development of wetlands is
subject to approval by the U.S. Army Corps of Engineers ("the Corps"), the U.S.
Environmental Protection Agency ("EPA") and the State of Maryland.
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site and filed suit against the Corps claiming that a prohibition of
development on the entire Site would constitute a governmental taking for which
the Company would be entitled to compensation.
In November 1993, the Company believed that it had an agreement in
principle with the Corps that would settle the Company's claim and permit
commercial development of a portion of the Site. However, in early 1994, the
Company became aware that this matter had been referred to the U.S. Attorney
for the District of Maryland. After conducting a lengthy investigation of the
Company's wetlands practices in St. Charles, in October 1995 a grand jury
convened by the U.S. Attorney charged that certain of the Company's practices
with respect to four parcels, including the Site, constituted criminal
violations of Section 404 of the Clean Water Act. The indictment charged each
of IGC, its affiliate, St. Charles Associates, L.P. ("SCA"), and the Company's
Chairman, James J. Wilson. During the U.S. Attorney's investigation, the Corps
issued additional violation notices relating to filling portions of other
parcels claimed by the Corps to be protected wetlands. In October 1995 the
government filed a civil action in the U.S. District Court for the District of
Maryland charging the Company and Mr. Wilson with violations of the Clean Water
Act. Of the approximately 4,400 acres developed by the Company in St. Charles,
approximately 70 acres are the subject of the civil and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted on
four counts of felony violations of Section 404 of the Clean Water Act.
Sentencing is expected in June 1996. On March 12, 1996, IGC and SCA received
service of process with respect to the civil action. In addition to monetary
fines, the U.S. attorney also seeks to enjoin the Company from engaging in
future illegal wetlands practices. Management believes that the Company and
Mr. Wilson have strong arguments to present on appeal of the criminal
convictions. Accordingly, the Company and Mr. Wilson will continue to defend
vigorously against charges in the civil action.
The Washington metropolitan area is highly competitive. There are
currently approximately thirty single-family communities in the Waldorf/St.
Charles area which would qualify as subdivision sites. The majority of the
sites, aside from St. Charles, are on the Route 228 corridor which is the main
east-west access road in the County. In the last few years, several major
national and regional builders have entered the marketplace. For example,
Charles County residential building permits have steadily increased over the
past several years to 995 in 1995 compared to 971 in 1994 and 948 in 1993.
With the addition of more competition and two planned communities scheduled to
start development over the next twelve months, competition for lot and house
sales will intensify. IGC's community development in the United States is
influenced by seasonal factors. Unfavorable winter weather conditions in the
region causes heavier land development and sales during the spring and summer
months.
6
Parque Escorial. Parque Escorial is a 432 acre planned community located
six miles from downtown San Juan, Puerto Rico. The original master plan was
approved in October 1992 by the Puerto Rico Planning Board (the "Planning
Board"). Since that time, a series of amendments have been approved. The plan
contemplates the construction of 2,900 mixed dwelling units and 120 acres of
commercial, light industrial and office use.
Unlike the suburban development of the existing surrounding area, Parque
Escorial will be a planned community which has a mix of uses focused around a
centrally located shopping center. A commercial center fronting a major
highway and two service centers will provide a mix of retail, office and
service uses. Twenty-seven percent of the Parque Escorial land has been set
aside for a variety of community facilities, open space and roads. Phase I is
substantially complete and includes 260,000 square feet of commercial space.
Development of Phase II infrastructure which consists of 10 "superpads"
encompassing 1,095 residential units commenced in September 1995 and should be
finished in September 1996. The remaining 301 residential acres and 35 acres
for business use are expected to be developed and delivered over the next ten
years. The Company has firm contracts for 22 residential acres and 4.3
commercial acres. Development activities in Puerto Rico are generally not
influenced by seasonal factors.
Utilities, Zoning, Environmental, Seasonality, Competition and Other
Concerns - Development of the Puerto Rico communities requires design and
construction of adequate infrastructure for streets, electrical, water, sewer
and telephone service. The proposed water supply systems for Parque Escorial
and Parque El Comandante will connect with the existing Puerto Rico Aqueduct
and Sewer Authority ("PRASA") system.
For Parque Escorial, PRASA has approved the formation of a combine (the
"Combine") of the Company and two other developers in the Carolina area to make
certain improvements to the existing Canovanas water filter plant (the "Plant")
in order to increase its production by a million gallons per day. The effect
on the Parque Escorial project will be as follows: (i) IGC's share of the
Combine costs is $924,000, (ii) PRASA reserved in its system the total of 1,400
equivalent residential units ("ERU's") to be used by IGC and a major shopping
center; (iii) the special contribution of $4,000 per ERU previously established
by PRASA was reduced to $480 per unit for the first 1,400 units and to $1,000
per unit thereafter.
Parque Escorial and Parque El Comandante are both served by a major six-
lane arterial and other local roads. A planned limited access expressway,
which will be a private toll road, will bisect Parque El Comandante and pass
within one mile of Parque Escorial. The Puerto Rico Highway Authority ("PRHA")
approved Parque Escorial subject to the contribution by the Company and the
buyer of the shopping center site, of approximately $7 million for the
improvement of Highway 3, including an overpass serving Parque Escorial which
is estimated to cost $4.7 million. This amount is payable over the
construction period of the Parque Escorial project. The buyer of the shopping
center has agreed to build the overpass and to pay up to $4.2 million of these
costs.
Parque Escorial and the 500-acre Encantada planned community under
development in the San Juan Metropolitan area are the only master planned
communities at the planning or development stage in Puerto Rico. Encantada is
primarily geared at higher income homebuyers while Parque Escorial will
primarily seek entry level buyers. The developer of Encantada is a homebuilder
and does not sell land to other home builders, whereas IGC plans to build only
a portion of the housing units, and sell the majority of the lots to builders.
7
Due to the scarcity of developable land in the San Juan Metropolitan area,
competition foreseen for Parque Escorial is expected to be primarily from small
walk-up projects being developed in areas considered to be less attractive than
Parque Escorial.
IGC believes that the Parque Escorial Master Plan can be implemented
without material adverse, environmental impact and in compliance with Planning
Board environmental criteria. All of the concerned agencies have endorsed
Parque Escorial's Environmental Impact Statement which was finalized on January
21, 1992. The buyer of the 61-acre shopping center, assisted by LDA, submitted
a mitigation plan for 11.87 acres of wetlands on the shopping center site and
other Parque Escorial land.
Other U.S. Community Developments. The Company has five other sites for
community development in the Washington, D.C. suburban area; Montclair,
Westbury, Brandywine, Middletown and Pomfret.
Montclair, a planned unit development of approximately 4,000 residential
units, was initially undertaken by other developers in 1987. Montclair is
located in Prince William County, Virginia, approximately 28 miles southwest of
Washington, D.C. and is developed around a 108-acre lake. IGC owns the last
remaining developable land in Montclair. In 1995, IGC sold 21 lots under an
option contract with a third party builder and of the remaining 243 lots, 190
are under contract and 53 are being negotiated.
In 1987 IGC purchased Westbury, a 170-acre planned unit development
currently zoned for 150 single-family homes, 600 multi-family units and 16
acres of commercial and industrial property in St. Mary's County near the
Patuxent River Naval Air Station. Development of Phase I commenced in 1988 and
the Company has a sales contract for Phase II. As a result of slower than
anticipated sales of the townhomes, the undeveloped portion of Phase I has been
redesigned to accommodate single-family homes and offered for sale to outside
homebuilders. Until sold, the Company will continue to build and sell homes on
the remaining lots.
IGC is the general partner in a limited partnership that owns a 277-acre
tract of land in Brandywine in Prince George's County, Maryland. The property
was acquired in October 1985 in partial consideration for the regional shopping
mall site in St. Charles. The partnership agreement provides for IGC to
receive reimbursement of expenses, a development fee equal to 5% of development
costs and the first $5,540,000 of net cash proceeds from the property, after
which the remaining proceeds are to be divided equally between IGC and the non-
affiliated limited partners. The Brandywine tract is part of a sectional map
amendment process by the regional planning agency, Maryland-National Capital
Park and Planning ("MNCPP"). The Company's staff and planners have been
working with the MNCPP staff in an effort to achieve approval for a community
of some 1,200 housing units and approximately 400,000 square feet for various
commercial uses. In November of 1994, the Company received preliminary plan
approval for the development of the first 300 of these housing units.
The remaining two sites, Middletown Road and Pomfret are for future
planned unit development and are in the planning process.
Other Puerto Rico Community Development. A master plan for the 539 acre
Parque El Comandante planned community is expected to be submitted to the
Planning Board in 1996. While there can be no assurance as to the
availability, IGC's management believes that there will be sufficient sewer,
water and electrical capacity for the community. The preliminary plan consists
8
of over 3,000 mixed residential units, 100 acres for business use, schools,
parks, community club, and other public uses. The development process is
expected to commence in 1998 and extend over a period of approximately 20
years.
B. HOMEBUILDING
IGC, primarily through AFH, builds semi-custom single-family homes for
homebuyers who own their own land or who intend to purchase land in a location
of their choice. The Semi-Custom Homebuilding Division currently markets its
products in the mid-Atlantic region of the United States. The Company's tract
homebuilding operations construct tract homes on land developed as part of its
community development activities. IGC has built and marketed single-family
detached homes, duplexes and townhomes in its communities of St. Charles,
Montclair, Westbury and in Puerto Rico.
During 1995, the Company restructured its homebuilding division to
reallocate its resources and focus on stronger markets. The management of the
semi-custom operations was streamlined and non-productive locations eliminated.
The Company's U.S. tract homebuilding operations are in the final wind-down
stage and the Puerto Rico homebuilding operations have been reactivated. The
Company formed a joint venture to construct homes in its Puerto Rico planned
community, Parque Escorial.
9
The following table sets forth the number of housing unit sales
(settlements), average sales price, net new orders and backlog orders, units
under construction or completed:
1995 1994 1993
---------- ---------- ---------
Settlements
Semi-custom homebuilding 76 144 125
Tract homebuilding 26 56 91
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Total Settlements 102 200 216
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Average sales price
Semi-custom homebuilding
(does not include land) $ 92,200 $ 84,500 $ 77,600
---------- ---------- ----------
Tract homebuilding $ 146,800 $ 144,700 $ 133,700
---------- ---------- ----------
Net new orders (1)
Semi-custom homebuilding 83 90 150
Tract homebuilding 25 44 82
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Total net new orders 108 134 232
---------- ---------- -----------
Backlog
Semi-custom homebuilding (2) 88 81 135
Tract homebuilding (3) 4 5 17
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Total backlog 92 86 152
---------- ---------- -----------
Unit backlog under construction
Semi-custom homebuilding 38 35 63
Tract homebuilding 24 28 35
---------- ---------- -----------
62 63 98
========== ========== ===========
Backlog dollars $9,037,000 $7,582,000 $13,724,000
========== ========== ===========
Backlog average sales price $ 98,000 $ 96,000 $ 91,000
========== ========== ===========
(1) Net of cancellations primarily due to lack of financing or inability
to sell existing home.
(2) May be cancelled prior to start of construction.
(3) May be cancelled at any time.
The Semi-Custom homebuilding market is directed toward families who own
their own land, thereby eliminating the cost of carrying land inventory.
Typically, these are young "entry level" or older "move-up" buyers attracted by
low to medium sales price homes that can be financed under government insured
and guaranteed programs. The Company plans to continue assisting our
homebuyers in obtaining financing from several unaffiliated mortgage companies
that have provided mortgage loans for its qualified homebuyers. IGC's
operations are subject to building, environmental and other regulations of
various state and local authorities. For its homes to qualify for Federal
Housing Administration ("FHA") or Veterans Administration ("VA") mortgages, IGC
10
must satisfy the valuation standards, site and material requirements of those
agencies.
The Company's sales and marketing program simplifies the process of
building a wide variety of homes on scattered home sites and has on staff
approximately 13 full-time salespersons. The remaining tract homes are listed
with an outside agency. Furnished housing models and sales centers are open
for inspection by prospective purchasers and provide sales literature,
including floor plans, elevations and price information. In addition to
customer referral, radio, newspaper and television advertising are also
utilized throughout the Mid-Atlantic region.
Each home is traditionally built on the home site by skilled craftsmen,
100 percent complete and carrying a 10 year warranty. Construction is performed
by subcontractors under a fixed price contract for labor and materials. The
typical construction period is 90-120 days after receipt of a firm contract.
IGC cannot determine the extent to which necessary building materials will be
available in the future and has, on occasion, experienced shortages of skilled
labor and certain materials within some markets.
Base prices for homes range from $60,000 to $140,000, exclusive of land
costs. There are over 30 floor plans that can be customized for the individual
home buyer, which range in size from 1,000 to 2,200 square feet, include such
standard features as one and two-car garages, family rooms and luxury baths.
Many optional features are also available, including fireplaces, sunrooms,
skylights and outdoor decks and patios.
The homebuilding industry is highly competitive nationwide and includes a
wide variety of builders. An abundant supply of resale homes and rental units
intensifies this condition. To offset these factors, IGC can build a home on
the buyer's lot, usually in a rural area, or on a lot within its own community
development. The housing industry is cyclical and is influenced by various
economic and seasonality factors, for example: consumer confidence, interest
rates, property and federal taxes, demographics and mortgage financing
programs. As a result, IGC's business and operations could be affected by
unanticipated shifts in new home demand resulting from the above factors.
C. DEVELOPMENT AND OWNERSHIP OF INVESTMENT PROPERTIES
Residential Rental Investment Properties. Since 1959, IGC and its predecessors
have been engaged in the development and ownership of residential rental
apartment properties in Puerto Rico, Maryland, Virginia and Washington, D.C.
IGC is a general partner of 29 partnerships that own 32 residential rental
apartment properties, most of which were developed by the Company. In addition
to a general partner interest, IGC holds certain limited partnership interests
in six of these partnerships. Based on these ownership interests, 26 of the
partnerships are recorded under the equity method of accounting and the
accounts and operations of the remaining three partnerships are consolidated
with those of the Company as the Company controls the partnerships.
Based on the terms of the partnership agreements, IGC as general partner,
typically recognizes zero to 5% of profits and losses of the partnerships until
such time as the limited partners have recovered their capital and the
partnerships have accumulated earnings. Thereafter, IGC generally recognizes
50% of the partnerships' profits and losses. The Company's share of revenue
recognized and cash received from these partnerships has fluctuated the last
three years as a result of the Company's efforts to improve the operations of
the properties and escalate the return of equity to its owners.
11
Investment Property Development Activity - For a typical apartment
project, IGC locates the land, conducts a feasibility study, forms a
partnership to acquire the project, arranges for construction and permanent
financing for the project (including governmental mortgage insurance, rent
subsidy or other forms of housing assistance) and provides cost and completion
guarantees. For projects developed through 1986, limited partners were
admitted to the partnerships through syndication at the time the financings for
the projects were closed. For the three projects developed between 1986 and
1992, financing partners, an outsider and Interstate Business Corporation
("IBC"), a general partner of the Company, were admitted into the partnerships.
Limited partners, holding entities for tax credits, were also admitted into the
most recent project developed. The outsider's interests were purchased by the
respective partnerships in 1993.
12
The following table lists the completed apartment projects in which IGC
has an ownership interest:
Financed,
Number of Insured and
Apartment Occupancy at Subsidized
Project Name and Location Units 12/31/95 Under
- ------------------------- --------- -------------- -----------
Apartment Projects Owned by
Partnerships Accounted for Under
the Equity Method of Accounting:
Puerto Rico
Las Americas I (8) 266 93% (1)
Las Americas II (8) 266 96% (1)
Las Lomas (8) 120 99% (2)
Monacillos (8) 266 99% (2)
San Anton 184 99% (2)
Monte de Oro 196 99% (2)
New Center 196 99% (2)
Monserrate I 304 99% (2)
Alturas del Senorial 124 99% (2)
Monserrate II 304 99% (2)
Torre de las Cumbres 155 99% (2)
De Diego 198 99% (2)
Santa Juana 198 99% (2)
Jardines de Caparra 198 99% (2)
Colinas de San Juan 300 99% (2)
Bayamon Gardens 280 99% (2)
Vistas del Turabo 96 99% (2)
Valle del Sol 312 99% (2)
St. Charles, MD
Bannister 208 94% (1,2)
Crossland 96 85% (6)
Palmer 152 88% (4)
Wakefield Third Age 104 99% (1,2)
Wakefield Terrace 204 96% (1,2)
Headen 136 99% (2)
Huntington 204 96% (2)
Coachman's Landing 104 85% (6)
Brookside Gardens 56 92% (7)
Essex Apartments, Richmond, VA 496 98% (2)
Chastleton, Washington, D.C. 300 91% (5)
-----
6,023
Apartment Projects Owned by
Partnerships whose Operations, Assets
and Liabilities are Consolidated
with those of IGC (St. Charles, MD):
Lancaster 104 91% (3)
Fox Chase 176 91% (3)
New Forest 256 88% (3)
-----
6,559
=====
13
(1) Receives interest subsidies under Section 236 of the National Housing Act.
(2) Receives subsidies under Section 8 of the National Housing Act.
(3) Not subsidized, but 51% of the units are subject to income guidelines set
by the Maryland Community Development Administration ("MCDA").
(4) 56 units are subsidized and 96 units are not subsidized, but 51% of the
non-subsidized units are subject to income guidelines MCDA.
(5) Not subsidized, but 60 units are set aside for low to moderate income
tenants under provisions set by the District of Columbia Housing Finance
Agency ("DCHFA").
(6) Not subsidized.
(7) Not subsidized, but all units are set aside for low to moderate income
tenants under provisions set by the Low Income Housing Tax Credit
("LIHTC") program.
(8) Sold in March 1996 under the 1990 Low Income Housing Preservation and
Resident Homeownership Act ("LIHPRHA").
In addition to the completed projects, Lakeside Apartments, a 54 unit
project financed with LIHTC, is under construction and Darby Station, a 127
unit project to be financed with LIHTC is in the pre-development stage.
These apartment properties are financed by non-recourse mortgages. Of the
6,559 apartment units in the various partnerships in both the U.S. and Puerto
Rico, the U.S. Department of Housing and Urban Development ("HUD") provides low
and moderate income subsidies for 5,371 units, mortgage insurance and/or
interest subsidies. Additionally, 56 units located in St. Charles, MD, are
leased to low and moderate income tenants pursuant to the LIHTC program, and
other units are subject to income guidelines set by MCDA.
HUD subsidies are provided principally under Sections 8 and 236 of the
National Housing Act. Under Section 8, the government pays to the owner of the
project the difference between market rental rates (determined in accordance
with government procedures) and the rents that tenants are deemed able to
afford. Under Section 236, the government provides interest subsidies directly
to the owner via a reduction in the project's mortgage interest rate and with a
corresponding reduction in tenant rents. In order to comply with Section 8 and
Section 236 requirements, tenants are screened by IGC for eligibility pursuant
to HUD guidelines. Subsidies are provided under long-term subsidy contracts
between the federal government and the owner/partnerships.
Cash flow from operations is subject to guidelines and limits established
in the regulatory agreements the projects have with HUD, and the Maryland,
Virginia, Puerto Rico and Washington, D.C. housing agencies ("State Finance
Agencies"). The regulatory agreements also define that if the projects have
generated significant cash from operations in amounts exceeding permitted cash
distributions, such excesses must be deposited into restricted escrow accounts
held by the mortgagee and controlled by HUD or the State Financing Agency.
Funds in restricted escrow accounts may be used, with the approval of HUD
and/or the State Finance Agencies, for maintenance and capital improvements.
The Company has refinanced ten projects since December 1993. As a result
of the refinancings of seven properties in Puerto Rico, $24 million of cash
held in restricted residual receipts and replacement reserve accounts was
released. Most of this cash was distributed to the owners of these properties
including IGC with the balance being used to reduce the debt of the apartments.
The reduction of the interest rate on the three U.S. properties refinanced will
result in increased operating cash flow available for distribution.
14
During March 1996, under LIHPRHA, the Company sold four properties to a
non-profit organization for $52,660,000. The Company will continue to manage
these properties. This sale provided approximately $16 million of cash
distributions, repayment of receivables and fees to the Company, substantially
all of which will be used to pay taxes and repay existing debt of IGC.
In November 1994, a LIHPRHA application was filed for a fifth project in
Puerto Rico. The timetable for completing the LIHPRHA processing is
approximately two years. Depending on potential legislation that may be
enacted, management may withdraw the application. Management plans to monitor
the situation closely during this processing period in order to determine the
best course of action for this property.
In addition to these refinancings and sales, the Company has strengthened
its ownership interest in seven U.S. properties through the purchase of the
outside partnership interests in three projects and the transfer of
substantially all of IBC's interest in six projects. IBC's remaining interest
in these projects will be transferred to IGC during 1996.
Competition, Government Regulations and Other Risks - The development of
future projects and existing U.S. and Puerto Rico projects are greatly affected
by changes in government regulations.
The federal government has virtually eliminated subsidy programs for the
new construction of low and moderate income housing by profit-motivated
developers such as IGC. As a result, IGC has developed only six new apartment
projects since 1981, providing for rentals at market rates. IGC is developing
additional unsubsidized apartment projects in St. Charles under the LIHTC
program. One project opened in 1994 and a second is scheduled for completion
in 1996. IGC plans to explore the possibilities of developing such projects in
Puerto Rico.
The expiration date of the subsidy contracts for these properties ranges
from 1997 to 2019. HUD has stated that they do not plan to renew these
contracts and are seeking Congress' authority to convert these contracts to
tenant-based subsidy, in the form of certificates or vouchers. This method
would allow tenants to choose where they wish to reside. This process will
impact owners of subsidized housing by potentially reducing a project's income
stream. IGC plans to maintain the projects in such a fashion as to retain
residents by making IGC apartments the housing of choice. Additionally, HUD is
also seeking authority to work with projects that have both Section 8 contracts
and HUD-insured loans by engaging in a project known as "Portfolio re-
engineering" or "Mark-to-Market". Under this proposal, HUD would assist the
owners of projects that cannot service their loans after the Section 8
contracts have been converted to tenant-based assistance restructure HUD
insured loan. No definite plan has been determined as to how to structure this
process. IGC will monitor the development of this proposal and its impact on
the projects it owns and manages.
Upon the termination or cancellation of the existing subsidy contracts,
IGC may convert units in such projects into condominiums and sell such units if
LIHPRHA is not amended to incorporate these projects under its provisions. The
subsidized apartment projects incorporate features, such as separate utility
metering for each apartment, designed to facilitate such conversion. IGC and
its management have experience in converting non-subsidized projects into
condominiums. IGC's predecessors have converted approximately 1,800 units in
Puerto Rico. There can be no assurance that market conditions will be
favorable for sale or rental at market rates at the time that any subsidy
contracts terminate.
15
IGC's development of investment properties in the United States is
generally influenced by seasonal factors. Due to unfavorable weather
conditions during the winter months, IGC's development activities during this
period are generally limited. The operation of IGC's investment properties in
the United States is not generally influenced by such factors. IGC's
development and operation of investment properties in Puerto Rico is not
generally affected by seasonal factors.
IGC's investment properties in St. Charles compete with other similar
apartment projects in the Charles County area, as well as with other projects
located throughout the greater metropolitan Washington, D.C. area. The
operation of IGC's investment properties in the United States is impacted not
only by the supply and demand for competing rental units within the area, but
also by local market conditions for housing. When market conditions for
housing become favorable to potential buyers due to excess supply or a
softening of home prices, this can adversely impact the market for rental units
such as those owned by IGC. Similarly, when market conditions for housing
deteriorate for potential buyers due to rising interest rates or an increase in
housing prices, the market for IGC's rental units may benefit. At December 31,
1995, the overall apartment occupancy of the U.S. properties was 93%. In
Puerto Rico, IGC's apartment projects compete with similar projects located in
San Juan, Carolina, Guaynabo and Caguas, Puerto Rico. All of the presently
owned IGC Puerto Rico projects have subsidized rent and occupancy has averaged
close to 99% for 3,963 apartments during the past year. As a result of the
rent subsidies, the projects in Puerto Rico are not subject to market
conditions that affect market rate projects.
The value of IGC's residual interest as a general partner is dependent,
among other things, upon the properties being well maintained. Therefore,
replacements and maintenance are done in a timely manner and emphasis is placed
on preventive maintenance. In Puerto Rico, tenant relation specialists perform
regular social work activities, and provide special programs for the elderly
and summer athletic programs for children. In St. Charles, the tenants have
free access to community centers which provide social and athletic facilities.
Through the combination of active property management, property maintenance and
social work programs, IGC seeks to provide quality housing for tenants in its
apartment projects and to maintain the properties in excellent condition for
possible future sale or condominium conversion.
Valuation - Management's estimate of IGC's residual interest as of
December 31, 1995 in the 32 completed projects and net of the projects sold
under LIHPRHA was approximately $61.3 million and $44.9 million, respectively.
The residual interest was based on IGC's receivables and expected share of cash
flow distributions in accordance with the priorities determined in the
partnership agreements, assuming the properties are sold at their estimated
fair market value of $299.6 million. This interest (consisting of investments
in partnerships, working capital loans and long-term receivables) and the
assets and liabilities of the three consolidated apartment partnerships are
carried on the Company's books at approximately $10.3 million at December 31,
1995. At December 31, 1995, IGC's residual interest is assigned as collateral
for loans with the FDIC and NationsBank. Management determined its valuation
estimate from third party appraisals for eleven projects and internal estimates
for the remaining projects based on the discounted cash flow method. This
method takes future projections of net operating income ("NOI") on a cash basis
after debt service and capitalizes the NOI in the year of sale using a rate of
10%. This method also incorporates historical occupancy rates, performance and
current discount rates of 12% on the annual cash flow.
16
Operations Distributed to Unitholders. On February 6, 1995, IGC distributed to
its unitholders its 99% limited partnership interest in Equus Gaming Company
L.P. ("Equus") (the "Equus Distribution"). IGC and its wholly-owned
subsidiary, Equus Management Company ("EMC"), retained the 1% general partner
interest and will continue to manage Equus. Certain directors and officers of
EMC serve as officers and directors of IGMC. For a transitional period
following completion of the Equus Distribution, IGC will provide certain
administrative services and support to Equus pursuant to a Master Support and
Services Agreement (the "Support Agreement"). Equus will reimburse IGC for
costs incurred in providing these services.
Originally formed in September 1993, Equus was restructured as a limited
partnership between IGC and EMC through a series of transactions in August 1994
for the purpose of succeeding to substantially all of IGC's ownership interest
in real estate assets employed in thoroughbred racing and related wagering
businesses. In connection with this restructuring, Equus became the owner of a
67% interest in HDA's profits. Subsequent to the Distribution, in March 1995,
Equus issued additional units to HDA Management Corporation ("HDAMC") in
exchange for another 15% interest in HDA's profits. Housing Development
Associates S.E. ("HDA") owns the El Comandante Race Track ("Race Track"), the
only licensed thoroughbred horse racing facility in Puerto Rico. Pursuant to a
lease agreement, El Comandante Operating Company, Inc. ("ECOC"), an
unaffiliated company, operates the Race Track and related racing operations and
pays rent to HDA, based on 25% of ECOC's share of wagering revenue. The lease
agreement between ECOC and HDA expires on December 14, 2004. Live thoroughbred
horse racing has been conducted continuously at El Comandante since 1976 and at
a predecessor facility since 1957.
Also in connection with this restructuring, an IGC subsidiary, Interstate
General Properties S.E. ("IGP") held a 1% profits interest and 41.65% capital
interest in HDA's profits. On February 7, 1996, IGP transferred to Equus all
of its remaining interest in HDA except for a 1% interest in profits and
capital. IGP provides management services to HDA pursuant to an existing
management agreement.
Equus retained its 100% ownership of the issued and outstanding stock of
Virginia Jockey Club, Inc. ("VJC"), which applied to the Virginia Racing
Commission for licenses to own and operate a thoroughbred horse racing and
wagering facility in Virginia. On October 12, 1994, the Virginia Racing
Commission awarded the Virginia racing licenses to an applicant other than VJC.
VJC appealed the decision of the Virginia Racing Commission to the Circuit
Court of Richmond, which on May 23, 1995 affirmed the award to the other
applicant. VJC has appealed the decision of the Circuit Court to the Virginia
Court of Appeals (the "VJC Appeal"). There can be no assurance that such an
appeal would result in the award of the Virginia Licenses to VJC.
Cable Television. On January 6, 1988, Maryland Cable Limited Partnership
closed the sale of the assets of its cable television system in Charles County,
Maryland to Jones Intercable, Inc. IGC holds a 40% general partnership and a
1% limited partnership interest in Maryland Cable Limited Partnership. In
connection with the sales agreement, IGC earned $207,000, $345,000 and $508,000
of fees in 1995, 1994 and 1993, respectively. The Company is entitled to
receive an additional $2.1 million of fees over the next four years. However,
the majority of these fees are based on building rates. Due to anticipated
moderate rate of growth, the fees expected to be received by the Company are
approximately $1.3 million. These proceeds are pledged as security for a loan
with Citibank.
17
D. MANAGEMENT SERVICES
IGC earns management fees from management of apartment complexes owned by
partnerships in which IGC is the general partner and from management of other
apartment complexes and commercial and industrial properties. The commercial
and industrial properties and most of the other apartments are owned by
affiliates of IGC. Management agreements for the rental apartments owned by
partnerships in which IGC is a general partner call for management fees based
on a percentage of rents ranging from 2.25% to 10.95%. These contracts are for
periods of one or two years and are customarily renewed. Although HUD and the
State Finance Agencies have the right to cancel these contracts with or without
cause, no contracts of IGC have ever been cancelled. Fees for managing other
apartment projects range from 2.5% to 4.5% of rents and fees for managing
commercial and industrial properties are typically 3.5% of gross rents on the
properties.
Management fees for each of the years ended December 31, 1995, 1994 and
1993 were:
1995 1994 1993
---- ---- ----
(In thousands)
Property Management Fees:
Apartment projects $3,368 $2,855 $2,891
Commercial properties 262 253 240
HDA (1) 264 257 593
Refinancing fees -- 142 769
------ ------ ------
$3,894 $3,507 $4,493
====== ====== ======
(1) Until December 15, 1993, this management agreement provided for
payments by HDA of 5% of HDA's rental income as a management fee.
The management agreement was amended on December 15, 1993 to provide
for payment of a $250,000 annual fee, adjusted beginning in 1994 by
the increase in the CPI over the prior year.
INTERSTATE WASTE TECHNOLOGIES, INC.
IGC, engaged in the pre-development of municipal waste facilities, formed
a wholly owned corporation, Interstate Waste Technologies, Inc. ("IWT"), to
pursue contracts with municipalities regarding waste disposal. Three
individuals representing IWT have filed for patent protection for a process
which converts sludge into three useful and saleable products: methanol, sulfur
and an aggregate material. An amended patent application was filed in October
1995 in response to additional information requests from the U.S. Patent
Office. Comments by the U.S. Patent Office on the October 1995 amended patent
application were received in February 1996. Issuance of patents is pending and
there is no assurance that patents for such process will be issued.
IWT's first project was a sludge reduction facility in Carteret, New
Jersey for the Passaic Valley Sewerage Commissioners ("PVSC"). IWT located a
site and entered into a contract with the Borough of Carteret to serve, for a
fee, as a host community. However, on December 31, 1991, the Borough Council
passed a resolution rescinding the Carteret Mayor's authority to enter into the
agreement. IWT commenced legal action seeking a declaratory judgment that the
18
contract was valid and enforceable. In February 1993, the contract was ruled
valid and enforceable. In May 1994, IWT accepted a cash settlement of $750,000
from the Borough of Carteret and its insurers which was recorded as a recovery
of deferred costs. The attempt to invalidate the contract and the lawsuit has
required IWT to discontinue its plans to develop the Carteret project.
IWT responded to a Request for Proposals from Bridgeport, Connecticut for
a regional sludge management facility to dispose of the city's sludge as well
as sludge from other communities. In February 1994, IWT was notified that it
was identified by the city as the preferred vendor for the regional sludge
management facility. In June 1994, IWT and the city executed a host community
agreement. The agreement affirms the willingness of Bridgeport to allow the
sludge management facility to be built in the city. Before construction can
begin on the facility, IWT must acquire long-term sludge disposal service
agreements with sludge generators in the New Jersey-New York-New England
service region of the facility. Negotiation of a sludge disposal service
agreement with the city's wastewater authority is pending the acquisition of
other sludge disposal contracts for the facility.
In March 1995, IWT submitted a Proposal for Solid Waste Recycling Services
to the Solid Waste Management Authority of the Commonwealth of Puerto Rico.
The proposed facility is a 2,640 ton per day plant, using a demonstrated solid
waste processing technology developed in Europe. Continuing discussions with
representatives of the government of Puerto Rico have led to the development of
a draft Letter of Intent.
During 1993, as a result of the legal action discussed above and its
decision to abandon another site, IGC reserved approximately $1,000,000 against
the investment. At December 31, 1995 and 1994, deferred costs regarding waste
technology, net of reserves, were $2,364,000 and $1,798,000, respectively.
E. GENERAL
Employees. IGC had 323 full-time employees as of December 31, 1995 (147 based
in Puerto Rico and 176 in the United States). These employees are engaged in
investment property operations and maintenance, construction, accounting and
other areas. Included among these employees are on-site personnel for various
rental apartment projects of partnerships in which IGC is the management agent.
Employees' salaries (other than executive officers and certain other employees)
related to the properties managed by IGC are funded by the owner partnerships.
IGC intends to continue its practice of contracting out a substantial portion
of land development, project maintenance and construction work.
Significant Customers. No single customer accounted for more than 10% of IGC's
revenues during the year ended December 31, 1995.
ITEM 2. PROPERTIES
IGC owns real property located in Charles County, Maryland; Prince
George's County, Maryland; St. Mary's County, Maryland; Prince William County,
Virginia; North Carolina; South Carolina, Virginia and Puerto Rico. Properties
in Maryland and Puerto Rico are described above in Item 1 and Schedule XI.
ITEM 3. LEGAL PROCEEDINGS
In 1994, the Company filed two claims against Charles County, Maryland and
its County Commissioners in the Maryland Tax Court, a state administrative
19
agency, seeking compensation for school sites that it previously had deeded to
the County. The actions seek to enforce an agreement settling litigation
between the parties that was entered into in 1989 and also rights pursuant to
Charles County law. Under the terms of the settlement agreement, the County
agreed to credit the Company for school sites contributed and also agreed to
repay to the Company any excess school impact fees paid. The Company seeks
$5.5 million, equal to the fair market value of the school sites. The
Company's claims have not yet been decided by the Tax Court.
In a separate proceeding, the Company filed suit in 1990 against Charles
County and the County Commissioners in the Circuit Court for Charles County to
enforce a provision of the same settlement agreement that required the County
to conduct an appropriate water and sewer connection fee study as the basis on
which to set such fees for the St. Charles Communities. On June 22, 1992,
judgment was rendered in favor of the Company. The judgment requires the
County to conduct the appropriate water and sewer connection fee study. In
1995, the Court of Special Appeals of Maryland affirmed the judgment. The
County has indicated that it is now in the course of conducting a water and
sewer connection fee study. The adequacy of the study will be subject to
review by the Company and, if necessary, the courts.
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site and filed suit against the Corps claiming that a prohibition of
development on the entire Site would constitute a governmental taking for which
the Company would be entitled to compensation.
In November 1993, the Company believed that it had an agreement in
principle with the Corps that would settle the Company's claim and permit
commercial development of a portion of the Site. However, in early 1994, the
Company became aware that this matter had been referred to the U.S. Attorney
for the District of Maryland. After conducting a lengthy investigation of the
Company's wetlands practices in St. Charles, in October 1995 a grand jury
convened by the U.S. Attorney charged that certain of the Company's practices
with respect to four parcels, including the Site, constituted criminal
violations of Section 404 of the Clean Water Act. The indictment charged each
of IGC, its affiliate, St. Charles Associates, L.P. ("SCA"), and the Company's
Chairman, James J. Wilson. During the U.S. Attorney's investigation, the Corps
issued additional violation notices relating to filling portions of other
parcels claimed by the Corps to be protected wetlands. In October 1995 the
government filed a civil action in the U.S. District Court for the District of
Maryland charging the Company and Mr. Wilson with violations of the Clean Water
Act. Of the approximately 4,400 acres developed by the Company in St. Charles,
approximately 70 acres are the subject of the civil and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted on
four counts of felony violations of Section 404 of the Clean Water Act.
Sentencing is expected to occur in June 1996. On March 12, 1996, IGC and SCA
received service of process with respect to the civil action. Maximum
statutory penalties possible against each of IGC and SCA under the criminal
action are $50,000 per day for each of four felony violations or,
20
alternatively, twice the pecuniary gain realized by the Company from any
illegal action. The maximum statutory penalty possible under the civil action
is $25,000 per day for each of nine separate violations. In the civil action
the U.S. Attorney also seeks to enjoin the Company from engaging in future
illegal wetlands practices.
Management believes the Company and Mr. Wilson have many strong arguments
to present on appeal of the criminal convictions. Accordingly, the Company and
Mr. Wilson will appeal the criminal convictions and will continue to defend
vigorously against charges in the civil action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
IGC did not submit to its partners or Unitholders any matters for a vote
during the fourth quarter of the year ended December 31, 1995.
21
PART II
ITEM 5. MARKET PRICES AND DISTRIBUTIONS ON UNITS
The IGC Units are traded on the American and the Pacific Stock Exchanges.
The following table sets forth, for the periods indicated, the high and low
sales prices per IGC Unit as reported in the consolidated transaction reporting
system, and cash distributions paid to unitholders during these periods. IGC
Units commenced public trading on February 19, 1987.
Cash Distributions Price Range of IGC Units
------------------ ------------------------
Total Per Unit High Low
----- -------- ----------- ---------
1995 Quarter:
Fourth $ -- $ -- $4-1/8 $2-15/16
Third -- -- 4-3/4 3-1/2
Second -- -- 4-3/8 3-1/4
First -- -- 7-1/2 3-1/4
1994 Quarter:
Fourth $ -- $ -- $8-7/8 $6
Third 516 .05 9-1/4 6-7/8
Second 504 .05 7-5/8 6-1/4
First -- -- 7-7/8 6
As of the close of business on March 1, 1996, there were 336 Unitholders
of record. As of March 1, 1996, the closing price reported by the American
Stock Exchange was $3.25 per unit. This price reflects the market impact of
IGC's distribution of Equus limited partnership units representing a 99%
limited partnership interest in Equus, to IGC Unitholders on February 6, 1995,
as further discussed in Note 4 to the Consolidated Financial Statements
included in Item 8 of this report.
IGC is required by its Third Amended and Restated Limited Partnership
Agreement, as amended, to make cash distributions to limited partners of not
less than 55% of taxable income calculated for public IGC Unitholders as of the
date of IGC's initial public offering. During the years ended December 31,
1995 and 1994, IGC had taxable income (losses) of $1,446,000 and $(1,749,000),
respectively, or $.14 and $(.17), respectively, per unit.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth combined financial data and operating data
for IGC. The following selected income statement and balance sheet data have
been extracted from the audited financial statements of IGC for each of the
years in the five-year period ended December 31, 1995. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
This information should be read in conjunction with, and is qualified in its
entirety by, the consolidated financial statements and related footnotes.
22
IGC SELECTED FINANCIAL AND OPERATING DATA
Years Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per unit amounts)
Income Statement Data
Revenues
Land sales $14,824 $22,296 $13,809 $ 3,359 $ 3,151
Home sales 10,826 20,265 21,884 30,761 33,043
Investment in gaming
properties (80) 7,288 2,358 591 4,881
Equity in earnings from
partnerships and
development fees 2,942 4,960 3,901 2,819 2,135
Apartment rental revenues 4,642 4,538 2,113 -- --
Management and other fees 3,894 3,507 4,493 4,016 3,463
Interest and other income 652 668 773 1,089 1,652
------- ------- ------- ------- -------
Total revenues 37,700 63,522 49,331 42,635 48,325
Provision for wetlands
litigation expenses 4,107 498 -- -- --
Provision for restructuring -- -- -- 15,795 --
Other expenses 35,108 52,872 42,973 41,316 47,716
Income taxes 1,452 3,511 (835)(1) 471 133
Net (loss) income (2,967) 6,641 7,193 (1) (14,947) 476
Net (loss) income per unit (.29) .66 .71 (1) (1.47) .05
Cash distributions per unit -- .10 -- -- --
Years Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance Sheet Data (In thousands)
Assets related to
community development $ 79,558 $ 70,061 $ 78,876 $ 82,686 $ 95,549
Assets related to home
building projects 3,819 4,998 7,566 8,637 15,674
Assets related to
investment properties 36,722 35,608 42,707 23,516 19,132
Total assets 132,093 123,513 140,314 125,523 144,779
Short-term debt
Banks
Recourse 48,836 25,130 39,026 35,174 41,929
Non-recourse 133 122 321 1,142 930
Long-term debt
Banks
Recourse 1,042 15,333 16,113 34,889 35,662
Non-recourse 24,551 26,917 25,501 10,415 10,646
Total liabilities 94,184 82,808 108,069 100,481 104,790
Partners' equity 37,909 40,705 32,245 25,042 39,989
23
(1) Included in this amount is a $1.5 million or $.15 per unit benefit for the
cumulative effect of a change in accounting principle to reflect the
adoption of SFAS No. 109 "Accounting for Income Taxes". See additional
discussion of this change in Note 1 to the Company's consolidated
financial statements included at Item 8.
Years Ended December 31,
----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating Data
Community Development
Residential lots sold 134 228 295 80 81
Residential lots used
by Company 25 44 91 120 140
Commercial and business park
acres sold 20 76 12 1 6
Undeveloped acres sold 2 20 27 46 --
Homebuilding, all locations
Contracts for sale, net of
cancellations 108 134 232 288 284
Number of homes sold 190 200 216 288 284
Backlog at end of period 92 86 152 136 168
Rental apartment units
managed at end of period 8,085 8,085 8,029 7,907 7,933
Units under construction 54 -- 56 -- --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A summary of the Company's operating results is as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Community development $ 6,617 $ 6,707 $ 4,373
Homebuilding (481) 310 1,805
Investment properties and
asset management 7,013 8,479 8,331
Operations distributed
to unitholders (80) 5,527 2,358
Other income and expenses (14,584) (10,871) (10,509)
-------- -------- --------
Net income before provision for
income tax and cumulative effect
of accounting change (1,515) 10,152 6,358
Provision for income tax (1,452) (3,511) (665)
Cumulative benefit of accounting change -- -- 1,500
-------- -------- --------
Net (loss) income $ (2,967) $ 6,641 $ 7,193
======== ======== ========
24
The Company's homebuilding and community development sales continue to be
greatly influenced by consumer confidence, housing demand, prevailing market
interest rates, movements in such rates and expectations about future rates.
Long term interest rates declined in 1993 to their lowest level in
approximately 20 years making entry level housing more affordable to
homebuyers. Even though the rates have remained fairly stable and an adequate
supply is available to the entry-level homebuyer, the economic uncertainties
associated with the federal budget and government furloughs during 1995 and
1996 came at a time when supplies and competition were high in the Washington,
D.C. market. As a result, the profit margins in the region have continued to
decline. Management anticipates the growth of the Washington, D.C.
metropolitan real estate market to be adversely impacted by any future federal
government closings and cutbacks. The Company has seen a significant increased
interest in its U.S. commercial land. The Puerto Rico residential and business
market is stable.
25
Community Development Operations
The following table presents selected community development data:
1995 1994 1993
---- ---- ----
(In thousands, except
units and percentages)
Lots Sold:
Commercial and business parks (acres)
St. Charles 14 15 12
Puerto Rico 6 61 --
Residential lots (units)
St. Charles
Developed single-family lots 113 100 114
Developed townhouse lots -- -- 66
Montclair
Developed townhome lots -- 36 61
Semi-developed multi-family lots 21 69 45
Westbury developed single-family lots -- 22 9
Undeveloped land (acres)
U.S. -- .06 27
Puerto Rico 2 20 --
Average Sales Price:
Commercial and business parks (per acre)
St. Charles $ 273 $ 97 $ 251
Puerto Rico $ 1,029 $ 196 $ --
Residential (per unit)
St. Charles
Developed single-family lots $ 39 $ 45 $ 46
Developed townhouse lots $ -- $ -- $ 25
Montclair
Developed townhome lots $ -- $ 38 $ 36
Semi-developed multi-family lots $ 12 $ 11 $ 8
Westbury developed single-family lots $ -- $ 27 $ 26
Undeveloped land (per acre)
U.S. $ -- $ 31 $ 26
Puerto Rico $ 33 $ 75 $ --
Average Gross Profit Margin:
Commercial and business parks
St. Charles 71% 69% 66%
Puerto Rico 54% 37% --
Residential lots
St. Charles
Developed single-family lots 34% 40% 39%
Developed townhouse lots -- -- 27%
Montclair
Developed townhome lots -- (1%) 5%
Semi-developed townhome lots -- --% 5%
Westbury developed single-family lots -- (1%) 3%
Undeveloped land
U.S. -- 100% 2%
Puerto Rico 26% 41% --
26
Community Development Data (continued)
1995 1994 1993
---- ---- ----
(In thousands, except
units and percentages)
Sales revenue $14,824 $22,296 $13,809
Cost of sales 7,611 14,764 9,228
------- ------- -------
Gross profit 7,213 49% 7,532 34% 4,581 33%
------- ------- -------
Selling and marketing 132 109 86
Minority interest 464 716 122
------- ------- -------
Operating profit $ 6,617 $ 6,707 $ 4,373
======= ======= =======
Interest expense included in cost of sales $ 613 $ 481 $ 1,005
======= ======= =======
In 1995, land sales revenues decreased by $7.5 million or 34% compared to
1994 due primarily to the sales of a shopping center site in Puerto Rico during
1994, which in turn caused 1994 land sales to increase by $8.5 million or 61%
over 1993. Even though the sales revenue decreased in 1995, the per acre
commercial sales price in 1995 increased over 1994 prices which were lower than
1993 prices. These variations are due to the mix of commercial acres versus
industrial and other business use land sales, the size and location of the
property. The average sales price of the residential lots sold in St. Charles
have slowly decreased over the last two years as the remaining lots in the
second village which are smaller and less desirable than the prime lots are
sold. Residential land sales remained slow resulting from increased
competition and slow home sales.
The increase in Community Development gross profit margins to 49% in 1995
versus 34% in the 1994 is due primarily to a heavier mix of the sales
attributable to sales of commercial and business property. Commercial land
sales produce the highest prices but require less development than the business
park and residential land. Commercial sales as a percent of sales revenue were
66%, 57% and 22% for the years ended 1995, 1994, and 1993, respectively. The
gross margins of the residential lots sold during 1995 decreased from those
sold in 1994 due to the lower sales prices as discussed above and the added
carrying costs due to slower than anticipated sales during 1995 and 1994.
Minority interest expense decreased $252,000 to $464,000 in 1995 compared
to $716,000 in 1994. Whereas, minority interest expense increased $594,000 to
$716,000 in 1994 compared to $122,000 in 1993. This fluctuation is
attributable to the decrease or increase in profits generated from the land
sales in Puerto Rico in which a minority partner holds a 20% interest.
27
Homebuilding Operations
The following table presents selected homebuilding data:
1995 1994 1993
---- ---- ----
(In thousands, except units and percentages)
Units Settled:
Semi-Custom
North and South Carolina 30 70 59
Virginia, Maryland and Other 46 74 66
Tract 26 56 (1) 91 (2)
---- ---- ----
102 200 216
==== ==== ====
Net New Orders:
Semi-Custom
North and South Carolina 28 47 79
Virginia, Maryland and Other 55 43 71
Tract 25 44 82
---- ---- ----
108 134 232
Units Backlog: ==== ==== ====
Semi-Custom
North and South Carolina 34 36 59
Virginia, Maryland and Other 54 45 76
Tract 4 5 17
---- ---- ----
92 86 152
==== ==== ====
Unit backlog under construction:
Semi-custom
North and South Carolina 18 14 32
Maryland, Virginia & Other 20 21 31
Tract 24 28 35
---- ---- ----
62 63 98
==== ==== ====
Average Sales Price:
Semi-Custom
(excludes lots) $ 92 $ 84 $ 78
Tract $ 146 $ 144 $ 137
Backlog $ 9,037 $ 7,582 $13,724
======= ======= =======
Backlog average sales price $ 98 $ 96 $ 91
======= ======= =======
Home sales $10,826 $20,265 $21,884
Cost of sales 9,875 18,508 18,880
------- ------- -------
Gross profit 951 9% 1,757 9% 3,004 14%
------- ------- -------
Selling and marketing 1,432 1,447 1,199
------- ------- -------
Operating (loss) profit $ (481) 4% $ 310 1% $ 1,805 8%
======= ======= =======
(1) Includes seven homes sold on lots purchased from third parties.
(2) Includes three homes sold on lots purchased from third parties.
28
The U.S. homebuilding operations were restructured in May 1995.
Management will concentrate its homebuilding efforts on the semi-custom
operations in Virginia and the Carolinas. The semi-custom operations in
Maryland ceased during 1995 and the Company expects to wind-down its tract
homebuilding operations in Maryland by the end of 1996. The Puerto Rico market
is somewhat sheltered from the negative influences affecting the U.S.
operations. The Company, through a joint venture, will expand its homebuilding
operations in Puerto Rico.
Revenues from home sales decreased 53% to $10,826,000 for 1995 from
$20,265,000 for 1994 and from $21,884,000 or 7% from 1993. The primary reason
for the two year decrease is an overall decline in the number of units sold.
The increased focus by the Company on its Semi-Custom homebuilding operations,
the restructuring of the homebuilding management team in 1994 and 1995 and the
reduced availability of townhome lots to the Company's homebuilding division in
St. Charles and Montclair due to lot sales to third party homebuilders,
resulted in a 51% decline in the number of units sold during 1995 as compared
to 1994 and a 38% decline in the number of units sold during 1994 compared to
1993.
Gross profits as a percentage of homebuilding revenues for a particular
period, are a function of various factors including volume, pricing, efficiency
of homebuilding operations, and financing costs (including costs of subsidizing
customer financing, if any). The gross profit margins earned during 1995
increased slightly by .1% to 8.8% from the 8.7% achieved during 1994. Even
though the sales volume declined during 1995, management was able to reduce its
overhead to offset its impact.
The gross profit margins earned during 1994 decreased 36% to 8.7% from the
13.7% achieved during 1993. During 1994, tract homebuilding in southern
Maryland became extremely competitive resulting in builders offering buyer
incentives and reduced prices which caused the profit margins of the area's
projects to decline. As a result of the declining profit margin, management
decided to curtail expansion of any tract homebuilding operations and to
complete the buildout of only those projects which had already commenced.
Certain capitalized overhead costs were written off in 1994, which further
lowered the gross margin.
Investment Properties and Asset Management
1995 1994 1993
---- ---- ----
(In thousands)
Apartment rental revenues $ 4,642 $ 4,538 $ 2,113
Apartment operating expenses 4,465 4,526 2,176
------- ------- -------
Apartment operating income (loss) 177 12 (63)
Equity in earnings from partnerships
and development fees 2,942 4,960 3,901
Management and other fees 3,894 3,507 4,493
------- ------- -------
Total operating profit $ 7,013 $ 8,479 $ 8,331
======= ======= =======
29
Apartment rental revenues and operating expenses represent the results of
operations of the three consolidated apartment projects. Apartment rental
revenues increased $100,000 from 1994 to 1995 due primarily to an increase in
rents and occupancy at the properties. Operating expenses decreased by $61,000
for the same time period due in part to a decrease in the operating contracts
and repair and maintenance costs. Apartment rental revenues and apartment
operating expenses during 1994 increased by $2.4 million each over 1993 due
primarily to the fact that the operating results of Fox Chase and New Forest
were consolidated for all of 1994 compared to being consolidated for only a
portion of 1993. IGC's interest in these partnerships increased to 90% in
August 1993 pursuant to a transfer of interest described in Note 3 to the
Company's Consolidated Financial Statements included in Item 8.
Equity in earnings from partnerships and development fees decreased $2.0
million or 41% during 1995 compared to 1994. These earnings during 1994
increased $1.1 million or 27% as compared to 1993. During 1993, the Company
received developer fees from projects that were refinanced that year. During
1994, the Company received distributions from a partnership that owns four
apartment projects that were refinanced. During 1995 no similar developer fees
or distributions were received.
Management and other fees increased 11% from 1994 to 1995 due to the
recognition in income of reserves on fees earned from the management of certain
apartment projects from a prior period but not determined to be collectible
until 1995. Management fees decreased 22% from 1993 to 1994 due to the receipt
of fees associated with the refinancing of certain projects in 1993. There
were no similar fees received in 1994.
Operations Distributed to Unitholders
1995 1994 1993
---- ---- ----
(In thousands)
Equity in (losses) earnings from
gaming partnerships $ (80) $ 7,288 $2,358
Write-off deferred project costs -- (1,761) --
------ ------- ------
$ (80) $ 5,527 $2,358
====== ======= ======
During February 1995, 99% of the Company's interest in Equus was
distributed to its Unitholders resulting in a $7 million decline in 1995 from
1994 in equity in earnings from gaming partnerships. These 1994 earnings were
$5 million higher than those during 1993. In 1994, revenues from investment in
gaming properties consisted of cash distributions received from HDA of $763,000
and $6.5 million of notes receivable distributed by HDA to IGC. HDA is a
Puerto Rico special partnership and partners in such partnerships are not
liable for losses in excess of their capital investment.
The 1994 write-off of deferred project costs consists of $1,761,000 of
costs associated with the Company's unsuccessful efforts to obtain the license
to construct and operate a Virginia horse racing facility. After the Equus
distribution, IGC's share of any similar write-offs is included with the
Company's share of (losses) earnings.
30
Other Income and Expenses
1995 1994 1993
--------- --------- ---------
(In thousands)
Interest and other income $ 652 $ 668 $ 773
General and administrative expenses (8,326) (8,418) (8,590)
Depreciation and amortization (371) (498) (499)
Interest expense (2,432) (2,125) (2,193)
Provision for wetlands litigation (4,107) (498) --
-------- -------- --------
$(14,584) $(10,871) $(10,509)
======== ======== ========
Interest and other income continued to decrease by 2% during 1995 compared
to 1994 and 14% during 1994 compared to 1993 due to the reduction of the
average outstanding balance of the notes receivable.
General and administrative expenses decreased by approximately $92,000 or
1% during 1995 compared to 1994 and there was a $172,000 decrease during 1994
or 2% compared to 1993. Management continues to focus on cost efficiency and
the reduction of these expenses. The $92,000 general and administrative
expense reduction compared to 1994 can be attributed to the cost recovery of
$273,000 for support provided Equus and a $164,000 reversal of compensation
expense for the net decrease in value of the accrued Unit Appreciation Rights,
offset in part by a $300,000 increase in salaries and benefits and increased
consulting fees. The $172,000 general and administrative expense reduction in
1994 compared to 1993 resulted from the following; reductions in bad debt
expense of $447,000 mostly due to a $562,000 management fee write-off in 1993
versus only $114,000 in 1994, reversal of accrued audit fees provision of
$103,000, Board of Directors $28,000 due to shortfall of outside director, cost
efficiency savings in legal fee $380,000, delivery $12,000 and repairs $12,000.
Offsetting these reductions were salaries and benefits increase $591,000 which
primarily consisted of $264,000 in compensation expense recognized in
connection with the issuance of Unit Appreciation Rights to the Company's
employees, $100,000 due to increased staff levels and $92,000 of relocation
expense.
Depreciation and amortization decreased by approximately $127,000 during
1995 compared to 1994 and only by $1,000 during 1994 compared to 1993. During
1993, certain fixed and intangible assets became fully depreciated or
amortized. This trend continued throughout 1995 while minimal new depreciable
assets have been acquired.
Interest expense increased $307,000 or 14% during 1995 versus 1994 while
interest in 1994 declined by $68,000 or 3% compared to 1993. The increase in
1995 is due to higher interest rates and costs associated with obtaining new
debt and refinancing existing debt. Whereas, in 1994 there was a continued
paydown of the Company's restructure debt resulting in the decline of interest
expense in 1994 versus 1993.
As a result of the environmental legal proceedings discussed in Item 3,
the Company established a $498,000 provision relating to this litigation in
1994. In 1995, the Company increased this provision by $4,107,000.
Provision for Income Taxes and Cumulative Effect of Accounting Change. The
provision for income taxes in 1995 decreased to $1,452,000 compared to
31
$3,511,000 during 1994 which increased from $665,000 during 1993. This
decrease in 1995 and increase in 1994 are attributable to taxable income
resulting from distributions received from partnerships in Puerto Rico that
refinanced their apartment projects and from the sale of a shopping center site
in Puerto Rico during 1994. The implementation of SFAS No. 109 by the Company
during 1993 generated a $1.5 million Puerto Rico income tax benefit which has
been reflected in the Company's 1993 financial statements as the cumulative
effect of an accounting change.
LIQUIDITY AND CAPITAL RESOURCES
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five-acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site and filed suit against the Corps claiming that a prohibition of
development on the entire Site would constitute a governmental taking for which
the Company would be entitled to compensation.
In November 1993, the Company believed that it had an agreement in
principle with the Corps that would settle the Company's claim and permit
commercial development of a portion of the Site. However, in early 1994, the
Company became aware that this matter had been referred to the U.S. Attorney
for the District of Maryland. After conducting a lengthy investigation of the
Company's wetlands practices in St. Charles, in October 1995 a grand jury
convened by the U.S. Attorney charged that certain of the Company's practices
with respect to four parcels, including the Site, constituted criminal
violations of Section 404 of the Clean Water Act. The indictment charged each
of IGC, its affiliate, St. Charles Associates, L.P. ("SCA"), and the Company's
Chairman, James J. Wilson. During the U.S. Attorney's investigation, the Corps
issued additional violation notices relating to filling portions of other
parcels claimed by the Corps to be protected wetlands. In October 1995 the
government filed a civil action in the U.S. District Court for the District of
Maryland charging the Company and Mr. Wilson with violations of the Clean Water
Act. Of the approximately 4,400 acres developed by the Company in St. Charles,
approximately 70 acres are the subject of the civil and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted on
four counts of felony violations of Section 404 of the Clean Water Act.
Sentencing is expected to occur in June 1996. On March 12, 1996, IGC and SCA
received service of process with respect to the civil action. Maximum
statutory penalties possible against each of IGC and SCA under the criminal
action are $50,000 per day for each of four felony violations or,
alternatively, twice the pecuniary gain realized by the Company from any
illegal action. The maximum statutory penalty possible under the civil action
is $25,000 per day for each of nine separate violations. Because the
investigation with regard to the sentencing is ongoing, the Company cannot
determine from what point in time these fines could be assessed. In the civil
action, the U.S. Attorney also seeks to enjoin the Company from engaging in
future illegal wetlands practices.
During 1994 and 1995, the Company recognized approximately $4.6 million in
legal and consulting expenses relating to these matters. Such expenses include
32
a reserve available to cover future anticipated costs of the criminal and civil
actions, including costs of appealing the criminal convictions. The amount of
any fine in the current case cannot be estimated with certainty and as such the
total costs incurred may exceed the amount reserved.
Management believes the Company and Mr. Wilson have many strong arguments
to present on appeal of the criminal convictions. Accordingly, the Company and
Mr. Wilson will appeal the criminal convictions and will continue to defend
vigorously against charges in the civil action.
The Company's loan agreements contain certain restrictive covenants, cross
default provisions and material adverse change in financial condition clauses.
As a result of the Company's conviction on four felony counts of the Clean
Water Act, Signet Bank issued a notice of default by the Company of certain
loan agreement covenants pertaining to $3.3 million of debt. Negotiations of
the terms and conditions of a forbearance agreement are in process. In
addition, a $2.2 million payment was due NationsBank on March 31, 1996.
Negotiations are in process to modify certain terms and conditions of the
loans. Management expects to finalize these amendments and make the principal
curtailment in April 1996. As a result of this notice of default, past due
payment, and unless and until the criminal convictions are reversed on appeal,
$47.3 million of the Company's bank debt could be called into default.
The uncertainty with respect to the amount of penalties has hindered the
Company's ability to secure financing and bonds necessary for the development
of Fairway Village, the third of five villages in the Planned Unit Development
of St. Charles, Maryland. The Company's current inventory of finished lots in
St. Charles is anticipated to be sold during 1996, therefore, the development
of additional lots is necessary to provide inventory for sales in 1997 and
beyond.
As a result of the uncertainty regarding the magnitude of fines, events of
default, multiple loan defaults and uncertainty regarding the ability to obtain
future financing, which may cause the Company to have negative cash flow in
1996, there is substantial doubt about the Company's ability to continue as a
going concern.
The Company has historically met its liquidity requirements principally
from cash flow generated by land and home sales, property management fees,
distributions from HDA and residential rental partnerships and from bank
financing providing funds for development and working capital.
As discussed in Note 4, the Company no longer receives distributions from
HDA, as a result of the Company's distribution of Equus Units representing a
99% limited partnership interest in Equus to IGC Unitholders in February 1995.
In addition, under the terms of IGC's loans, most of the cash generated by U.S.
home and lot sales and distributions from partnerships, including distributions
from partnership refinancings, will be used to further reduce bank loans and
meet debt service requirements. As mentioned above, project financings have
been delayed by the inability to determine the penalties related to the
Company's felony convictions. Given these factors, the Company's ability to
generate cash for overhead, development and other uses is limited.
During the first quarter of 1996, four apartment projects in Puerto Rico
were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). The Company will retain the management
contracts on the four apartments. This sale, after taxes, generated
approximately $11.5 of cash. Approximately $10.2 million of cash proceeds is
33
pledged to curtail bank debt and the remainder will be used to pay legal fees
related to the wetlands convictions and support operations. As a result of the
debt curtailments, the FDIC loan will be paid off and NationsBank will have a
first lien on commercial properties in St. Charles which will have the effect
of improving the Company's cash flow as the release prices under the
NationsBank agreement are less than that of the FDIC.
During 1995, the Company negotiated loan extensions with NationsBank and
Signet Bank. NationsBank has agreed to extend the maturity of its loans until
May 1998. Under the agreement, the extension of the maturity beyond November
30, 1995 was contingent upon a mandatory principal curtailment of $2.2 million
which will be made with the proceeds of the LIHPRHA sale. Signet Bank agreed
to extend the maturity of its loans until September 1996. The balance of the
Signet loans as of December 31, 1995 is $3.3 million. The Company anticipates
it will pay off these loans prior to their maturity with the proceeds from the
sale of commercial and residential land which secure the loans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Interstate General Company L.P.:
We have audited the accompanying consolidated balance sheets of Interstate
General Company L.P. (a Delaware limited partnership) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of (loss)
income, changes in partners' capital and cash flows for each of the three years
in the period ended December 31, 1995. These consolidated financial statements
and the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interstate
General Company L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, because of uncertainties, including substantial monetary
fines, facing the Company from its conviction of violations of The Clean Water
Act and the resultant defaults on substantially all of its recourse bank debt,
there is substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 1 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule
included on pages 72 through 85 of the Form 10-K is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
March 29, 1996
35
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ -----------
REVENUES
Community development-land sales $ 14,824 $ 22,296 $ 13,809
Homebuilding-home sales 10,826 20,265 21,884
Revenues from investment properties
Investment in gaming properties (80) 7,288 2,358
Equity in earnings from partnerships
and development fees 2,942 4,960 3,901
Apartment rental income 4,642 4,538 2,113
Management and other fees,
substantially all from
related entities 3,894 3,507 4,493
Interest and other income 652 668 773
----------- ----------- -----------
Total revenues 37,700 63,522 49,331
----------- ----------- -----------
EXPENSES
Cost of land sales 7,611 14,764 9,228
Cost of home sales 9,875 18,508 18,880
Selling and marketing 1,564 1,556 1,285
General and administrative 8,326 8,418 8,590
Rental apartment expense 4,465 4,526 2,176
Depreciation and amortization 371 498 499
Interest expense 2,432 2,125 2,193
Wetlands litigation expenses 4,107 498 --
Write-off of deferred project costs -- 1,761 --
----------- ----------- -----------
Total expenses 38,751 52,654 42,851
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (1,051) 10,868 6,480
PROVISION FOR INCOME TAXES 1,452 3,511 665
----------- ----------- -----------
(LOSS) INCOME BEFORE MINORITY
INTEREST (2,503) 7,357 5,815
Minority interest (464) (716) (122)
----------- ----------- -----------
NET (LOSS) INCOME BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (2,967) 6,641 5,693
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE -- -- 1,500
----------- ----------- -----------
NET (LOSS) INCOME $ (2,967) $ 6,641 $ 7,193
=========== =========== ===========
The accompanying notes are an integral part
of these consolidated statements.
36
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME (continued)
(In thousands, except per Unit amounts)
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ -----------
PER UNIT AMOUNTS--
NET (LOSS) INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ (.29) $ .66 $ .56
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE -- -- .15
----------- ----------- ------
- -----------
NET (LOSS) INCOME PER UNIT $ (.29) $ .66 $ .71
=========== =========== ===========
NET (LOSS) INCOME
General Partners $ (30) $ 66 $ 71
Limited Partners (2,937) 6,575 7,122
----------- ----------- -----------
$ (2,967) $ 6,641 $ 7,193
=========== =========== ===========
WEIGHTED AVERAGE UNITS
OUTSTANDING 10,255 10,126 10,080
=========== =========== ===========
The accompanying notes are an integral part
of these consolidated statements.
37
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
CASH AND SHORT-TERM INVESTMENTS
Unrestricted $ 3,476 $ 1,120
Restricted 2,125 5,713
-------- --------
5,601 6,833
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 33,088 26,103
St. Charles, Maryland 27,826 26,426
Other United States locations 15,522 16,014
Notes receivable on lot sales and other 3,122 1,518
-------- --------
79,558 70,061
-------- --------
ASSETS RELATED TO HOMEBUILDING PROJECTS
Homebuilding construction and land 3,254 4,384
Investment in joint venture 250 --
Receivables and other 315 614
-------- --------
3,819 4,998
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Investment properties, net of accumulated
depreciation of $5,124 and $4,746, as of
December 31, 1995 and 1994, respectively 23,348 24,499
Investment in residential rental partnerships 10,922 9,976
Other receivables, net of reserves of
$384 and $1,071 as of December 31,
1995 and 1994, respectively 2,452 1,133
-------- --------
36,722 35,608
-------- --------
OTHER ASSETS
Costs in excess of net assets acquired, less
accumulated amortization of $888 and $735
as of December 31, 1995 and 1994, respectively 2,147 2,299
Deferred costs regarding waste technology
and other 2,975 2,126
Property, plant and equipment, less accumulated
depreciation of $2,216 and $1,948 as of
December 31, 1995 and 1994, respectively 1,271 1,588
-------- --------
6,393 6,013
-------- --------
Total assets $132,093 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
38
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities $ 5,719 $ 3,521
Mortgages and notes payable 301 370
Accrued income tax liability - current 464 2,078
Accrued income tax liability - deferred 4,704 2,475
-------- --------
11,188 8,444
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 47,841 36,661
Non-recourse debt 2,034 4,268
Accounts payable, accrued liabilities
and deferred income 3,752 2,728
-------- --------
53,627 43,657
-------- --------
LIABILITIES RELATED TO HOMEBUILDING
Recourse debt 981 2,398
Accounts payable and accrued liabilities 2,746 2,506
-------- --------
3,727 4,904
-------- --------
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt 1,322 1,559
Non-recourse debt 22,650 22,771
Accounts payable and accrued liabilities 1,670 1,473
-------- --------
25,642 25,803
-------- --------
Total liabilities 94,184 82,808
-------- --------
PARTNERS' CAPITAL
General partners' capital 4,292 4,322
Limited partners' capital-10,257 and
10,215 Units issued and outstanding as
of December 31, 1995 and 1994, respectively 33,617 36,383
-------- --------
Total partners' capital 37,909 40,705
-------- --------
Total liabilities and partners' capital $132,093 $123,513
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
39
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands)
General Limited
Partners' Partners'
Capital Capital Total
-------- ----------- -----------
BALANCES, December 31, 1992 $ 84 $24,958 $25,042
Net income for the year 71 7,122 7,193
Employee Unit options exercised -- 10 10
------- ------- -------
BALANCES, December 31, 1993 $ 155 $32,090 $32,245
Net income for the year 66 6,575 6,641
Employee Unit options exercised -- 531 531
Cash distributions to partners (10) (1,010) (1,020)
Capital contribution 4,129 -- 4,129
Assets transferred at general
partner's basis (18) (1,803) (1,821)
------- ------- -------
BALANCES, December 31, 1994 $ 4,322 $36,383 $40,705
Net loss for the year (30) (2,937) (2,967)
Employee and director Unit
options exercised -- 171 171
------- ------- -------
BALANCES, December 31, 1995 $ 4,292 $33,617 $37,909
======= ======= =======
The accompanying notes are an integral part
of these consolidated statements.
40
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (2,967) $ 6,641 $ 7,193
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization
Residential rental properties 680 640 432
Other 872 703 706
Provision for deferred income taxes 729 1,486 275
Equity in earnings of residential
rental partnerships (1,690) (4,250) (1,668)
Equity in losses of gaming
partnerships 80 -- --
Increase in sponsor and
developer fees from
partnerships (390) (323) (902)
Distribution of note receivable
from HDA -- (6,526) --
Cumulative effect of
accounting change -- -- (1,500)
Increase (decrease) in
accounts payable, accrued
liabilities and deferred income 3,348 (201) (825)
Decrease (increase) in
Restricted cash 3,588 (3,126) (2,121)
Community development assets (9,497) 8,711 3,775
Homebuilding assets 1,429 2,568 1,044
------- -------- -------
Net cash (used in) provided by
operating activities (3,818) 6,323 6,409
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in assets related
to investment properties 452 8,768 7,219
(Acquisitions) dispositions
of other assets (1,252) (79) 740
Purchase of residential rental
partnership interest (170) (170) (370)
Investment in homebuilding joint venture (250) -- --
------- -------- -------
Net cash (used in) provided by
investing activities (1,220) 8,519 7,589
------- -------- -------
The accompanying notes are an integral part
of these consolidated statements.
41
INTERSTATE GENERAL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 34,643 7,750 14,003
Payment of debt (27,420) (22,992) (37,119)
Loans from HDA -- -- 8,853
Cash distributions to partners -- (1,020) --
Employee and director Unit
options exercised 171 531 10
------- -------- -------
Net cash provided by (used in)
financing activities 7,394 (15,731) (14,253)
------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 2,356 (889) (255)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR 1,120 2,009 2,264
------- -------- -------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR $ 3,476 $ 1,120 $ 2,009
======= ======== =======
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount
capitalized) $ 2,722 $ 3,787 $ 4,127
Income taxes paid $ 2,250 $ 337 $ --
Non-cash transactions
Land received in exchange for
land sold $ 134 $ -- $ --
Distribution of notes receivable
from partners (1) $ -- $ 10,654 $ --
Acquisition of interest in
apartment partnerships, assets $ -- $ -- $22,641
Acquisition of interest in
apartment partnerships,
liabilities $ -- $ -- $22,532
Deed in lieu of payment of
purchase money mortgage $ -- $ 670 $ --
Partnership interests received in
satisfaction of accounts and notes
receivable from general partner (1) $ -- $ 626 $ --
Accounts and notes receivable, net
of reserves, satisfied via transfer
of partnership interests from
general partner (1) $ -- $ 2,446 $ --
Capital contribution by
general partner (1) $ -- $ 4,129 $ --
(1) See Notes 4 and 9 to these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated statements.
42
INTERSTATE GENERAL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) BASIS OF PRESENTATION AND PRINCIPLES OF ACCOUNTING
On September 26, 1986, Interstate General Company L.P. ("IGC" or "the
Company"), a Delaware limited partnership, was formed, and on December 31,
1986, acquired substantially all of the community development, homebuilding,
investment properties and management services businesses of Interstate General
Business Corporation, Interstate St. Charles, Inc. and a trust for the benefit
of the stockholders of Interstate General Business Corporation (the
"Predecessors"). The assets relating to these businesses were acquired in
exchange for (1) 7,900,000 Units representing assignment of beneficial
ownership of limited partnership interest ("Units"), (2) a 1% general
partnership interest in IGC and (3) the assumption by IGC of certain
indebtedness relating to these businesses. The 1% general partner interest is
shared by the managing general partner, Interstate General Management
Corporation, and Interstate Business Corporation ("IGMC" and "IBC,"
respectively, referred to collectively as the "General Partner") as successors
to Interstate General Business Corporation and Interstate St. Charles, Inc.
Net (loss) income per Unit for the years ended December 31, 1995, 1994 and
1993, is calculated using weighted average Units outstanding. Outstanding
options and warrants to purchase Units and Unit Appreciation Rights do not have
a material dilutive effect on the calculation of earnings per Unit (see Note
11).
The accompanying consolidated financial statements include the accounts of
IGC and all of its subsidiaries, after eliminating intercompany transactions.
Reference to IGC or the Company refers to the consolidated group of entities or
to any one of the individual entities involved. IGC's investments in
partnerships in which IGC's interest is 50% or less are accounted for by the
equity method of accounting.
For purposes of reporting cash flows, cash and short-term investments
include cash on hand, unrestricted deposits with financial institutions and
short-term investments with original maturities of three months or less.
Sales and Profit Recognition
Sales revenues and profits from community development and homebuilding are
recognized at closing, when sufficient down payments have been obtained,
possession and other attributes of ownership have been transferred to the buyer
and IGC has no significant continuing involvement.
Revenues from Investment Properties
Revenues from investment properties include revenues from investments in
gaming properties, equity in earnings from partnerships and development fees
and apartment rental revenues. Revenues from investment in gaming properties
includes equity in earnings from Equus Gaming Company L.P. ("Equus") commencing
February 8, 1995 (See Note 4). Equus' earnings include the operations of
Housing Development Associates S.E. ("HDA"). Prior to that date, revenues from
investment in gaming properties included distributions received by IGC from HDA
and equity in earnings (losses) of HDA, including HDA's equity in earnings
(losses) of El Comandante Operating Company ("ECOC") through August 1, 1994
43
when HDA's ownership interest in ECOC was terminated. Equity in earnings from
partnerships and development fees is comprised of IGC's share of the earnings
(losses) of the residential rental apartment project partnerships accounted for
under the equity method of accounting, income from sponsor and developer fees,
recognition of income resulting from distributions received in excess of the
Company's book basis of the investment in the related partnership, and income
related to a previous investment in a cable television partnership. Apartment
rental revenues include the revenues of three consolidated partnerships owning
apartment complexes.
Management Fees
IGC performs property management services including leasing, maintenance
and accounting for properties owned by affiliated entities. Fees are recorded
in the period in which the services are rendered and/or paid.
Community Development and Homebuilding Inventories
The costs of acquiring and developing land and homebuilding construction
are allocated and charged to cost of sales as the related inventories are sold.
IGC carries land, development and homebuilding costs (including capitalized
interest) at the lower of cost or net realizable value. Net realizable value
is defined as the estimated amount IGC expects to realize in the ordinary
course of business less costs of completion.
Capitalization of Interest
IGC's interest costs related to homebuilding and land assets were
allocated to these assets based on book value. The portion of interest
allocated to land, finished building lots and homebuilding construction during
the development and construction period is capitalized. Remaining interest
costs are expensed. A summary of interest for 1995, 1994 and 1993 is as
follows:
Years Ended December 31,
---------------------------
1995 1994 1993
------ ------- -------
(In thousands)
Expensed $4,620 $4,369 $3,158
Capitalized 3,213 2,770 2,655
------ ------ -------
Total interest incurred $7,833 $7,139 $5,813
====== ======= =======
Investment in Residential Rental Partnerships
IGC's investment in residential rental partnerships consists of long-term
receivables, nominal capital contributions, working capital loans and IGC's
share of unconsolidated partnership income and losses. The working capital
loans are collectible from the first cash flow generated from the operations of
the partnerships. The long-term receivables represent loans to the
partnerships for payment of construction and development costs in excess of the
project mortgages. Substantially all of the long-term receivables are non-
interest bearing and have been discounted at an effective rate of 14% based on
the projected maturity date which will occur upon the refinancing, sale or
other disposition of the partnerships' properties. The discount, which
44
represents deferred sponsor and developer fees, is netted in the consolidated
financial statements against the long-term receivables.
For partnerships syndicated prior to December 31, 1985, IGC amortizes the
discount over the estimated holding period of the properties and begins to
recognize the discount as income at the point when the partnerships have cash
flow that reasonably assures realization of the long-term receivables.
Certain partnerships are accumulating cash from operations in excess of
the maximum distribution amounts permitted by U.S. Department of Housing and
Urban Development ("HUD") and other regulatory authorities. This cash,
accumulated in restricted cash accounts, will be available to pay the long-term
receivables due to IGC and to make cash distributions to IGC and the limited
partners when the partnerships' projects are refinanced or sold.
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is provided principally using the straight-line
method for financial reporting purposes and using accelerated methods for tax
purposes, generally based on a five year service life.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of advertising costs
which include costs of printed materials, signs, displays, general marketing
costs and costs associated with model homes. Advertising costs are expensed as
incurred except for capitalized model home costs which are depreciated over
periods ranging from ten to forty years. Model homes are carried at the lower
of cost less depreciation, or net realizable value.
Income Taxes
IGC is not subject to U.S. income taxes under current law. Its partners
are taxed directly on their share of IGC's income without regard to
distributions, and the partners may generally deduct their share of losses.
The corporate subsidiaries of IGC are subject to tax at the applicable
corporate rates. Furthermore, IGC is subject to Puerto Rico income tax on its
Puerto Rico source income and District of Columbia income tax on its District
of Columbia source income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Changes
On January 1, 1993, the Company implemented Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 changes the method of accounting for income taxes under generally accepted
accounting principles and requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of differences between
financial reporting and tax reporting bases of assets and liabilities, and for
45
net operating loss and tax credit carryforwards. As a result of adopting this
statement, the Company recognized a cumulative benefit due to the change in
accounting principle of $1,500,000 or $.15 per unit as of January 1, 1993.
This benefit is included under the caption "Cumulative Effect of Accounting
Change" in the Consolidated Statement of Income for the year ended December 31,
1993.
In 1995, the Company implemented SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." SFAS No. 107 requires disclosure of the fair
value of certain financial instruments, including cash, evidence of ownership
interests in other entities and contracts that impose either an obligation to
deliver a financial instrument or cash such as loans or notes payable, or a
right to receive a financial instrument or cash such as loans or notes
receivable. The Company's ownership interests in other entities are accounted
for under the equity method of accounting or are consolidated. Investments
accounted for under both of these accounting methods are specifically excluded
from SFAS No. 107 fair value disclosure requirements. IGC has the following
financial instruments: short-term investments, accounts and notes receivables,
long-term debt and non-recourse debt.
The carrying value of short-term investments approximates the fair value
because of the liquid nature of these assets. The notes receivable related to
community development approximate fair value. The other receivables related to
investment properties are considered part of IGC's investment in the
partnerships and are excluded from this requirement. The non-recourse debt in
the Investment Properties relates to HUD insured mortgages for three of the
partnerships. One of the mortgages was refinanced in December 1994; therefore,
management believes the carrying value approximates fair value. The other two
mortgages are expected to be refinanced in 1996. However, due to the nature of
the programs associated with these partnerships, and current market conditions,
the fair market value of the refinanced debt approximates the current book
value of the existing debt. The carrying value of the long-term debt that
relates to homebuilding, community development and investment properties
approximates the fair value, since the notes bear an interest rate based on the
current prime rate plus an additional fixed percentage rate. See Note 7 for
additional information regarding the long-term debt.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 establishes standards for identifying
impairment for long-lived assets and certain identifiable intangibles to be
held and used by an entity. Primarily, if the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss has occurred. An adjustment to reflect
this impairment would be recorded to the extent that an asset's market value
was less than its carrying value. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
plans to adopt SFAS No. 121 by its required effective date and does not expect
adoption to have a material affect on its financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Examples are stock
purchase plans, stock options, restricted stock and stock appreciation rights.
The accounting and disclosure requirements of this statement are effective for
46
transactions entered into after December 15, 1995. The Company will adopt the
disclosure requirements of SFAS No. 123 in fiscal year 1996.
Reclassifications
Certain amounts presented for 1994 in the Consolidated Balance Sheet and
for 1994 and 1993 in the Consolidated Statements of Income and Cash Flows have
been reclassified to conform with the 1995 presentation.
(2) GOING CONCERN AND RELATED MATTERS
In March 1990, the Company received a notice (the "Notice") from the U.S.
Army Corps of Engineers (the "Corps") asserting that unauthorized fill
materials had been placed in portions of an approximately five-acre parcel in
Charles County, Maryland (the "Site") owned by the Company and claimed by the
Corps to constitute wetlands subject to regulation pursuant to the Clean Water
Act. Following receipt of the Notice, the Company ceased development of the
Site and remediated a portion of the Site in accordance with instructions
issued by the Corps. The Company also commenced discussions with the Corps
regarding mitigation plans that would preserve some commercial value for the
Site and filed suit against the Corps claiming that a prohibition of
development on the entire Site would constitute a governmental taking for which
the Company would be entitled to compensation.
In November 1993, the Company believed that it had an agreement in
principle with the Corps that would settle the Company's claim and permit
commercial development of a portion of the Site. However, in early 1994, the
Company became aware that this matter had been referred to the U.S. Attorney
for the District of Maryland. After conducting a lengthy investigation of the
Company's wetlands practices in St. Charles, in October 1995 a grand jury
convened by the U.S. Attorney charged that certain of the Company's practices
with respect to four parcels, including the Site, constituted criminal
violations of Section 404 of the Clean Water Act. The indictment charged each
of IGC, its affiliate, St. Charles Associates, L.P. ("SCA"), and the Company's
Chairman, James J. Wilson. During the U.S. Attorney's investigation, the Corps
issued additional violation notices relating to filling portions of other
parcels claimed by the Corps to be protected wetlands. In October 1995 the
government filed a civil action in the U.S. District Court for the District of
Maryland charging the Company and Mr. Wilson with violations of the Clean Water
Act. Of the approximately 4,400 acres developed by the Company in St. Charles,
approximately 70 acres are the subject of the civil and criminal charges.
On February 29, 1996, each of IGC, SCA and Mr. Wilson were convicted on
four counts of felony violations of Section 404 of the Clean Water Act.
Sentencing is expected to occur in June 1996. On March 12, 1996, IGC and SCA
received service of process with respect to the civil action. Maximum
statutory penalties possible against each of IGC and SCA under the criminal
action are $50,000 per day for each of four felony violations or,
alternatively, twice the pecuniary gain realized by the Company from any
illegal action. The maximum statutory penalty possible under the civil action
is $25,000 per day for each of nine separate violations. Because the
investigation with regard to the sentencing is ongoing, the Company cannot
determine from what point in time these fines could be assessed. In the civil
action, the U.S. Attorney also seeks to enjoin the Company from engaging in
future illegal wetlands practices.
During 1994 and 1995, the Company recognized approximately $4.6 million in
legal and consulting expenses relating to these matters. Such expenses include
47
a reserve available to cover future anticipated costs of the criminal and civil
actions, including costs of appealing the criminal convictions. The amount of
any fine in the current case cannot be estimated with certainty and as such the
total costs incurred may exceed the amount reserved.
Management believes the Company and Mr. Wilson have many strong arguments
to present on appeal of the criminal convictions. Accordingly, the Company and
Mr. Wilson will appeal the criminal convictions and will continue to defend
vigorously against charges in the civil action.
The Company's loan agreements contain certain restrictive covenants, cross
default provisions and material adverse change in financial condition clauses.
As a result of the Company's conviction on four felony counts of the Clean
Water Act, Signet Bank issued a notice of default by the Company of certain
loan agreement covenants pertaining to $3.3 million of debt. Negotiations of
the terms and conditions of a forbearance agreement are in process. In
addition, a $2.2 million payment was due NationsBank on March 31, 1996.
Negotiations are in process to modify certain terms and conditions of the
loans. Management expects to finalize these amendments and make the principal
curtailment in April 1996. As a result of this notice of default, past due
payment, and unless and until the criminal convictions are reversed on appeal,
$47.3 million of the Company's bank debt could be called into default.
The uncertainty with respect to the amount of penalties has hindered the
Company's ability to secure financing and bonds necessary for the development
of Fairway Village, the third of five villages in the Planned Unit Development
of St. Charles, Maryland. The Company's current inventory of finished lots in
St. Charles is anticipated to be sold during 1996, therefore, the development
of additional lots is necessary to provide inventory for sales in 1997 and
beyond.
As a result of the uncertainty regarding the magnitude of fines, events of
default, multiple loan defaults and uncertainty regarding the ability to obtain
future financing, which may cause the Company to have negative cash flow in
1996, there is substantial doubt about the Company's ability to continue as a
going concern.
The Company has historically met its liquidity requirements principally
from cash flow generated by land and home sales, property management fees,
distributions from HDA and residential rental partnerships and from bank
financing providing funds for development and working capital.
As discussed in Note 4, the Company no longer receives distributions from
HDA, as a result of the Company's distribution of Equus Units representing a
99% limited partnership interest in Equus to IGC Unitholders in February 1995.
In addition, under the terms of IGC's loans, most of the cash generated by U.S.
home and lot sales and distributions from partnerships, including distributions
from partnership refinancings, will be used to further reduce bank loans and
meet debt service requirements. As mentioned above, project financings have
been delayed by the inability to determine the penalties related to the
Company's felony convictions. Given these factors, the Company's ability to
generate cash for overhead, development and other uses is limited.
During the first quarter of 1996, four apartment projects in Puerto Rico
were sold under the 1990 Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). The Company will retain the management
contracts on the four apartments. This sale, after taxes, generated
approximately $11.5 of cash. Approximately $10.2 million of cash proceeds is
48
pledged to curtail bank debt and the remainder will be used to pay legal fees
related to the wetlands convictions and support operations. As a result of the
debt curtailments, the FDIC loan will be paid off and NationsBank will have a
first lien on commercial properties in St. Charles which will have the effect
of improving the Company's cash flow as the release prices under the
NationsBank agreement are less than that of the FDIC.
During 1995, the Company negotiated loan extensions with NationsBank and
Signet Bank. NationsBank has agreed to extend the maturity of its loans until
May 1998. Under the agreement, the extension of the maturity beyond November
30, 1995 was contingent upon a mandatory principal curtailment of $2.2 million
which will be made with the proceeds of the LIHPRHA sale. Signet Bank agreed
to extend the maturity of its loans until September 1996. The balance of the
Signet loans as of December 31, 1995 is $3.3 million. The Company anticipates
it will pay off these loans prior to their maturity with the proceeds from the
sale of commercial and residential land which secure the loans.
(3) INVESTMENT IN RESIDENTIAL RENTAL PARTNERSHIPS
As of December 31, 1995, IGC manages and is a general partner in 29 real
estate partnerships which own 32 apartment projects in Puerto Rico, Maryland,
Virginia and Washington, D.C. IGC is also a limited partner in many of these
partnerships. The apartment projects are financed by non-recourse mortgages.
Of the 6,559 rental units in the various partnerships, the Federal Housing
Administration ("FHA") provides subsidies for low and moderate income tenants
in 5,371 units.
During 1991, IGC entered into an agreement with the limited partners of
Lancaster Apartments L.P. ("Lancaster"), the owner of Lancaster Apartments, to
purchase their 99% limited partnership interest over a five-year period,
payable in five annual installments of $170,000 which commenced in 1991. In
1993, 1994 and 1995, the Company's limited partnership interest in Lancaster
increased by 19.8% each year as a result of this agreement, increasing IGC's
ownership interest to 100% at December 31, 1995. IGC's 100% ownership interest
consists of a 1% general partnership interest and 98% limited partnership
interest held directly by IGC, and a 1% limited partnership interest held by
St. Charles Associates Limited Partnership ("SCA"). IGC holds a 99% general
partnership interest in SCA, and IBC holds the 1% limited partnership interest.
As a result of this agreement, the assets, liabilities and results of
operations of Lancaster are consolidated by IGC as of December 31, 1993, 1994
and 1995 and for the years then ended.
IGC, IBC and the Resolution Trust Corporation ("RTC") as Receiver for
Perpetual Savings Bank F.S.B. were general partners in New Forest General
Partnership ("New Forest") and Fox Chase General Partnership ("Fox Chase").
New Forest and Fox Chase each own an apartment project in St. Charles,
Maryland. During August 1993, New Forest and Fox Chase bought the RTC's
general partnership interest for $200,000. The buy-out was funded by surplus
cash in the partnerships and an additional capital contribution from IGC. As a
result of this transaction, IGC became a 90% general partner in both New Forest
and Fox Chase, and accordingly, the Company's December 31, 1993 consolidated
financial statements reflect the operations of Fox Chase and New Forest from
August 20, 1993 and assets and liabilities as of December 31, 1993. The
assets, liabilities and results of operations of Fox Chase and New Forest are
consolidated by IGC as of December 31, 1994 and 1995 and for the years then
ended. Prior to these purchases, the Company accounted for these two
partnerships using the equity method.
49
On December 30, 1994, IGC executed a purchase and sale agreement with IBC
which provided for the transfer of 9.9% general partnership interests in New
Forest and Fox Chase and 49.9% limited partnership interests in four other
partnerships to IGC in satisfaction of $3,722,000 of accounts and notes
receivable due from IBC. The partnerships in which IGC received a 49.9%
limited partnership interest included Wakefield Terrace Associates L.P.
("Terrace"), Wakefield Third Age L.P. ("Third Age"), Palmer Apartments L.P.
("Palmer") and Headen House Associates L.P. ("Headen"). The amount of IBC
receivables satisfied via this transaction was based on the fair market value
of the apartment projects as determined by a third party independent
appraisals. As a result of this transaction, IGC became a 99.9% general
partner in Fox Chase and New Forest and a 49.9% limited partner in Terrace,
Third Age, Palmer and Headen. Fox Chase and New Forest continue to be
consolidated by IGC. IGC's interests in Terrace, Third Age, Palmer and Headen
are accounted for using the equity method since the rights of the unaffiliated
limited partners preclude IGC from controlling these entities. Because IBC and
IGC are under common control, the partnership interests received by IGC were
recorded at IBC's basis in the partnerships prior to the transfer which was
$626,000. The $1.8 million charge to partner's capital represents the
difference between IBC's basis in the partnership interests transferred and
IGC's book basis for the receivables from IBC which were satisfied via this
transaction of $2,446,000, net of reserves.
IGC, as 1% general partner, and SCA, as 99% limited partner, formed
Lakeside Limited Partnership ("Lakeside") on December 22, 1994 for the purpose
of acquiring 1.23 acres of land and developing and operating a 54 unit
retirement rental project. Lakeside purchased the land for $440,000 from IBC
by paying $88,000 in cash and issuing a note for the remaining $352,000. During
1995, IBC assigned the note receivable to IGC in satisfaction of past due
receivables from Coachman's Limited Partnership. The Company collected the
$352,000 receivable due from Lakeside during 1995. Lakeside has been awarded
low income housing tax credits to assist with costs of developing the property.
On December 7, 1995, investors purchased the tax credits in exchange for SCA's
99% interest. At December 31, 1994, the Company's consolidated financial
statements include the assets and liabilities of Lakeside. Pursuant to the
1995 purchase of SCA's 99% interest by unaffiliated investors, Lakeside's
assets and liabilities are not included in the Company's consolidated financial
statements at December 31, 1995, but are accounted for using the equity method.
In March 1996, the Company completed the sale of four of the Puerto Rico
apartment properties. The properties, totaling 918 rental units, were sold to
four affiliates of Producir, Inc., a non-profit organization, with financing
provided by HUD through capital grants authorized by the LIHPRHA. The
apartment properties are Las Americas I, Las Americas II, Las Lomas and
Monacillos. The Company will continue to manage the properties. As a result
of this sale, the Company will recognize approximately $14,500,000 of income.
The combined assets and liabilities of the properties are $13,400,000 and
$15,700,000, respectively, at December 31, 1995. The book value of the
Company's investments in these properties was $454,000 at December 31, 1995.
50
The following table summarizes IGC's investment in residential rental
partnerships accounted for using the equity method of accounting:
DECEMBER 31,
----------------
1995 1994
------ ------
(In thousands)
Long-term receivables, net of deferred income of $3,414
and $3,778 at December 31, 1995 and 1994, respectively $ 3,331 $ 3,368
Investment in partnerships 7,591 6,608
------- -------
$10,922 $ 9,976
======= =======
For the years ended December 31, 1995, 1994 and 1993, IGC recognized
$1,610,000, $4,250,000 and $1,668,000, respectively, of equity in earnings from
these investments. In January and March of 1994, the Company collected
approximately $7.4 million of funds from partnerships in Puerto Rico which
refinanced seven apartment projects. These receipts represented the collection
of long-term receivables and distributions. In addition, the Company
recognized the remaining unamortized sponsor and developer fees of $555,000
from the apartment projects that were refinanced.
The combined condensed statements of income and the combined condensed
statements of cash flows for the years ended December 31, 1995, 1994 and 1993,
and the combined condensed balance sheets as of December 31, 1995 and 1994 are
shown below for the partnerships owning residential rental properties:
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 (1) 1994 (1) 1993 (1)
------------ ----------- -----------
(In thousands)
Revenues $40,835 $41,066 $44,767
------- ------- -------
Operating expenses
Depreciation 6,540 6,276 6,011
Other 33,449 33,437 37,303
------- ------- -------
39,989 39,713 43,314
------- ------- -------
Net income $ 846 $ 1,353 $ 1,453
======= ======= =======
(1) The income and expenses of Fox Chase and New Forest after August 20,
1993 and the income and expenses of Lancaster are excluded from these
statements. The income and expenses for these partnerships were
$2,068,000 and $2,176,000, respectively, for the 1993 periods,
$4,430,000 and $5,050,000, respectively, for the year ended December
31, 1994, and $4,642,000 and $5,025,000, respectively, for the year
ended December 31, 1995. The operations of these partnerships are
consolidated in the Company's consolidated statements of income for
the period August 20, 1993 through December 31, 1993 and for the
years ended December 31, 1995 and 1994.
51
HOUSING PARTNERSHIPS'
COMBINED CONDENSED BALANCE SHEETS
(Unaudited)
A S S E T S
DECEMBER 31,
--------------------------
1995 (1) 1994 (1)
---------- ----------
(In thousands)
Rental apartments, at cost $239,911 $238,969
Accumulated depreciation (100,861) (95,126)
-------- --------
139,050 143,843
-------- --------
Restricted cash and marketable securities:
Residual receipt accounts 6,783 6,286
Replacement reserves and escrows 9,258 10,209
-------- --------
Total restricted cash and marketable securities 16,041 16,495
Cash and certificates of deposit 5,766 4,261
-------- --------
Total cash and marketable securities 21,807 20,756
-------- --------
Other assets 4,583 4,826
-------- --------
Total assets $165,440 $169,425
======== ========
LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31,
--------------------------
1995 (1) 1994 (1)
---------- ----------
(In thousands)
Non-recourse mortgage notes and accrued interest $169,161 $172,561
Loans and interest payable to the Company 8,667 8,640
Other liabilities 15,080 14,331
-------- --------
Total liabilities 192,908 195,532
-------- --------
Partners' capital
Capital contributions, net of distributions (2,839) (514)
Accumulated deficit (24,629) (25,593)
-------- --------
Total partners' capital (27,468) (26,107)
-------- --------
Total liabilities and partners' capital $165,440 $169,425
======== ========
(1) The assets, liabilities and partners' capital of Lancaster, Fox Chase
and New Forest at December 31, 1995 and 1994 are excluded as they are
consolidated in the Company's December 31, 1995 and 1994 financial
statements. The total assets and liabilities of these entities were
$22,564,000 and $26,177,000, respectively, at December 31, 1995, and
$23,153,000 and $26,180,000, respectively, at December 31, 1994.
52
HOUSING PARTNERSHIPS'
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 (2) 1994 (2) 1993 (1)
------------ ----------- -----------
(In thousands)
Revenues $40,835 $41,066 $44,767
------- ------- -------
Cash expenditures
Total expenses 39,989 39,713 43,314
Less - Depreciation (6,540) (6,276) (6,011)
Other non-cash expenses (375) (470) (706)
------- ------- -------
33,074 32,967 36,597
Mortgage principal and capital
additions 4,121 3,696 2,232
------- ------- -------
Total cash expenditures 37,195 36,663 38,829
------- ------- -------
Cash flow before distributions $ 3,640 $ 4,403 $ 5,938
======= ======= =======
(1) The cash flow activity for Lancaster during the period January 1,
1993 to December 31, 1993 and for Fox Chase and New Forest from
August 20, 1993 to December 31, 1993 are excluded from these
statements. These activities are reflected on IGC's Consolidated
Statement of Cash Flows for the year ended December 31, 1993.
(2) Excludes the cash flow activity for Lancaster, Fox Chase and New
Forest for the years ended December 31, 1995 and 1994. This activity
is reflected in IGC's Consolidated Statements of Cash Flows for the
years ended December 31, 1995 and 1994.
The FHA, Puerto Rico Housing Finance Corporation ("PRHFC"), State and
District of Columbia housing agencies and the partnership agreements require
that the accumulation of cash in the partnerships be sufficient to liquidate
all current liabilities before distributions to partners are permitted. Most
of the partnership agreements provide that IGC as general partner receive a
zero to 5% interest in profits, losses and cash flow from operations until such
time as the limited partners have received cash distributions equal to their
capital contributions. Thereafter, IGC generally shares in 50% of cash
distributions from operations.
During 1995, IGC received $73,085 in unauthorized distributions from
Huntington Associates L.P. pursuant to a calculation error. The 1996
distribution was reduced accordingly.
(4) OPERATIONS DISTRIBUTED TO UNITHOLDERS
On February 6, 1995, IGC distributed to its unitholders its 99% limited
partnership interest in Equus (the "Equus Distribution"). IGC and its wholly
owned subsidiary, Equus Management Company ("EMC"), retained the 1% general
partner interest and will continue to manage Equus. Certain directors and
53
officers of EMC serve as officers and directors of IGMC. For a transitional
period following completion of the Equus Distribution, IGC will provide certain
administrative services and support to Equus pursuant to a Master Support and
Services Agreement (the "Support Agreement"). Equus will reimburse IGC for
costs incurred in providing these services.
Originally formed in September 1993, Equus was restructured in 1994 as a
limited partnership between IGC and EMC for the purpose of succeeding to
substantially all of IGC's ownership interest in real estate assets employed in
thoroughbred racing and related wagering businesses. Through a series of
transactions during 1994, 1995 and 1996, Equus holds an 82% interest in HDA.
HDA owns El Comandante Race Track ("El Comandante"), the only licensed
thoroughbred racing facility in Puerto Rico, which it leases to El Comandante
Operating Company, Inc. ("ECOC"), an unaffiliated Puerto Rico nonstock
corporation. ECOC operates El Comandante at its expense and pays rent to HDA
based primarily upon the greater of $7,500,000 or 25% of ECOC's share of
wagering revenues. A director of IGMC and certain officers of IGC serve as a
director and officers of ECOC.
Equus retained its 100% ownership of the issued and outstanding stock of
Virginia Jockey Club Inc., a Virginia corporation ("VJC"), which applied to the
Virginia Racing Commission for licenses to own and operate a thoroughbred horse
racing and wagering facility in Virginia (the "Virginia Licenses"). On October
12, 1994, the Virginia Racing Commission awarded the Virginia Licenses to an
applicant other than VJC. VJC has appealed this decision. As a result of the
Racing Commission's unfavorable decision, the Company wrote off $1.8 million of
deferred project costs associated with VJC's application.
As part of Equus' acquisition of interests in HDA, in 1994 HDA distributed
to its partners, excluding HDAMC, approximately $13.3 million of notes
receivable including interest from Land Development Associates S.E. ("LDA"), a
partnership in which the Company holds an 80% ownership interest. IGC and IBC
received $6.5 million and $4.1 million, respectively, of the notes distributed.
IGC recognized the portion which it received as revenue from investments in
gaming properties and IBC contributed its portion to Equus, who reflected it as
a capital contribution. Equus subsequently transferred its portion of the LDA
notes receivable to IGC. IGC also recognized in 1994 as earnings from
investments in gaming properties an additional $763,000 of cash distributions
received in excess of the Company's basis in HDA. Earnings from investments in
gaming properties recognized in 1993 were generally comprised of IGC's share of
HDA's earnings and cash distributions received in excess of the Company's basis
in HDA.
Because IGC is the 1% general partner of Equus, it accounts for its
investment on the equity method of accounting as of December 31, 1995. At
December 31, 1994 and 1993, IGC's investment in Equus, including Equus'
consolidated investment in VJC, was consolidated in the Company's financial
statements, since IGC owned a majority interest in Equus during those periods.
The Company's investment in HDA was accounted for under the equity method of
accounting during 1994 and 1993 since the Company did not hold the controlling
interest in HDA during those periods.
(5) INTERSTATE WASTE TECHNOLOGIES, INC.
IGC, engaged in the pre-development of municipal waste facilities, formed
a wholly owned corporation, Interstate Waste Technologies, Inc. ("IWT"), to
pursue contracts with municipalities regarding waste treatment. Three
54
individuals representing IWT have filed for patent protection for a process
which converts sludge into three useful and saleable products: methanol, sulfur
and an aggregate material. An amended patent application was filed in October
1995 in response to additional information requests from the U.S. Patent
Office. Comments by the U.S. Patent Office on the October 1995 amended patent
application were received in February 1996. Issuance of patents is pending and
there is no assurance that patents for such process will be issued.
IWT's first project was a sludge reduction facility in Carteret, New
Jersey for the Passaic Valley Sewerage Commissioners ("PVSC"). IWT located a
site and entered into a contract with the Borough of Carteret to serve, for a
fee, as a host community. However, on December 30, 1991, the Borough Council
passed a resolution rescinding the Carteret Mayor's authority to enter into the
agreement. IWT commenced legal action seeking a declaratory judgment that the
contract was valid and enforceable. In February 1993, the contract was ruled
valid and enforceable. In May 1994, IWT accepted a cash settlement of $750,000
from the Borough of Carteret and its insurers which was recorded as a recovery
of deferred costs. The attempt to invalidate the contract and the lawsuit has
required IWT to discontinue its plans to develop the Carteret project.
IWT responded to a Request for Proposals from Bridgeport, Connecticut for
a regional sludge management facility to dispose of the city's sludge as well
as sludge from other communities. In February 1994, IWT was notified that it
was identified by the city as the preferred vendor for the regional sludge
management facility. In June 1994, IWT and the city executed a host community
agreement. The agreement affirms the willingness of Bridgeport to allow the
sludge management facility to be built in the city. Before construction can
begin on the facility, IWT must acquire long-term sludge disposal service
agreements with sludge generators in the New Jersey-New York-New England
service region of the facility. Negotiation of a sludge disposal service
agreement with the city's wastewater authority is pending the acquisition of
other sludge disposal contracts for the facility.
In March 1995, IWT submitted a Proposal for Solid Waste Recycling Services
to the Solid Waste Management Authority of the Commonwealth of Puerto Rico.
The proposed facility is a 2,640 ton per day plant, using a demonstrated solid
waste processing technology developed in Europe. Continuing discussions with
representatives of the government of Puerto Rico have led to the development of
a draft Letter of Intent.
During 1993, as a result of the legal action discussed above and its
decision to abandon another site, IGC reserved approximately $1,000,000 against
the investment. At December 31, 1995 and 1994, deferred costs regarding waste
technology, net of reserves, were $2,364,000 and $1,798,000, respectively.
(6) FEES FROM SALE OF CABLE TELEVISION SYSTEM
IGC is a general and a limited partner in a partnership that owned a cable
television system serving Charles County, Maryland. The assets of this
partnership were sold on January 6, 1988. IGC earned fees of $207,000,
$345,000 and $508,000 during the years ended December 31, 1995, 1994 and 1993,
respectively. IGC is entitled to receive certain fees over the next four
years. These fees are generally earned as collected and are comprised of the
following:
Consulting services for a period of five years, 1988
through 1993, at $250,000 per year with no remaining
balance due at December 31, 1995. Services for this fee
55
included rendering advice and consultation regarding
operations and marketing.
Non-compete fees for a period of 10 years at $115,000 per
year with a remaining balance at December 31, 1995 of
$230,000.
Construction management fees and payment for easements in
St. Charles, Maryland of $3,660,000 based on payments of
$732 per dwelling unit for the first 5,000 dwelling units
where cable is placed, and limited to a 12-year period that
began January 6, 1988. The remaining balance to which IGC
is entitled at December 31, 1995 is $1,866,000. However,
based on recent historical building rates, the Company
anticipates only moderate growth over the remaining life of
the contract, which could reduce the construction
management fees received. The Company expects $1,107,000
of construction management fees will be earned prior to the
expiration of the contract.
These fees are pledged as security for a loan with Citibank.
56
(7) DEBT
The Company's outstanding debt is collateralized primarily by land,
housing and other land improvements, receivables, and investments in
partnerships. The following table summarizes the indebtedness of IGC at
December 31, 1995 and 1994:
Stated Outstanding Balance at:
Maturity Interest December 31, December 31,
Description by Lender Date Rate* 1995 1994
- ------------------------- -------------- -------- ------------- ------------
(In thousands)
Non-recourse debt:
Community Development 12-29-24 to 6.85%-9.875% $22,650 $22,771
Administration (1) 10-01-28
Supra & Co. (8) 08-02-09 P + 1.5% 2,034 4,268
------- -------
Total non-recourse 24,684 27,039
------- -------
Recourse debt:
Citibank (6,12) Demand (9) 1,334 1,559
NationsBank 03-31-96 P + 1%-1.5% 10,725 13,473
(2,4,11,12,14)
Washington Savings From 06-06-96 8%-10% 682 1,153
(2,3,11) to 12-27-96
Riggs National Bank (2) 06-15-96 P + 1.5% 1,205 --
1st National Bank of 09-14-96 to P + 1.5%-10.25% 765 580
St. Mary's (2,3,13) 12-29-97
Signet Bank (2,3,10) 09-01-96 P + 1.5% 3,325 6,533
FDIC (2,4,11) 09-30-96 P + 1% 6,546 8,995
Virginia First 11-16-96 P + 1.5% 339 484
Savings (3)
Wachovia Bank & Trust 11-30-96 to P + .5%-1% 227 428
(2,3,11) 04-26-00
Purchase money 10-28-97 10% 1,000 2,081
mortgage (2)
FirstBank (2,12) 12-31-97 P + 1.5% 17,370 --
Banco Central
Hispano (2) Paid 8.57% -- 5,175
Banco Popular (2,7,12) 12-05-98 P + 1.5% 4,000 --
General (5) From 10-26-96 7.4%-11.5% 566 527
to 05-16-00
Citibank (2,12) 05-05-96 Eurodollar 2,361 --
+ 2.5%
------- -------
Total recourse 50,445 40,988
------- -------
Total debt $75,129 $68,027
======= =======
*P = Prime
57
Balance Sheet Classification
- ----------------------------
Mortgages and notes payable - Recourse debt $ 301 $ 370
Related to community development -
Recourse debt 47,841 36,661
Non-recourse debt 2,034 4,268
Related to homebuilding projects - Recourse debt 981 2,398
Related to investment properties -
Recourse debt 1,322 1,559
Non-recourse debt 22,650 22,771
------- -------
Total debt $75,129 $68,027
======= =======
(1) Collateralized by apartment projects and secured by FHA or the Maryland
Housing Fund.
(2) Collateralized by community development assets.
(3) Collateralized by homebuilding assets.
(4) Collateralized by investment in residential rental partnerships.
(5) Collateralized by other assets.
(6) Collateralized by letter of credit.
(7) Collateralized by a secondary interest in Equus Units owned by IBC.
(8) Minority partner in Puerto Rico land development subsidiary.
(9) The interest rate is not fixed to maturity and is renegotiated on a
periodic basis. The interest rate was 7.05% and 6.70% at December 31,
1995 and December 31, 1994, respectively.
(10) As a result of the wetlands litigation verdict, the financial institution
issued a notice of default. In addition, the Company had not met a March
1, 1996 mandatory principal curtailment, which was subsequently paid.
(11) These loans contain certain covenants requiring the Company to remain in
compliance with applicable laws. Unless reversed on appeal, the wetlands
litigation verdict would result in a default of these covenants.
(12) These loans contain cross default provisions that could be triggered by
the events of default resulting from the wetlands litigation verdict.
(13) These loans contain a provision allowing the financial institution to
call the loan if there has been a material adverse change in the
Company's financial condition.
(14) A March 31, 1996 principal payment was not met. The funds are available
and the payment is expected to be made in April.
Information regarding short-term borrowings is summarized as follows:
1995 1994 1993
------------ ----------- -----------
(In thousands)
Principal outstanding
At year end $49,233 $25,659 $39,347
Weighted average during the year $32,298 $26,092 $35,338
Maximum during the year $58,728 $50,062 $53,840
Interest
Weighted average rate at year end 9.69% 9.63% 7.20%
Weighted average rate during the year 9.86% 8.66% 7.12%
58
Debt matures as follows based upon renewal or expiration date:
December 31,
1995
--------------
(In thousands)
Year of maturity:
1996 $49,233
1997 1,241
1998 171
1999 180
2000 and thereafter 24,304
-------
$75,129
=======
(8) COMMITMENTS AND CONTINGENCIES
IGC is guarantor of letters of credit of $4,569,000, on behalf of
Chastleton Apartments Associates L.P. ("Chastleton") (see Note 9), and
$2,432,000 for completion guarantees regarding land, homebuilding and
investment property development. The letters of credit related to Chastleton
serves as collateral for public and private borrowing arrangements undertaken
by Chastleton. Likewise, the letters of credit related to the land,
homebuilding and investment property development serve as collateral for IGC's
performance guarantee and support borrowing arrangements.
In addition to the letters of credit, IGC shares the general partner
interests in two investment property partnerships with IBC which are currently
experiencing negative cash flow. Under the terms of the partnership agree-
ments, IBC is the primary obligor for funding operating advances. However,
should IBC fail to fulfill its funding obligations, IGC is obligated as a
general partner to provide financial support. This obligation involves varying
degrees of financial exposure in excess of amounts recognized in the
consolidated financial statements.
The National Association of Home Builders has issued a warning that
certain fire-retardant treated plywood commonly used in the roof construction
of multi-family homes may contain a product defect causing accelerated
deterioration of the plywood. Since 1991, the homeowners association of four
projects that IGC had built notified IGC of roof problems that they suspected
were related to such fire-retardant plywood. IGC has completed the replacement
of roofs at one project of 60 units and at another project of 203 units. IGC
is reviewing its records and inspecting the plywood that had been used in the
construction of other IGC projects to determine the nature of the plywood
treatment and the extent of such use. IGC believes that if the plywood used in
any of its projects had been defectively treated, then the liability for repair
or replacement rests primarily with the insurance company, manufacturer or the
provider of the chemical treatment and others involved in the manufacturing
process.
59
(9) RELATED PARTY TRANSACTIONS
James J. Wilson, Chief Executive Officer of the Company, has an ownership
interest in various entities to which IGC provides management services. These
entities and their relationships to IGC are as follows:
IBC or Affiliate IGC
-------------------- --------------------
Limited Limited
and Limited and Limited
General Liability General Liability
Partner Partner Partner Partner
------- ----------- ------- -----------
Chastleton .99% -- .01% --
Coachman's Limited Partnership
("Coachman's") 1% 49% 1% 49%
Santa Maria Associates,
S.E. ("Santa Maria") -- 99% -- 1%
El Monte Properties, S.E.
("El Monte") -- 99% -- 1%
G.L. Limited Partnership
("Rolling Hills") 1% 49% -- --
Village Lake Associates
Limited Partnership
("Village Lake") 99% 1% -- --
Capital Park Associates
("Capital Park") (a) -- -- --
Smallwood Village Associates,
Limited Partnership ("SVA") 1% 51% -- --
Smallwood Village Office
Building Associates Limited
Partnership ("SVOBA") 25% -- -- --
IBC, General Partner of IGC (b) -- -- -- --
Equus (c) -- 32% 1% --
(a) An affiliate of IBC holds notes receivable that are secured by the
existing general partners' interest in the partnership.
(b) IBC, controlled by James J. Wilson, is entitled to representation on
IGMC's board of directors. James J. Wilson and two members of his
immediate family are currently providing this representation.
(c) EMC is the managing general partner of Equus. James J. Wilson
resigned from EMC's board of directors and as Chief Executive Officer
of Equus during March 1996. Two members of his immediate family
represent IBC on EMC's board of directors.
60
Transactions between the above entities and IGC are described in the
following tables. The maximum aggregate outstanding balance due from these
entities at any one time during 1995 and 1994 was $1,503,000 and $2,636,000,
respectively.
REVENUE FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
---------------------------------------------------------
Income Earned
-----------------------------------
Management Developer Adjustment
Fees Fees (a) Interest Total to Reserve Collected
---------- --------- -------- ----- ---------- ----------
Chastleton (b,d) $ 73 $-- $ -- $ 73 $ (71) $ 2
Coachman's (b) 26 -- 23 49 279 328
Santa Maria 67 -- -- 67 -- 67
El Monte 100 -- -- 100 -- 100
Rolling Hills (c,k) 83 -- -- 83 352 435
Village Lake (b) 25 -- -- 25 26 51
Capital Park 239 -- -- 239 -- 239
SVA 55 -- -- 55 3 58
SVOBA 6 -- -- 6 -- 6
IBC 30 -- 33 63 -- 63
------ --- ---- ------ ----- ------
$ 704 $-- $ 56 $ 760 $ 589 $1,349
====== === ==== ====== ===== ======
RECEIVABLES AT DECEMBER 31, 1995
(In thousands)
--------------------------------------------------------------
Outstanding Balance
---------------------------------------------
Working
Manage- Capital Land/
ment Developer Loans Asset Book
Fees Fees (a) (e) Sales Interest Total Reserved Balance
------ --------- ------- ----- -------- ----- -------- -------
Chastleton (h) $347 $-- $ 33 $ -- $ -- $ 380 $(347) $ 33
Coachman's (f) 19 -- 117 -- 18 154 (37) 117
Santa Maria -- -- -- -- -- -- -- --
El Monte 28 -- -- -- -- 28 -- 28
Rolling
Hills (k) 280 -- 3 -- -- 283 -- 283
Village Lake 49 -- 2 -- -- 51 -- 51
Capital Park 24 -- 4 -- -- 28 -- 28
SVA 4 -- 1 -- -- 5 -- 5
SVOBA -- -- -- -- -- -- -- --
IBC (i,j) 3 -- 8 302 33 346 -- 346
Equus (l) -- -- 225 -- -- 225 -- 225
---- --- ---- ---- ---- ------ ----- ------
$754 $-- $393 $302 $ 51 $1,500 $(384) $1,116
==== === ==== ==== ==== ====== ===== ======
61
REVENUE FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands)
-------------------------------------------------------
Income Earned
-----------------------------------
Management Developer Adjustment
Fees Fees (a) Interest Total to Reserve Collected
---------- --------- -------- ----- ---------- ----------
Chastleton (b,d) $ 75 $-- $ -- $ 75 $ (67) $ 8
Coachman's (b) 24 -- 20 44 (44) --
Santa Maria 60 -- -- 60 -- 60
El Monte 99 -- -- 99 -- 99
Rolling Hills (c) 101 -- -- 101 (53) 48
Village Lake (b) 18 -- -- 18 68 86
Capital Park 282 -- -- 282 -- 282
SVA (g) 55 -- 154 209 -- 209
SVOBA 10 -- -- 10 -- 10
IBC 28 -- 26 54 -- 54
---- --- ---- ---- ----- ----
$752 $-- $200 $952 $ (96) $856
==== === ==== ==== ===== ====
RECEIVABLES AT DECEMBER 31, 1994
(In thousands)
--------------------------------------------------------------
Outstanding Balance
---------------------------------------------
Working
Manage- Capital Land/
ment Developer Loans Asset Book
Fees Fees (a) (e) Sales Interest Total Reserved Balance
------ --------- ------- ----- -------- ----- -------- -------
Chastleton (h) $277 $-- $ 30 $ -- $ -- $ 307 $ (277) $ 30
Coachman's (f) 93 -- 211 -- 160 464 (315) 149
Santa Maria 4 -- -- -- -- 4 -- 4
El Monte 13 -- -- -- -- 13 -- 13
Rolling Hills 352 -- 3 -- -- 355 (352) 3
Village Lake 26 -- 1 -- -- 27 (26) 1
Capital Park 18 -- 7 -- -- 25 -- 25
SVA (g) 3 -- -- -- -- 3 (3) --
SVOBA 1 -- -- -- -- 1 -- 1
IBC (i,j) 2 -- -- 302 -- 304 -- 304
---- --- ---- ---- ---- ------ ----- ----
$789 $-- $252 $302 $160 $1,503 $(973) $530
==== === ==== ==== ==== ====== ===== ====
62
REVENUE FOR THE YEAR ENDED DECEMBER 31, 1993
(In thousands)
-------------------------------------------------------
Income Earned
-----------------------------------
Management Developer Adjustment
Fees Fees (a) Interest Total to Reserve Collected
---------- --------- -------- ----- ---------- ----------
Chastleton (b,d) $ 70 $ -- $ -- $ 70 $ (60) $ 10
Coachman's (b) 22 -- 141 163 (163) --
Santa Maria 54 35 -- 89 -- 89
El Monte 93 102 -- 195 -- 195
Rolling Hills (c) 90 -- -- 90 (90) --
Village Lake (b) 8 64 -- 72 (64) 8
Capital Park 238 -- -- 238 -- 238
SVA (g) 54 -- 154 208 (158) 50
SVOBA 10 -- -- 10 -- 10
IBC 28 -- 63 91 (27) 64
---- ---- ---- ------ ----- ----
$667 $201 $358 $1,226 $(562) $664
==== ==== ==== ====== ===== ====
(a) Includes developer and refinancing fees.
(b) The management fee was reduced from 5% to 2.5% until the project has
positive cash flow and has paid all previously accrued management fees.
(c) The management fee was reduced from 4.5% to 2.5% until the project has
positive operating cash flow and has paid all previously accrued
management fees.
(d) Management agreed that it would defer all management fees until Chastleton
had sufficient cash flow to fund operations and to subordinate 50% of its
management fee until IBC has recovered its operating advances.
(e) Working capital loans include operating advances and reimbursements due
for common expenses.
(f) IBC has the funding obligation for operating deficits. Since IGC equally
shares the general and limited partnership interest with IBC, IGC funded a
portion of the deficits.
(g) During 1990, in satisfaction of outstanding advances of $1.7 million due
IGC from IBC, IBC transferred to IGC a $3.8 million note receivable due
from SVA. The interest earned on this receivable is reflected above.
This note was purchased back by IBC on December 30, 1994, as described
below.
(h) IBC has the funding obligation for operating deficits. IGC, also a
general partner, funded $69,000 of 1993 cash deficits, which was repaid to
the Company during 1994. In early 1996, IGC, as general partner, funded
$184,000 of cash deficits to be repaid by IBC during 1996.
(i) IGC is contingently liable under $4.6 million of letters of credit issued
by NationsBank collateralized by land, which secure additional bonds
issued for Chastleton.
(j) During 1989, IBC purchased 5.01 acres of commercial land. IGC accepted a
note receivable for 80% of the $1,092,000 purchase price. The note is
collateralized by IBC's ownership interest in Santa Maria and Village
Lake. On December 23, 1994, Lakeside, a subsidiary of the Company,
purchased the remaining 1.23 acres of this land from IBC for the
development of rental units for senior citizens, for its appraised value
of $440,000. Lakeside paid $88,000 to IBC and issued a note payable for
the remaining $352,000. During the first quarter of 1995, IBC assigned
63
the note receivable due from Lakeside to IGC in satisfaction of past due
receivables from Coachman's. The collection of the majority of the
Coachman's receivables had previously been questionable and $328,000 had
been reserved. This transaction resulted in income recognition of these
reserves during 1995. The Company collected the $352,000 receivable due
from Lakeside during 1995.
(k) The performance of this project has improved and the project is now
producing positive cash flow. During the first quarter of 1995, partial
payments were made of past due management fees owed to the Company. The
collection of the remaining receivable balance is now considered probable
and reserves related to this receivable aggregating $335,000 were
recognized as income during 1995.
(l) IGC provides certain administrative and operational support for Equus
pursuant to the Support Agreement. The Company also is reimbursed for
administrative support provided to Equus' subsidiaries. The amount
charged to Equus pursuant to the Support Agreement was $254,000 for 1995.
In addition, as general partner, IGC advanced funds as needed for working
capital deficits. Prior to 1995, Equus' assets and liabilities and
results of operations were reflected in the Company's consolidated
financial statements.
On December 30, 1994, as discussed in Note 3, IGC executed a purchase and
sale agreement with IBC which provided for the transfer of 9.9% general
partnership interests in New Forest and Fox Chase and 49.9% limited partnership
interests in Terrace, Third Age, Palmer and Headen. IBC retained a 0.1%
interest in Fox Chase and New Forest and a 1.1% interest in Terrace, Third Age,
Palmer and Headen. As a result of this transaction, IGC became a 99.9% general
partner in Fox Chase and New Forest and a 49.9% limited partner in Terrace,
Third Age, Palmer and Headen. Fox Chase and New Forest continue to be
consolidated by IGC. IGC's interests in Terrace, Third Age, Palmer and Headen
are accounted for using the equity method at December 31, 1995 and 1994, since
IGC does not control these entities. Because IBC and IGC are under common
control, the partnership interests received by IGC were recorded at IBC's basis
in the partnerships prior to the transfer. The $1.8 million charge to
partner's capital represents the difference between IBC's basis in the
partnership interests transferred and IGC's book basis for the receivables from
IBC which were satisfied via this transaction.
In addition to the support provided Equus pursuant to the Support
Agreement, the Company provides management services and administrative support
to Equus' subsidiaries, HDA, Galapagos and S & E, and its major tenant, ECOC.
The administrative support is reimbursed as the services are rendered. The
management agreement with HDA continues into December 2004. Upon closing of an
HDA refinancing in December 1993, the management agreement was amended to
reduce the management fee to an annual fee of $250,000, adjusted annually
beginning in 1994 by the percentage increase in the Consumer Price Index
("CPI"). Prior to such amendment, IGC received a management fee equal to 5% of
the HDA's rental income. The HDA management fees earned in 1995, 1994 and 1993
were $264,000, $257,000 and $593,000, respectively. Pursuant to an agreement
with HDA's previous lender, collection of 50% of the fees earned from March
1992 to December 15, 1993 were deferred. IGC collected unpaid fees related to
this provision of $499,000 from the proceeds of the 1993 HDA refinancing.
Pursuant to a consulting agreement effective December 15, 1993, ECOC has
retained as executive management three racing consultants employed by IGC.
ECOC reimburses all of IGC's payroll, bonus, fringe benefits and out-of-pocket
expenses associated with the employment of the consultants, and reimburses IGC
64
for other personnel who from time to time provide services to ECOC. Such
reimbursements are subject to certain limitations on increases in reimbursable
costs during the term of the consulting agreement. ECOC uses certain land
owned by LDA for a sanitary landfill in connection with its operation of the El
Comandante Race Track. LDA has authorized this use, but has reserved the right
to terminate such use if it conflicts with future development by LDA. Jorge
Colon Nevares, a director of IGMC, also serves as a director of ECOC and Thomas
B. Wilson, one of the IBC representatives on IGMC's board of directors, serves
as ECOC's president.
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.
IGC's Puerto Rico executive office has been located in the Doral Building,
owned by El Monte, since November 1991 under a five-year lease providing for a
first-year payment of rent of approximately $187,000 and certain escalations
for increases in the CPI and pro-rata share of operating expenses in years two
through five. Rental expense for the executive office and certain other
property in Puerto Rico leased from affiliates was $218,000, $228,000 and
$206,000 in 1995, 1994 and 1993, respectively. All leases with affiliated
persons are on terms at least as favorable to IGC as that generally available
from unaffiliated persons for comparable property.
IGC and affiliates lease office space from SVA, another of IBC's
commercial properties in which IGC's principal executive offices are located.
The lease was modified during 1995 which reduced the total square feet of
office space leased by IGC and its affiliates from 23,400 square feet to 17,255
square feet at approximately $205,000 per year, subject to adjustment for
inflation. The lease expires in the year 2001 and at IGC's request, IBC has
the obligation to sublease the space for the remainder of the lease. In 1995,
1994 and 1993, IGC's annual rentals from its share of the leases are
approximately $190,000, $190,000 and $181,000, respectively.
American Family Homes, Inc., a wholly owned subsidiary of IGC, leased from
IBC, 3,000 square feet of commercial space which was used for one of its sales
centers. The lease expired on December 31, 1995. Rent expense associated with
this lease was $39,000 and $13,000 in 1995 and 1994, respectively.
In March 1995, IGC executed an agreement for the sale of a commercial
parcel located in the Parque Escorial project in Puerto Rico to an entity
controlled by Jorge Colon Nevares, a director of the Company's managing general
partner, for use in its operations. The terms of the agreement provided for a
purchase price of $3,453,000, of which $693,000 is payable in cash and the
remainder by a mortgage note, collateralized by the land parcel. The terms of
the note provide for interest at a rate of 10% per annum commencing at the
completion of infrastructure. Payments of principal and interest of $27,000
are due monthly commencing May 1, 1995 with the balance of the note payable at
maturity on April 1, 1998.
(10) PROFIT SHARING AND RETIREMENT PLANS
IGC established a retirement plan (the "Retirement Plan") effective
January 1, 1988 for non-union employees of IGC. In 1992, the union employees
were added to the plan. Employees are eligible to participate in the
65
Retirement Plan when they have completed a minimum employment period of
generally one year. IGC's contributions to the Retirement Plan and U.S. Social
Security Plan for eligible employees were equal to 11.65% of basic salaries and
wages for 1995, 1994 and 1993 that were not in excess of the U.S. Social
Security taxable wage base, plus 8% of salaries which exceeded the U.S. Social
Security taxable wage base. Employees' salaries in excess of $150,000,
$150,000 and $236,000, for 1995, 1994 and 1993, respectively, were excluded
from the calculation of contributions. Payments are also made to the
Retirement Plan from IGC contributions to a profit sharing plan, as described
below, and from voluntary contributions by employees.
In 1987, IGC established an incentive compensation plan (the "Profit
Sharing Plan") based on net income of the Company. No contributions were made
for 1995, 1994 or 1993.
(11) UNIT OPTIONS, WARRANTS AND APPRECIATION RIGHTS
IGC maintains Unit option plans for Directors (the "Directors Plan") and
employees (the "Employees Plan"). The Directors Plan is for directors of the
managing general partner who are not officers or employees of the Company or of
any General Partner or affiliate of the Company. The Employees Plan is for
employees of IGC, including employees who are Directors of any general partner
of IGC or of any affiliate of IGC. Activity during 1995 and 1994 is summarized
below:
Directors Employees
--------- ----------------------
Plan Plan Plan
Exercise Exercise Exercise
Price $4 Price $4 Price $2.49
-------- -------- -----------
Options outstanding,
December 31, 1993 45,000 183,550 --
Awarded -- -- --
Exercised (15,000) (117,700) --
Cancelled -- (800) --
------- ------- --------
Options outstanding,
December 31, 1994 30,000 65,050 --
Awarded (1) -- -- 12,600
Exercised (30,000) (11,450) --
Cancelled (1) -- (17,600) --
------- ------- --------
Options outstanding,
December 31, 1995 -- 36,000 12,600
======= ======= ========
(1) As a result of the Equus Distribution, as further discussed in Note
4, the exercise price of options outstanding under the Directors and
Employees Plans which were exercisable, but not exercised, prior to
January 22, 1995 was reduced from $4.00 to $2.49. Such reduction was
calculated based on the percentage decrease between the average
closing price of the Company's Units as reported by the American
Stock Exchange for the twenty trading days immediately preceding the
ex-dividend date of February 7, 1995, and the twenty trading days
immediately following the distribution date of February 6, 1995. The
exercise price of options that were not exercisable until after
66
January 22, 1995 was not adjusted. However, upon exercise, the
holders of such options will receive one Equus Unit for every two IGC
Units. The Equus Units so issued will not be registered under the
federal securities laws and thus not be freely tradeable until three
years following issuance. However, the Equus Units will be issued
with certain "piggy-back" registration rights, pursuant to which
Equus may be obligated to register the Equus units under the federal
securities laws within three years from the Equus Distribution date.
As of December 31, 1995, the dates that options become exercisable and the
expiration dates are as follows:
Employees Options
----------------------------------------
Expiring Expiring Expiring
1-1-99 8-1-01 1-1-03
---------- ---------- ----------
Exercisable:
As of December 31, 1995 12,600 8,000 --
January 1, 1996 -- -- 10,000
March 1, 1996 -- 8,000 --
January 1, 1997 -- -- 10,000
------ ------ ------
12,600 16,000 20,000
====== ====== ======
In 1993, warrants to purchase 100,000 limited partnership Units were
issued to an investment banking firm in connection with a "highly confident
letter" relating to proposed VJC financing. The warrants had an exercise price
of $5.30 per warrant and expire on September 30, 2003. The warrants were
valued at $75,000. Subsequent to the Equus Distribution, the $5.30 exercise
price of the warrants was reduced to $3.60, and the warrant holders were
granted 50,000 limited partnership purchase warrants for Equus Units with an
exercise price of $1.70.
During 1994 and early 1995, IGC adopted amendments to the Directors and
Employees Plans which provided for the issuance of Unit Appreciation Rights to
directors and employees of the Company. Under the terms of the amended plans,
directors and employees may be granted "Unit Appreciation Rights" which entitle
the holder to receive upon exercise, an amount payable in cash, Class A Units
of the Company, other property or some combination thereof, as determined by a
committee of the Directors of the managing general partner, which excludes
directors who are eligible to participate in that particular plan (the
"Committee"). The amount received upon exercise on or after January 20, 1995,
is determined based on the excess of the fair market value of the Company's
Units on the exercise date, plus 50% of the fair market value of Equus Units on
the exercise date, over the base price of the Unit Appreciation Right specified
in the individual rights agreements. Fair market value is defined in each
individual rights agreement but is generally the average of the closing prices
of Units on the principal exchange on which they are traded for the 20 trading
days beginning five trading days before the exercise date and ending on the
14th day after the exercise date. No adjustment was made for Unit Appreciation
Rights exercised prior to January 20, 1995, since prior to such date, the
Company's market price still reflected the value of the Company's interest in
Equus.
67
During 1994, 363,800 Unit Appreciation Rights were awarded to employees of
the Company and none were exercised or cancelled. During 1995, 2,000 rights
were exercised, 140,000 rights were repriced, and none were exercised or
cancelled. No Unit Appreciation Rights were exercised or cancelled during
1994. Compensation expense recognized by the Company in connection with such
awards totalled approximately $264,000 in 1994. In 1995, however, $164,000 of
the expense was recovered due to a decline in the market price of the Units.
No Unit Appreciation Rights have been issued in connection with the Director's
Unit Incentive Plan.
As of December 31, 1995, the dates that Unit Appreciation Rights become
exercisable and their expiration dates are as follows:
Rights Expiring
------------------------------------------------
March 1, May 15, September 1, October 18,
Units Exercisable at: 2004 2004 2004 2004
- --------------------- -------- ------- ------------ -----------
December 31, 1995 12,000
March 1, 1996 20,000
May 15, 1996 29,760
September 1, 1996 8,000
October 18, 1996 7,000
March 1, 1997 20,000
May 15, 1997 29,760
September 1, 1997 8,000
October 18, 1997 7,000
March 1, 1998 20,000
May 15, 1998 29,760
September 1, 1998 8,000
October 18, 1998 7,000
March 1, 1999 20,000
May 15, 1999 29,760
September 1, 1999 8,000
March 1, 2000 20,000
March 1, 2001 20,000
------- ------- ------- -------
120,000 119,040 32,000 33,000
======= ======= ======= =======
As of December 31, 1995, 155,000 IGC Units are reserved for issuance under
the Director's Plan and 1,070,025 Units are reserved for issuance under the
Employees' Plan.
(12) INCOME TAXES
As a U.S. Company doing business in Puerto Rico, IGC is subject to Puerto
Rico income tax on its Puerto Rico based income. The taxes reflected below are
a result of that liability. As discussed in Note 1, the Company adopted SFAS
No. 109 as of January 1, 1993, and the cumulative effect of this change is
reported in the Consolidated Statement of Income for the year ended December
31, 1993. Prior years' financial statements have not been restated to apply
the provisions of SFAS No. 109.
The provision for income taxes amounted to (95.8%), 34.6% and 10.4% of the
income after minority interest and before taxes for the years ended December
68
31, 1995, 1994 and 1993, respectively. The primary reason for the differences
between these rates and the statutory federal income tax rate is due to
partnership income not being taxable at the entity level, noted as follows:
December 31,
-------------------------------------------------
1995 1994 1993
--------------- -------------- --------------
(In thousands, except amounts in %)
% of % of % of
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision (benefit) for
income taxes at the
statutory Federal
income tax rate $1,812 31.5% $5,039 49.6% $2,501 39.3%
Reduction of (benefits)
for partnership income
not taxable to Company (210) (3.6%) (1,110) (10.9%) (1,756) (27.6%)
Other items (150) (2.6%) (418) (4.1%) (80) (1.3%)
------ ------ ------ ------ ------- -----
$1,452 25.3% $3,511 34.6% $ 665 10.4%
====== ====== ====== ====== ======= =====
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
(In thousands)
Currently payable
United States $ -- $ -- $ --
Puerto Rico 723 2,025 390
Deferred 729 1,486 275
------ ------ ----
$1,452 $3,511 $665
====== ====== ====
The components of deferred taxes payable include the following:
AT DECEMBER 31,
------------------------
1995 1994
----------- -----------
(In thousands)
Tax on amortization of deferred income related
to long-term receivables from partnerships
operating in Puerto Rico $2,135 $ 531
Tax on equity in earnings of partnerships
operating in Puerto Rico 562 1,342
Carryforward of Puerto Rico losses -- --
Changes in tax rates and other items -- 602
Tax on land development costs capitalized for book
purposes but deducted currently for tax purposes 1,924 --
Tax on interest income, payable when collected 83 --
------ ------
$4,704 $2,475
====== ======
69
The reconciliation between book income and taxable loss (excluding built-in
gain allocable to Predecessors) is as follows:
December 31,
-------------------------------------------------
1995 1994 1993
--------------- -------------- --------------
(In thousands, except per Unit amounts)
Per Per Per
Total Unit Total Unit Total Unit
------ ------ ------ ------ ------ ------
Net (loss) income
per books $(2,967) $(.29) $ 6,641 $ .66 $7,194 $ .71
Cumulative effect of
change in accounting
principle -- -- -- -- (1,500) (.15)
Built-in gain allocable
to Predecessors:
Current (1,369) (.13) (1,747) (.17) (301) (.03)
Deferred (364) (.04) (323) (.03) (900) (.09)
Difference in income or
losses from subsidiary
partnerships 1,141 .11 (9,828) (.97) (5,427) (.53)
Losses from corporation
subsidiaries not
deductible by the
partnership 2,002 .20 2,221 .22 1,418 .14
Capitalization of general
and administrative
expenses under the
Uniform Capitalization
Rules 315 .03 18 -- 49 --
Deferred income
recognized currently
for tax purposes 349 .03 417 .04 1,057 .10
Difference in cost of sales
due to interest related to
the acquisition of land,
deducted for tax purposes 505 .05 1,663 .16 (1,347) (.13)
Deferred income taxes 729 .07 1,486 .15 275 .03
Losses from restructuring (245) (.02) (1,691) (.17) (1,409) (.14)
Wetland litigation costs
not deducted currently 2,000 .19 -- -- -- --
Other book to tax
reconciling items, none
of which is individually
significant (650) (.06) (606) (.06) (607) (.06)
------- ----- ------- ----- ------- -----
Net taxable income (loss)
per partnership
federal return $ 1,446 .14 $(1,749) $(.17) $(1,498) $(.15)
======= ====== ======= ===== ======= =====
70
Deferred income taxes reflect the "temporary differences" between amounts
of assets and liabilities for financial reporting purposes as determined in
accordance with SFAS No. 109 and such amounts as measured by tax laws. In
determining the impact of SFAS No. 109, which was adopted by the Company during
1993, certain carry-forwards related to Puerto Rico operations were benefitted
as there are no existing uncertainties associated with their realization. The
benefit of implementing SFAS No. 109 has been reported as a $1.5 million
cumulative effect of a change in accounting principle in the accompanying
Consolidated Statement of Income for the year ended December 31, 1993. During
the year ended December 31, 1994, the Company realized the benefit of those
carryforward losses.
On December 22, 1987, the Omnibus Budget Reconciliation Act of 1987 ("the
1987 Act") was signed into law. It contained several provisions relating to
the tax treatment of publicly traded partnerships. Among other things, the
1987 Act provides that publicly traded partnerships will be taxed as
corporations unless at least 90% of their gross income is derived from
qualifying "passive-type" sources. Income qualifying for this purpose includes
interest, dividends, real property income and gains from the sale of real
property. IGC, as an existing partnership publicly traded as of December 17,
1987, has been grandfathered for a 10-year transition period. As such, IGC
will not be taxed as a corporation until 1998 even if it does not meet the
qualifying gross income test, unless a substantial new line of business is
added. IGC expects to be able to comply with the qualifying income test.
Proposed regulations define a new line of business as substantial if the
partnership derives more than 15% of its gross income from that line of
business or if more than 15% (by value) of the partnership's total assets are
used in that line of business. Management believes that its acquisitions
subsequent to the 1987 Act do not constitute new lines of business.
Furthermore, it is management's intention not to enter into any new lines of
business that may impair IGC's tax status as a partnership.
(13) QUARTERLY SUMMARY (UNAUDITED)
IGC's quarterly results are summarized as follows:
Year Ended December 31, 1995
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $10,931 $10,750 $ 7,296 $ 8,723 $37,700
Income (loss) before taxes
and minority interest 976 1,137 (2,311) (853) (1,051)
Net income (loss) 320 1,071 (2,498) (1,860) (2,967)
Per Unit:
Net income (loss) .03 .10 (.24) (.18) (.29)
71
Year Ended December 31, 1994
----------------------------------------------
1st 2nd 3rd 4th Total for
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
(In thousands, except per Unit amounts)
Revenues $12,658 $22,723 $16,768 $11,373 $63,522
Income before taxes
and minority interest 3,091 4,209 3,208 360 10,868
Net income (loss) 2,093 1,672 3,065 (189) 6,641
Per Unit:
Net income (loss) .21 .16 .30 (.02) .66
(14) SUPPLEMENTARY INCOME STATEMENT INFORMATION
Depreciation and amortization expense of intangible assets, pre-operating
costs and similar deferrals totalled $519,000, $388,000 and $358,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
72
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Bannister Apartments $ 3,752 $ 410 $ 4,180 $ 374
Garden Apartments
St. Charles, MD
Palmer Apartments 4,311 471 4,788 345
Garden Apartments
St. Charles, MD
Brookmont Apartments 2,379 162 2,677 209
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 1,493 156 2,487 45
Garden Shared Housing
St. Charles, MD
Headen Apartments 4,909 205 4,765 930
Garden Apartments
St. Charles, MD
Huntington Apartments 7,762 350 8,513 1,492
Garden Apartments
St. Charles, MD
Crossland Apartments 2,209 350 2,697 247
Garden Apartments
St. Charles, MD
Terrace Apartments 5,100 497 5,377 455
Garden Apartments
St. Charles, MD
Lancaster Apartments 4,392 484 4,292 118
Garden Apartments
St. Charles, MD
Fox Chase Apartments 6,361 745 7,014 65
Garden Apartments
St. Charles, MD
New Forest Apartments 11,897 1,229 12,102 305
Garden Apartments
St. Charles, MD
73
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Coachman's Landing Apt. 5,912 572 6,421 (70)
Garden Apartments
St. Charles, MD
Chastleton Apartments 21,081 2,630 23,624 1,255
High Rise Apartments
Washington, D.C.
Essex Village Apts. 16,317 2,667 21,381 798
Garden Apartments
Richmond, VA
Alturas Del Senorial 3,316 345 4,185 105
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 9,621 1,153 12,050 90
Highrise/Garden Apts.
Bayamon, PR
De Diego 6,973 601 6,718 194
Highrise Apts.
Rio Piedras, PR
Monserrate II 11,275 731 11,172 175
Highrise Apts.
Carolina, PR
Santa Juana 7,312 509 6,748 100
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 5,742 466 5,954 111
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 8,572 900 10,742 244
Highrise Apts.
Carolina, PR
Jardines De Caparra 5,139 546 5,719 1,000
Garden Apartments
Bayamon, PR
74
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Las Lomas 1,835 344 2,715 302
Highrise Apts.
Guaynabo, PR
Monacillos Park 4,399 473 5,720 928
Highrise Apts.
Guaynabo, PR
Monserrate I 2,565 543 10,436 136
Highrise Apts.
Carolina, PR
Monte De Oro 954 562 5,217 801
Highrise Apts.
Rio Piedras, PR
New Center 1,020 589 5,702 272
Highrise Apts.
San Juan, PR
Piedras Americas 4,086 550 5,474 507
Highrise Apts.
San Juan, PR
Rio Piedras 4,269 571 4,778 496
Highrise Apts.
San Juan, PR
San Anton 3,050 313 3,525 682
Highrise Apts.
Carolina, PR
Valle Del Sol 11,131 992 14,017 114
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 2,035 354 2,508 465
Highrise Apts.
Caguas, PR
Office Condo 211 0 284 0
East Whitiland Township
Pennsylvania
75
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
INITIAL AND SUBSEQUENT COSTS AND ENCUMBRANCES (continued)
(In thousands)
Bldgs. &
Improve- Subsequent
Description Encumbrances Land ments Costs
- -------------------- ------------ -------- ----------- ----------
Fredericksburg, VA 190 158 95 5
Model Park 1 Model
Raleigh, NC 0 0 75 6
2 Models
----------- ---------- ----------- ----------
Total Properties $ 191,570 $ 21,628 $ 234,152 $ 13,301
=========== ========== =========== ==========
76
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Bannister Apartments $ 410 $ 4,553 $ 4,963 $ 3,584
Garden Apartments
St. Charles, MD
Palmer Apartments 471 5,133 5,604 3,881
Garden Apartments
St. Charles, MD
Brookmont Apartments 162 2,886 3,048 2,220
Garden Apartments
St. Charles, MD
Brookside Gardens Apartments 156 2,533 2,689 109
Garden Shared Housing
St. Charles, MD
Headen Apartments 205 5,694 5,899 3,819
Garden Apartments
St. Charles, MD
Huntington Apartments 350 10,006 10,356 4,797
Garden Apartments
St. Charles, MD
Crossland Apartments 350 2,945 3,295 1,816
Garden Apartments
St. Charles, MD
Terrace Apartments 497 5,832 6,329 4,387
Garden Apartments
St. Charles, MD
Lancaster Apartments 484 4,410 4,894 1,182
Garden Apartments
St. Charles, MD
Fox Chase Apartments 745 7,078 7,823 1,574
Garden Apartments
St. Charles, MD
New Forest Apartments 1,229 12,407 13,636 2,358
Garden Apartments
St. Charles, MD
77
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Coachman's Landing Apt. 572 6,351 6,923 1,036
Garden Apartments
St. Charles, MD
Chastleton Apartments 2,630 24,879 27,509 6,089
High Rise Apartments
Washington, D.C.
Essex Village Apts. 2,667 22,179 24,846 13,974
Garden Apartments
Richmond, VA
Alturas Del Senorial 345 4,290 4,635 1,759
Highrise Apts.
Rio Piedras, PR
Bayamon Gardens 1,153 12,141 13,294 4,441
Highrise/Garden Apts.
Bayamon, PR
De Diego 601 6,913 7,514 2,777
Highrise Apts.
Rio Piedras, PR
Monserrate II 731 11,347 12,078 4,548
Highrise Apts.
Carolina, PR
Santa Juana 509 6,848 7,357 2,763
Highrise Apts.
Caguas, PR
Torre De Las Cumbres 466 6,065 6,531 2,475
Highrise Apts.
Rio Piedras, PR
Colinas De San Juan 900 10,986 11,886 4,086
Highrise Apts.
Carolina, PR
Jardines De Caparra 546 6,719 7,265 2,704
Garden Apartments
Bayamon, PR
78
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Las Lomas 344 3,016 3,360 1,695
Highrise Apts.
Guaynabo, PR
Monacillos Park 473 6,647 7,120 3,662
Highrise Apts.
Guaynabo, PR
Monserrate I 543 10,573 11,116 4,462
Highrise Apts.
Carolina, PR
Monte De Oro 562 6,019 6,581 2,775
Highrise Apts.
Rio Piedras, PR
New Center 589 5,974 6,563 2,711
Highrise Apts.
San Juan, PR
Piedras Americas 550 5,982 6,532 3,430
Highrise Apts.
San Juan, PR
Rio Piedras 571 5,274 5,845 4,208
Highrise Apts.
San Juan, PR
San Anton 313 4,207 4,520 1,973
Highrise Apts.
Carolina, PR
Valle Del Sol 992 14,131 15,123 4,544
Highrise Apts.
Bayamon, PR
Vistas Del Turabo 354 2,971 3,325 976
Highrise Apts.
Caguas, PR
Office Condo 0 284 284 50
East Whitiland Township
Pennsylvania
79
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
TOTAL CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
Bldgs. & Accumulated
Description Land Improvements Total Depreciation
- -------------------- ---- ------------ ----- ------------
Fredericksburg, VA 158 100 258 19
Model Park 1 Model
Raleigh, NC 0 81 81 16
2 Models
---------- ----------- ----------- ----------
Total Properties $ 21,628 $ 247,454 $ 269,082 $ 106,900
========== =========== =========== ==========
NOTE TO TOTAL CAPITALIZED COSTS:
THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES
FOR U.S. AND P.R. PROPERTIES IS $231,092
80
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ------------------
Bannister Apartments 11/30/76 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Palmer Apartments 3/31/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Brookmont Apartments 5/18/79 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Brookside Gardens Apartments 11/10/94 Bldg - 40 Yrs
Garden Shared Housing Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Headen Apartments 10/30/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Huntington Apartments 10/7/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Crossland Apartments 1/13/78 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Terrace Apartments 11/1/79 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Lancaster Apartments 12/31/85 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Fox Chase Apartments 3/31/87 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
New Forest Apartments 6/28/88 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
81
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES (continued)
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ---------------------
Coachman's Landing Apt. 9/5/89 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
St. Charles, MD
Chastleton Apartments 11/7/86 Bldg - 40 Yrs
High Rise Apartments Constructed Bldg Equip - 5/10 Yrs
Washington, D.C.
Essex Village Apts. 1/31/82 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
Richmond, VA
Alturas Del Senorial 11/17/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Rio Piedras, PR
Bayamon Gardens 7/6/81 Bldg - 40 Yrs
Highrise/Garden Apts. Constructed Bldg Equip - 5 Yrs
Bayamon, PR
De Diego 3/20/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Rio Piedras, PR
Monserrate II 1/30/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Carolina, PR
Santa Juana 2/8/80 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Caguas, PR
Torre De Las Cumbres 12/6/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Rio Piedras, PR
Colinas De San Juan 3/20/81 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Carolina, PR
Jardines De Caparra 4/1/80 Bldg - 40 Yrs
Garden Apartments Constructed Bldg Equip - 5 Yrs
Bayamon, PR
82
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES (continued)
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ------------------
Las Lomas 4/5/74 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Guaynabo, PR
Monacillos Park 8/1/74 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Guaynabo, PR
Monserrate I 5/1/79 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Carolina, PR
Monte De Oro 12/1/77 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Rio Piedras, PR
New Center 3/15/78 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
San Juan, PR
Piedras Americas 8/1/73 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
San Juan, PR
Rio Piedras 9/1/72 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
San Juan, PR
San Anton 12/10/74 Bldg - 40 Yrs
Highrise Apts. Acquired Bldg Equip - 5 Yrs
Carolina, PR
Valle Del Sol 3/15/83 Bldg - 40 Yrs
Highrise Apts. Constructed Bldg Equip - 5 Yrs
Bayamon, PR
Vistas Del Turabo 12/30/83 Bldg - 40 Yrs
Highrise Apts. Acquired Bldg Equip - 5 Yrs
Caguas, PR
Office Condo 5/14/90 31.5 Yrs
East Whitiland Township Acquired
Pennsylvania
83
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
DATE CONSTRUCTED OR ACQUIRED AND DEPRECIABLE LIVES (continued)
Date
Constructed
Description or Acquired Depreciable Life
- -------------------- ----------- ---------------------
Fredericksburg, VA 2/23/90 Bldg 5 - 40 Yrs
Model Park 1 Model Acquired
Raleigh, NC 2/23/90 Bldg 5 - 40 Yrs
Model Park 2 Models Acquired
84
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(In thousands)
Real Estate at December 31, 1994 $ 271,344
Additions for 1995:
Improvements 1,999
-----------
Total Additions 1,999
-----------
Deductions for 1995:
Dispositions 917
Other 3,344
-----------
Total Deductions 4,261
-----------
Real Estate at December 31, 1995 $ 269,082
===========
85
INTERSTATE GENERAL COMPANY L.P.
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(In thousands)
Accumulated depreciation at December 31, 1994 $ 86,572
Additions for 1995:
Depreciation expense 21,125
Deductions for 1995:
Dispositions (797)
-----------
Accumulated depreciation at December 31, 1995 $ 106,900
===========
86
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
87
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the name, age and positions with IGC,
Interstate General Management Corporation ("IGMC" or the "Managing General
Partner") and Interstate Business Corporation ("IBC" or the "General Partner")
of each director and executive officer of the Managing General Partner, and
each executive officer and certain key employees of IGC.
Positions with IGC, and
Name Age General Partners
- ---- --- -------------------------------------
James J. Wilson 62 Chairman and Chief Executive Officer
of IGC; Chief Executive Officer and
Director of Managing General Partner
and Chairman and Director of IBC
Gregory G. Kreizenbeck 49 President and Chief Operating Officer
of IGC; Director and President and
Chief Operating Officer of Managing
General Partner
Donald G. Blakeman 63 Executive Vice President of IGC;
Director, Executive Vice President and
Assistant Secretary of Managing
General Partner
John E. Hans 47 Senior Vice President and Chief
Financial Officer of IGC; Director,
Senior Vice President, Chief Financial
Officer and Secretary of Managing
General Partner
Edwin L. Kelly 54 Senior Vice President of IGC; Senior
Vice President and Assistant Secretary
of Managing General Partner
Jorge Colon-Nevares 60 Director of Managing General Partner
Joel H. Cowan 59 Director of Managing General Partner
Francisco Arrivi Cros 48 Senior Vice President of IGC; Senior
Vice President and Assistant Secretary
of Managing General Partner
Donald L. Drew 54 Senior Vice President of IGC
Paul A. Resnik 48 Senior Vice President of IGC and
Managing General Partner
Carlos R. Rodriguez 50 Vice President of IGC
Thomas B. Wilson 33 Director of Managing General Partner
and Executive Vice President of IBC
Barbara A. Wilson 59 Director of Managing General Partner
and Secretary/Treasurer of IBC
88
Under the IGC Partnership Agreement, IBC has the right to designate one-
third of the directors of the Managing General Partner so long as IBC continues
to be a General Partner. To the extent practicable, an additional one-third
must be selected from among persons who are neither affiliates of IGC nor then
existing officers or employees of IGC, any General Partner or any of their
affiliates. The remaining directors must be selected from among persons who
are officers of IGC. Directors are elected annually in April by action of the
directors then holding office. Messrs. Colon-Nevares and Cowan currently serve
as the unaffiliated directors. Messrs. James J. and Thomas B. Wilson and Mrs.
Barbara A. Wilson serve as the IBC director designates, and Messrs. Blakeman,
Hans, and Kreizenbeck serve as the directors selected from among the executive
officers of IGC. The unaffiliated directors do not constitute a majority of
IGMC's Board of Directors.
Directors of the Managing General Partner and IBC serve for a term of one
year and thereafter until their successors have been elected. The board of
directors of the Managing General Partner is empowered to elect its successors.
Officers of the Managing General Partner and IBC are elected by their
respective boards of directors to serve at the discretion of such boards of
directors. Officers of IGC are appointed by the Managing General Partner to
serve at its discretion.
Certain additional information concerning the above persons, including
their business experience is set forth below.
James J. Wilson became Chairman and Chief Executive Officer of IGC in
April 1994. Prior to that time, he served as President and Chief Executive
Officer of IGC. He has been President and Chairman of the Board of the
Managing General Partner since its formation in 1986. He is the founder of IBC
and its predecessor companies, and has served as Chairman of the Board,
President and Chief Executive Officer of those companies since 1957. As stated
in Item I of this document and the accompanying financial statements, Mr.
Wilson was named in a litigation matter with the U.S. Army Corps of Engineers.
On February 29, 1996, Mr. Wilson, along with IGC and SCA, was convicted on four
felony counts of violating Section 404 (wetlands) of the U.S. Clean Water Act.
Mr. Wilson intends to appeal the conviction. Sentencing is expected to occur
in June 1996.
Gregory G. Kreizenbeck has been President and Chief Operating Officer of
IGC and Director since March 1994 and President and Chief Operating Officer of
the Managing General Partner since December 1995. From 1990 to March 1994, he
was founder and principal of The Kreizenbeck Group, a real estate consulting
firm. From 1986 to 1990, he was President and Chief Executive Officer of
Transcontinental Properties. From 1970 to 1986, he served in various
management positions with J.A. Terteling & Sons, Inc., a San Francisco-based
private investment firm, including President and Chief Executive Officer of
Terteling Ventures, Inc. from 1984 to 1986. He is also a member of the
advisory board of Findings, Inc., a New Hampshire-based jewelry manufacturer,
sales and distribution company. Mr. Kreizenbeck is also a Director and Senior
Vice President and Secretary of EMC, and Senior Vice President and Secretary of
Equus.
Donald G. Blakeman has been Executive Vice President of IGC and a Director
and Executive Vice President of the Managing General Partner since their
formation in 1986. He served as Secretary of the Managing General Partner from
December 1990 to December 1995, when he was named Assistant Secretary. He was
a Director of IBC and its predecessor companies from 1970 to 1990 and served in
89
various executive positions in those companies since 1968. Mr. Blakeman was
named President of Equus and of EMC in February 1996 and has served as a
Director for EMC since its formation in 1994. Mr. Blakeman is also Director
and President of El Comandante Capital Corp. ("ECCC"), a wholly owned
subsidiary of HDA, and has served in such capacity since December 1993.
John E. Hans has been Senior Vice President and Chief Financial Officer of
IGC since September 1994. In December 1995, he was named Director, Senior Vice
President, Chief Financial Officer and Secretary of the Managing General
Partner. Previously, he served as Senior Vice President and Assistant
Secretary of the Managing General Partner since September 1994. He is also a
Director, Senior Vice President and Secretary/Treasurer of American Family
Homes, and Director, Senior Vice President and Chief Financial Officer of both
Equus and EMC. Prior to joining IGC, Mr. Hans served as Chief Operating and
Chief Financial Officer of NB Engineering. Mr. Hans also was employed by Riggs
National Bank of Washington, D.C. for 24 years, including three years as its
Chief Financial Officer, Executive Vice President and a member of its Board of
Directors.
Edwin L. Kelly has been Senior Vice President and Treasurer of IGC and
Senior Vice President of the Managing General Partner since their formation in
1986. He has served in various executive positions with IGC and its
predecessor companies since 1974, including as a Director of the Managing
General Partner from 1986 to 1995.
Jorge Colon-Nevares has been a Director of the Managing General Partner
since May 1989. He also serves as Director of El Comandante Operating Company
("ECOC"). Since 1978, he has been President and Chief Executive Officer of
Wendco of Puerto Rico, Inc., the franchisee of Wendy's for Puerto Rico. He is
an officer and Director of Multisystems Restaurants Inc. and Twenty First
Century Restaurants Inc., the franchisee for Sizzler and T.G.I. Friday's in
Puerto Rico. He is a Director of the Foundation for the University of Puerto
Rico and Chairman of the Board of Trustees for Universidad Central del Caribe
School of Medicine.
Joel H. Cowan has been a Director of the Managing General Partner since
its formation in 1986. He was also a Director of predecessors of IGC from 1968
to 1986. He has been President of Cowan & Associates, a real estate investment
company owned by him since 1976. Since 1984, he has been Chairman of The
Habersham Group, an international business owned by him whose activities
include real estate development, trade and merchant banking. Since 1993, he
has been a Director of Continental Airlines, Inc. He was formerly a Director
of IRT Property Company from 1978 to 1992 and has served as a member of the
Board of Regents to the University System of Georgia from 1990 to 1995.
Francisco Arrivi Cros has been Senior Vice President of IGC since October
1990 and Senior Vice President and Assistant Secretary of the Managing General
Partner since February 1991. He also serves as Director, Senior Vice President
and Assistant Secretary of EMC; Director, Vice President, Secretary and
Treasurer of ECCC, and Vice President, Treasurer and Assistant Secretary of
HDAMC. He was Vice President of the Chase Manhattan Bank N.A. in Puerto Rico
from 1977 to September 1990, and manager of its Real Estate Finance Division
from 1987 to 1990.
Donald L. Drew has been Senior Vice President of IGC since February 1992.
From 1987 to 1991, he was President of Ak-Sar-Ben Racetrack in Nebraska. He
was President of Ladbroke North American Racing Operations from 1985 to 1987.
Mr. Drew is also Senior Vice President of EMC and serves as one of its
Directors.
90
Paul A. Resnik has been Senior Vice President of IGC since February 1993
and Vice President of the Managing General Partner since January 1989.
Previously, he served as Vice President of IGC since September 1987.
Carlos R. Rodriguez has been Vice President of IGC since February 1989.
From 1984 to 1989, he was Senior Vice President/Construction Manager of SORO
Construction Control, Inc., a construction management company in Houston,
Texas.
Thomas B. Wilson was elected as a Director of the Managing General Partner
in December 1995. He also serves as President of ECOC and Executive Vice
President of IBC. Mr. Wilson is the son of Mr. James J. Wilson.
Barbara A. Wilson was elected as a Director of the Managing General
Partner in December 1995. She also serves as Director of EMC, Director and
Secretary/Treasurer of IBC, and Director of HDA Management Corporation. Mrs.
Wilson is the wife of Mr. James J. Wilson.
Raymond L. Crace was named President and Chief Operating Officer of
American Family Homes, Inc., a wholly-owned subsidiary of IGC, effective March
1996. Prior to joining IGC, Mr. Crace was the Virginia Area President of
Patwil Homes, a subsidiary of Miles Homes. He also worked for Pulte Homes for
15 years where he served in a variety of capacities. He had his own business,
Crace Communities, where he served as President for 7-1/2 years.
Late Filings
Donald Drew filed one Form 4 disclosing the sale of 30,000 Units one day
late in 1995.
91
ITEM 11. EXECUTIVE COMPENSATION
The 1995, 1994 and 1993 compensation for the CEO and four most highly
compensated officers are summarized on the following table:
Long-Term
Compensation
------------
Annual Compensation Awards
--------------------------------- ------------
Securities
Other Underlying
Annual Options/ All Other
Name & Principal Year Salary Bonus Compensation SAR's Compensation
Position ($) ($) ($) (2) # ($) (1)
---------------- ---- ------- ------ ------------ ---------- ------------
1. James J. Wilson
Chairman & CEO 1995 474,325 0 0 0 9,552
1994 440,240 0 0 0 9,576
1993 416,192 0 0 0 16,563
2. Donald Drew
Senior VP 1995 347,200 169,942 30,000 0 9,552
1994 347,200 98,730 90,000 0 9,576
1993 340,200 34,288 0 50,000 16,563
3. Gregory G. Kreizenbeck
President & COO 1995 287,700 0 33,308 (3) 140,000 9,552
1994 227,804 0 0 140,000 0
4. Donald G. Blakeman
Exec VP & 1995 285,200 0 0 0 9,552
Secretary 1994 263,200 6,000 14,000 46,500 9,576
1993 230,200 13,300 0 3,500 16,563
5. John E. Hans
Senior VP & CFO 1995 190,200 10,000 0 0 0
1994 55,417 0 0 40,000 0
(1) Reflects IGC's contributions to Retirement Plan discussed below.
(2) Represents the difference between the price paid for shares of the
Company's stock obtained by exercising stock options and the fair
market value of the stock at the date of purchase.
(3) Represents perquisites and other personal benefits, consisting mostly
of $29,556 for relocation expenses.
Employment Agreements. Messrs. Wilson and Kreizenbeck entered into
amended three year employment agreements with IGC commencing January 1, 1996.
Mr. Wilson's agreement provides for a base salary of $473,000, to be modified
annually, certain fringe benefits, and death or disability benefits. The
agreement may be terminated without cause upon 90 days notice, and provides for
a severance pay of base salary for the unexpired term of the contract. Mr.
Kreizenbeck's agreement provides for a base salary of $287,500, to be modified
annually, and certain fringe benefits. The agreement may be terminated without
cause upon 90 days notice, and provides for a severance package of two years'
base salary plus moving expenses unpaid by the subsequent employer. Mr. Drew
92
entered into a five year employment agreement effective as of January 1, 1993
providing for an annual base salary of $340,000 and a bonus based on the amount
of rent received by HDA from ECOC. ECOC has reimbursed the Company for Mr.
Drew's compensation paid since July 1992. Mr. Drew's employment agreement
further provides for the termination of his employment contract if the race
track is sold. Mr. Blakeman entered into an employment agreement with IGC
commencing as of December 31, 1986 for successive one year terms, provided that
neither party can terminate the agreement without a 90 day written notice. Mr.
Hans entered into an employment agreement with IGC commencing September 1, 1994
for successive one year terms, provided that neither party can terminate the
agreement without a 60 day written notice. The agreement provides for a base
salary of $190,000, to be modified annually, a one-time signing bonus of
$10,000, certain fringe benefits, death or disability benefits, and a severance
package of 90 days salary and benefits.
Directors. Directors of the Managing General Partner who are neither
affiliates of IBC nor existing officers or employees of the Company, any
General Partner, or any of their affiliates, receive directors' fees
established by the Board of Directors of the Managing General Partner. Messrs.
Cowan and Colon-Nevares earned such directors fees during 1995.
The outside directors of the managing general partner, IGMC, are
compensated at a rate of $5,000 per quarter, $1,400 per meeting and out of
pocket travel reimbursements for meeting attendance. In 1995, the director's
fees and expenses totaled $62,000. Director fees for 1995 that are unpaid as
of December 31, 1995 totaled $28,000.
IBC indemnifies the directors of the Managing General Partner against any
liability (including legal fees and expenses) arising out of their serving in
such capacities, except for liabilities arising out of the gross negligence or
willful misconduct of such directors.
93
Stock Options and Stock Appreciation Rights. IGC's employees, including
its directors and officers, are eligible to participate in the Unit Incentive
Plan (the "Employees Plan"). Under the Employees Plan, a committee composed of
the independent directors of IGMC (the "Committee") awards Unit options or Unit
Appreciation Rights to employees and officers on the basis of their
performance. The Unit Appreciation Rights entitle the holder to receive upon
exercise, an amount payable in cash, Class A units of the Company, other
property or some combination thereof, as determined by the Committee. The
amount received upon exercise is determined based on the excess of the fair
market value of the Company's Units on the exercise date, plus 50% of the fair
market value of Equus Units on the exercise date, over the base price of the
Unit Appreciation Right specified in the individual rights agreements. The
1995 activity under these plans for the CEO and four most highly compensated
officers are summarized on the following tables:
UNIT APPRECIATION RIGHTS GRANTED DURING 1995
Percent of
Total Unit
Number of Appreciation
Unit Rights Granted
Appreciation to Employees Base
Rights in 1995 Price Expiration
Granted (%) ($) Date
------------ ------------- ----- ----------
James J. Wilson -- -- -- --
Donald Drew -- -- -- --
Gregory G. Kreizenbeck (1) 140,000 100% 6.33 3-01-04
Donald G. Blakeman -- -- -- --
John E. Hans -- -- -- --
Potential Realizable Value at Assumed
Annual Rate of Unit Price Appreciation
for Unit Appreciation Rights Term
--------------------------------------
5% 10%
($) ($)
--------- ---------
James J. Wilson -- --
Donald Drew -- --
Gregory G. Kreizenbeck (1) 557,326 1,412,375
Donald G. Blakeman -- --
John E. Hans -- --
(1) On March 16, 1995, Mr. Kreizenbeck's Unit Appreciation Rights
Agreement was amended and the base price of his rights was increased
to $6.33. In January 1996 an additional amendment decreased the base
price of his rights to $4.94.
94
AGGREGATED OPTION/UNIT APPRECIATION RIGHTS EXERCISES IN 1995
AND DECEMBER 31, 1995 OPTION/UNIT APPRECIATION RIGHTS VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-money
Options Options and
and Unit Unit
Appreciation Appreciation
Rights at Rights at
December 31, December 31,
1995 1995
------------------------------
Units Value Exercisable/ Exercisable/
Acquired On Realized Unexercisable Unexercisable
Name Exercise (#) ($) (#) ($)
- ------------------- ------------ -------- ------------- --------------
James J. Wilson -- -- --/-- --/--
Donald Drew 10,000 30,000 --/20,000 --/--
Gregory G. Kreizenbeck(1) -- -- 20,000/120,000 --/--
Donald G. Blakeman -- -- 9,300/37,200 7,886/31,546
John E. Hans -- -- 8,000/32,000 822/3,288
(1) On March 16, 1995, Mr. Kreizenbeck's Unit Appreciation Rights
Agreement was amended and the base price of his rights was increased
to $6.33 from $4.00. In January, 1996 an additional amendment
decreased the base price to $4.94.
Long-Term Incentive Plan. IGC has established an incentive compensation
plan (the "Profit Sharing Plan") pursuant to which IGC awards annual cash
bonuses to officers and employees in reasonable amounts reflecting their
contributions to the Company. The persons to receive bonuses and the amounts
of such bonuses are approved by the unaffiliated directors of IGMC. Under the
Profit Sharing Plan, a portion of each bonus, keyed by the compensation
committee to a percentage of the employees' salary, is contributed on behalf of
the employee to the retirement plan discussed below. No contributions were
made to the Profit Sharing Plan during 1995, 1994 or 1993.
Retirement Plan. IGC maintains a retirement plan (the "Retirement Plan")
for eligible employees of the Company. Employees are generally eligible to
participate when they complete one year of service. Contributions to the
Retirement Plan in 1995, 1994 and 1993 were in amounts equal to 4% of base
salaries and wages not in excess of the U.S. Social Security taxable wage base,
and 8% of salaries (limited to $150,000) that exceeded that wage base.
Additional contributions to the Retirement Plan are made pursuant to the Profit
Sharing Plan. Contributions to the Retirement Plan in 1995 on behalf of
Messrs. Wilson, Drew, Kreizenbeck, Blakeman and Hans were $9,552, $9,552,
$9,552, $9,552 and $0, respectively.
95
ITEM 12. SECURITY OWNERSHIP OF CERTAIN UNITHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the Units
that were beneficially owned on February 29, 1996 (i) by each person who is
known by the general partners to beneficially own more than 5% of the
outstanding units of the Company, (ii) by named executive officer of a general
partner, and (iii) by all executive officers of the Company and directors of
the general partners as a group. Except where noted, the address for the
beneficial owner is 222 Smallwood Village Center, St. Charles, Maryland, 20602.
Beneficial Ownership (1)
------------------------
Number of
Name of Beneficial Owner IGC Units Percent
- ------------------------ ------------- -------
James J. Wilson (2) 4,051,311 39.35
Donald Drew 10,000 .10
Gregory G. Kreizenbeck 7,000 .07
Donald G. Blakeman 377,389 3.67
John E. Hans -- --
All executive officers of IGC
and directors of IGMC as a group
(13 persons) (3) 4,827,965 46.89
Bessemer Interstate Corporation 522,208 5.07
245 Peachtree Center Avenue #804
Atlanta, GA 30303
Interstate Business Corporation 3,327,894 32.32
222 Smallwood Village Center
St. Charles, MD 20602
Wilson Securities Corporation 1,172,203 11.39
222 Smallwood Village Center
St. Charles, MD 20602
(1) The beneficial ownership of Units is determined on the basis of Units
directly and indirectly owned by executive officers of IGC and directors
of IGMC and Units to be issued to IGC officers under options which are
exercisable within the next 60 days.
(2) Includes 2,360,915 IGC Units (22.93%) attributable to IBC shares held by
Mr. Wilson and his wife, Barbara A. Wilson, as trustees of a voting trust.
Also includes 518,093 IGC units (5.03%) attributable to IBC shares held by
Mr. Wilson. The beneficiaries of the trust are Mr. Wilson and his
children. The trust terminates on September 30, 1997, or upon the death
of the trustees. Also includes 1,172,203 IGC Units (11.39%) held by
Wilson Securities Corporation which is owned by another voting trust in
which Mr. Wilson and his wife are trustees. The beneficiaries of this
trust are Mr. Wilson and his children. The trust terminates on June 30,
1996 or upon the death of the trustees. Includes 30,579 and 100 Units
directly held by Mr. Wilson and Mrs. Wilson, respectively. Does not
96
include 1,280,971 IGC Units (12.44%) held by the children of Mr. Wilson or
attributable to IBC shares held by the children.
(3) Includes IGC Units subject to options exercisable under the IGC Employees
and Directors Plans of 26,000 Units for all thirteen executive officers of
IGC and directors of IGMC as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information responding to this item appears in Note 9 to the Company's
Consolidated Financial Statements included in Item 8 of this report.
97
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Interstate General Company L.P.
are contained herein:
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Changes in Partners' Capital for the
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements for the years ended
December 31, 1995, 1994 and 1993
2. Financial Statement Schedules
The following financial statements schedules are contained herein:
Report of Independent Public Accountants
Schedule XI -- Real Estate and Accumulated Depreciation
98
3. Exhibits
Exhibits required by Securities and Exchange Commission Section 601
of Regulation S-K.
Exhibit
No. Description of Exhibit Reference
- ------- ----------------------------------------- --------------------------
3(a) Third Amended and Restated Agreement of Exhibit 3(a) to Amendment
Limited Partnership of Interstate General No. 3 to Registration
Company L.P. Statement No. 33-10636 on
Form S-1, filed February
11, 1987 (Form "S-1")
(b) First Amendment to Third Amended and Exhibit 3(b) to 1987 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(c) Second Amendment to Third Amended and Exhibit 3(c) to 1988 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(d) Amended and Restated Certificate of Exhibit 3(b) to Form S-1
Limited Partnership of Interstate
General Company L.P.
(e) Certificate of Incorporation of Exhibit 3(c) to Form S-1
Interstate General Management Corporation
(f) Bylaws of Interstate General Management Exhibits 3(d) and 3(1) to
Corporation, as amended Form S-1
(g) Certificate of Incorporation of Exhibit 3(g) to Form S-1
Interstate Business Corporation
(formerly Interstate St. Charles, Inc.)
as amended
(h) Bylaws of Interstate Business Corporation Exhibit 3(h) to Form S-1
(formerly Interstate St. Charles, Inc.)
as amended February 4, 1986
(i) Amendment to Bylaws of Interstate Exhibit 3(i) to 1988 10-K
General Management Corporation dated
November 10, 1988
4(a) Form of beneficial assignment Exhibit 4(a) to Form S-1
certificate representing Units
(b) Form of certificate evidencing limited Exhibit 4(b) to Form S-1
partnership interest
(c) Certificate of Incorporation of Exhibit 4(c) to Form S-1
Interstate Management Title Company
dated September 19, 1986
(d) Bylaws of Interstate Management Title Exhibit 4(d) to Form S-1
Company dated September 25, 1986
99
(e) Amendment to Certificate of Incorporation Exhibit 4(e) to Form S-1
of Interstate Management Title Company
dated December 31, 1986
10. Material Contracts
(a) Employment Agreement with James J. Wilson Exhibit 10(a) to Form S-1
(b) Employment Agreement with Exhibit 10(b) to Form S-1
Donald G. Blakeman
(c) Employment Agreement with Exhibit 10(a) to Form 10-Q
Gregory G. Kreizenbeck for the quarter ended
March 31, 1994
(d) First Amendment to Employment Agreement Exhibit 10(d) to 1994 10-K
with Gregory G. Kreizenbeck
(e) Amended and Restated Employment Agreement Filed herewith
between Interstate General Properties L.P.
and Gregory G. Kreizenbeck dated
January 15, 1996
(f) Employment Agreement with Exhibit 10(a) to Form 10-Q
John E. Hans for the quarter ended
September 30, 1994
(g) Employment Agreement with Exhibit 10(a) to Form 10-Q
Edwin L. Kelly for the quarter ended
June 30, 1994
(h) Amendment to Employment Agreement between Exhibit 10(a) to Form 10-Q
Interstate General Company L.P. and for the quarter ended
Edwin L. Kelly dated May 20, 1994 June 30, 1995
(i) Employment Agreement with Exhibit 10(e) to 1993 10-K
Donald Drew
(j) Employment Agreement between Interstate Filed herewith
General Company L.P. and James J. Wilson
dated January 15, 1996
(k) Indemnity Agreement among Interstate Exhibit 10(f) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc. and each director and
officer of Interstate General
Management Corporation
(l) Unit Incentive Plan for Directors, Exhibit 10(i) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(m) Unit Incentive Plan for Employees, Exhibit 10(j) to 1994 10-K
Amended and Restated, dated
March 17, 1995
100
(n) Amended and Restated Certificate and Exhibit 10(11) to Form S-1
Agreement of Limited Partnership of
St. Charles Associates Limited
Partnership dated March 14, 1985
(o) Amended and Restated Certificate and Exhibit 10(j) to Form S-1
Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated December 31, 1986
(p) Second Amended and Restated Certificate Exhibit 10(kk) to Form S-1
and Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(q) Fourth Amendment to Second Amendment Exhibit 10(lll) to
and Restated Certificate and Agreement 1991 10-K
of Interstate General Properties
Limited Partnership S.P., dated
June 29, 1981
(r) Fifth Amendment to Second Amendment and Exhibit 10(mmm) to
Restated Certificate and Agreement of 1991 10-K
Interstate General Properties Limited
Partnership S.P., dated June 29, 1981
(s) Third Amended and Restated Certificate Exhibit 10(kk) to
and Agreement of Limited Partnership of 1989 10-K
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(t) Partnership agreement for Fox Chase Exhibit 10(p) to Form S-1
Apartments General Partnership as
amended January 29, 1986
(u) Amendment to Partnership Agreement for Exhibit 10(mm) to Form S-1
Fox Chase Apartments General Partnership
dated February 10, 1987
(v) Withdrawal, Mutual Release and Exhibit 10(q) to 1993 10-K
Indemnification Agreement and Amendment
to Fox Chase General Partnership Agreement
dated August 20, 1993
(w) Partnership agreement for Wakefield Third Exhibit 10(r) to Form S-1
Age Associates Limited Partnership dated
July 1, 1985
(x) Partnership agreement for Wakefield Exhibit 10(t) to Form S-1
Terrace Associates Limited Partnership
dated July 1, 1985
(y) Partnership agreement for Headen House Exhibit 10(v) to Form S-1
Associates Limited Partnership dated
July 1, 1985
101
(z) Partnership agreement for Palmer Exhibit 10(w) to Form S-1
Apartments Associates Limited
Partnership dated July 1, 1985
(aa) Partnership agreement for Chastleton Exhibit 10(dd) to Form S-1
Apartments Associates dated May 1, 1986
(bb) Partnership agreement for New Forest Exhibit 10(ff) to Form S-1
Apartments General Partnership dated
November 18, 1986
(cc) First Amendment to the General Exhibit 10(ii) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
February 24, 1987
(dd) Second Amendment to the General Exhibit 10(hh) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
December 19, 1988
(ee) Withdrawal, Mutual Release and Exhibit 10(z) to 1993 10-K
Indemnification Agreement and Amendment
to New Forest Apartments General
Partnership Agreement dated
August 20, 1993
(ff) Limited Partnership Agreement and Exhibit 10(zz) to
Amended and Restated Limited Partnership 1988 10-K
Certificate of Coachman's Limited
Partnership dated June 2, 1988
(gg) Management Services Agreements between Exhibit 10(k) to Form S-1
Interstate General Properties Limited
Partnership and National General
Corporation (3 separate agreements)
(hh) Property Management Agreement between Exhibit 10(oo) to Form S-1
National General Corporation and
Interstate General Corporation and
Interstate General Properties Limited
Partnership as amended March 30, 1986
(ii) Property management agreement between Exhibit 10(n) to Form S-1
Smallwood Village Associates Limited
Partnership and Interstate General
Properties Limited Partnership as
contained in the Smallwood Village
Associates Limited Partnership Amended
and Restated Certificate and Agreement
of Limited Partnership dated July 1, 1985
102
(jj) Property management agreement between Exhibit 10(o) to Form S-1
Smallwood Village Office Building
Associates Limited Partnership and
Interstate General Properties and
Interstate General Properties Limited
Partnership as contained in the
Smallwood Village Office Building
Associates Amended and Restated Certificate
and Agreement of Limited Partnership
dated July 1, 1985
(kk) Management service agreement between Exhibit 10(jj) to
Interstate General Company L.P. and 1989 10-K
Coachman's Limited Partnership dated
May 2, 1988
(ll) Amendment to Management Service Exhibit 10(hh) to
Agreement between Interstate General 1993 10-K
Company L.P. and Coachman's Limited
Partnership dated January 1, 1993
(mm) Management Agreement by and between Exhibit 10(zzzz) to
Interstate Properties and Interstate 1992 10-K
St. Charles, Inc. (El Monte), dated
January 5, 1987
(nn) First Amendment to Management Agreement Exhibit 10(aaaaa) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated January 4, 1988
(oo) Second Amendment to Management Agreement Exhibit 10(bbbbb) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated December 31, 1992
(pp) Management Agreement by and between Exhibit 10(ccccc) to
Interstate General Properties and 1992 10-K
Interstate St. Charles, Inc. (Santa Maria
Shopping Center), dated January 5, 1987
(qq) First Amendment to Management Agreement Exhibit 10(ddddd) to
by and between Interstate General 1992 10-K
Properties Limited Partnership and
Interstate Business Corporation (Santa
Maria Shopping Center), dated
January 4, 1988
(rr) Second Amendment to Management Agreement Exhibit 10(eeeee) to
by and between Interstate General 1992 10-K
Properties Limited Partnership S.E. and
Interstate Business Corporation and
Santa Maria Associates S.E., dated
December 28, 1990
103
(ss) Two (2) Property management agreements Exhibit 10(aa) to Form S-1
between Interstate General Properties
Limited Partnership and Capitol Park
Associates as amended December 31, 1984
(tt) Lease for office space between Interstate Exhibit 10(r) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated May 21, 1981
(uu) Lease for office space between Interstate Exhibit 10(m) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated June 15, 1981
(vv) Lease Amendment to Lease for commercial Exhibit 10(c) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated October 1, 1991
(ww) Lease Amendment II to Lease for commercial Exhibit 10(d) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(xx) Store Lease between Interstate General Exhibit 10(fff) to
Business Corporation and Smallwood 1991 10-K
Village Associates Limited Partnership
dated April 1, 1988
(yy) Store Lease between Smallwood Village Exhibit 10(e) to Form 10-Q
Associates and Interstate General for the quarter ended
Company L.P. dated December 1, 1987 September 30, 1995
(zz) Lease Amendment to Store Lease between Exhibit 10(f) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. dated September 30, 1995
February 1, 1989
(aaa) Lease Amendment II to Store Lease Exhibit 10(g) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated December 1, 1992
(bbb) Lease Amendment III to Store Lease Exhibit 10(h) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 30, 1994
(ccc) Lease Amendment IV to Store Lease Exhibit 10(i) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(ddd) Office Lease between Smallwood Village Exhibit 10(a) to Form 10-Q
Associates and Interstate General Company for the quarter ended
L.P. for Smallwood Village Center dated September 30, 1995
August 25, 1995
104
(eee) Amendment to Office Lease between Exhibit 10(b) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. for September 30, 1995
Smallwood Village Center dated
September 5, 1995
(fff) Lease Agreement between Interstate Filed herewith
Business Corporation and American Family
Homes for Office Building dated
June 28, 1994
(ggg) Fourth Amendment to Interstate General Exhibit 10(yyyy) to
Company L.P. Retirement Plan, dated 1992 10-K
July 1, 1992
(hhh) Fifth Amendment to Interstate General Exhibit 10(b) to Form 10-Q
Company L.P. Retirement Plan dated for the quarter ended
June 5, 1995 June 30, 1995
(iii) Agreement Regarding Partnership Interest Exhibit 10(nn) to Form S-1
in Chastleton Apartment Associates
dated January, 1987
(jjj) Stockholders Agreement among Interstate Exhibit 10(pp) to Form S-1
and certain stockholders of Interstate
St. Charles, Inc. dated as of
December 1, 1986
(kkk) License Agreement between Interstate Exhibit 10(qq) to Form S-1
General Company L.P., Interstate
General Business Corporation and
Interstate St. Charles, Inc., dated
as of December 31, 1986
(lll) Amendment to License Agreement between Exhibit 10(rr) to Form S-1
Interstate General Company L.P.,
Interstate General Business Corporation
and Interstate General Company L.P.,
dated as of February 9, 1987
(mmm) Unitholders Agreement among Interstate Exhibit 10(ss) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc., and Interstate
Properties Trust dated as of
February 9, 1987
(nnn) Agreement dated March 15, 1990 among Exhibit 10(ddd) to
Interstate General Company L.P., 1990 10-K
Interstate Business Corporation and
Interstate General Properties
(ooo) Management service agreement between Exhibit 10(ee) to Form S-1
Interstate General Business Corporation Amendment Exhibit 10(ee)
and Chastleton Apartments Associates to 1989 10-K
as amended February 26, 1987
105
(ppp) Amendment to February 26, 1987 Exhibit 10(bbb) to
Management Service Agreement between 1993 10-K
Interstate General Business Corporation
and Chastleton Apartment Associates
dated January 1, 1993
(qqq) Property management agreement between Exhibit 10(z) to Form S-1
Interstate General Properties Limited Amendment Exhibit 10(z) to
Partnership and G.L. Limited Partnership 1989 10-K
as amended September 30, 1985 and as
amended March 1, 1989
(rrr) Amendment to Property Management Exhibit 10(ddd) to
Agreement between Interstate General 1993 10-K
Properties Limited Partnership and
G. L. Limited Partnership dated
January 1, 1993
(sss) Second Amendment and Restatement of Exhibit 10(eee) to
Purchase Agreement by and between Land 1993 10-K
Development Associates S.E. and Wal-Mart
Puerto Rico, Inc., dated November 30, 1993
(ttt) Sale and Purchase Agreement between Exhibit 10(hhhhh) to
Interstate General Company L.P. and 1992 10-K
K. Hovnanian at Montclair, Inc., dated
September 30, 1992
(uuu) First Amendment to Sale and Purchase Exhibit 10(ggg) to
Agreement by and between Interstate 1993 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
October 16, 1992
(vvv) Second Amendment to Sale and Purchase Exhibit 10(hhh) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
August 18, 1994
(www) Third Amendment to Sale and Purchase Exhibit 10(iii) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
December 16, 1994
(xxx) Amended and Restated Lease Agreement Exhibit 10.8 to the
between Housing Development Associates Registration Statement on
S.E. and El Comandante Operating Company, S-4 of El Comandante
dated December 15, 1993 Capital Corp. and Housing
Development Associates
S.E. Registration
# 33-75284 (the "S-4")
(yyy) Third Amended and Restated Partnership Exhibit 3.3 to the S-4
Agreement for Housing Development
Associates, S.E. dated December 15, 1993
106
(zzz) Fourth Amended and Restated Partnership Exhibit 10(b) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated July 21, 1994 June 30, 1994
(aaaa) Fifth Amended and Restated Partnership Exhibit 10(c) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated August 1, 1994 June 30, 1994
(bbbb) Sixth Amended and Restated Partnership Exhibit 2.2 to the Report
Agreement of Housing Development on Form 8-K of Equus
Associates, S.E. dated March 8, 1995 Gaming Company L.P. dated
March 23, 1995,
File No. 000-25306
(the "Equus 8-K")
(cccc) Seventh Amended and Restated Partnership Exhibit 10.37 to the
Agreement of Housing Development Report on Form 10-K of
Associates, S.E. dated February 7, 1996 Equus Gaming Company L.P.
dated April 1, 1996,
File No. 54-1719877
(dddd) Conversion Agreement dated February 3, Exhibit 2.3 to the
1995 and First Amendment thereto dated Equus 8-K
March 6, 1995
(eeee) Indenture dated December 15, 1993 among Exhibit 4.1 to the S-4
El Comandante Corp., Housing Development
Associates S.E. and Banco Popular De
Puerto Rico
(ffff) Warrant Agreement between HDA Management Exhibit 10.3 to the S-4
Corporation, Housing Development
Associates S.E. and Banco Popular De
Puerto Rico as Warrant Agent dated
December 15, 1993
(gggg) Limited Partnership Agreement of Equus Exhibit 10(d) to Form 10-Q
Gaming Company L.P. dated August 1, 1994 for the quarter ended
June 30, 1994
(hhhh) First Amendment to the Limited Exhibit 10(e) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
(iiii) Second Amendment to the Limited Exhibit 10(f) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
(jjjj) Third Amendment to the Limited Exhibit 3.4 to
Partnership Agreement of Equus Gaming to Registration Statement
Company L.P. on Form S-11 of Equus
Gaming Company L.P.
Registration # 33-82750
(the "Equus S-11")
107
(kkkk) Amended and Restated Distribution Exhibit 2.1 to the Equus
Agreement dated November 22, 1994, S-11
between Equus Gaming Company L.P.
(the "Company") and Interstate General
Company L.P. ("IGC")
(llll) Registration Rights Agreement with Exhibit 10.4 to the S-4
respect to the Warrants dated
December 15, 1993, among HDAMC, HDA,
Oppenheimer & Co., Inc. and The
Argosy Securities Group L.P.
(mmmm) Amended and Restated Management Exhibit 10.6 to the S-4
Agreement dated December 15, 1993,
between Interstate General Properties
Limited Partnership S.E. ("IGP") and
HDA
(nnnn) Master Support and Services Agreement Exhibit 10.20 to the
dated December 9, 1994, between IGC Equus S-11
and Equus Gaming Company L.P.
(oooo) Consulting Agreement dated December 15, Exhibit 10.21 to the
1993, between El Comandante Operating Equus S-11
Company and Interstate General
Properties Limited Partnership
(pppp) First Supplemental Indenture dated Exhibit 10.27 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(qqqq) Second Supplemental Indenture dated Exhibit 10.28 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(rrrr) Amended and Restated Registration Rights Exhibit 10.29 to the
Agreement with Respect to the Warrants Equus S-11
dated December 12, 1994, among HDAMC,
HDA, Oppenheimer & Co., Inc., the
Argosy Securities Group L.P. and Equus
Gaming Company L.P.
(ssss) Agreement of Purchase and Sale between Exhibit 10(dddd) to
Interstate General Company L.P. and 1994 10-K
Interstate Business Corporation dated
December 30, 1994 for the Partnership
Interests in:
New Forest Apartments General Partnership
Headen House Associates Limited Partnership
Fox Chase Apartments General Partnership
Palmer Apartments Associates
Wakefield Terrace Associates
Wakefield Third Age Associates
108
(tttt) Agreement of Sale between Land Development Exhibit 10(j) to Form 10-Q
Associates S.E. and Twenty First Century for the quarter ended
Homes S.E. dated September 8, 1995 September 30, 1995
(uuuu) Option Agreement between Land Development Exhibit 10(k) to Form 10-Q
Associates S.E. and Compri Caribe for the quarter ended
Hospitality Corp. dated March 31, 1995 September 30, 1995
(vvvv) Amendment to Option Agreement between Exhibit 10(l) to Form 10-Q
Land Development Associates S.E. and for the quarter ended
Compri Caribe Hospitality Corp. dated September 30, 1995
November 13, 1995
(wwww) Employment Agreement for Donald Drew Exhibit 10(eeee) to
dated December 14, 1993 1994 10-K
21. List of Subsidiaries of Interstate Filed herewith
General Company L.P.
(b) Reports on Form 8-K
None
(c) Exhibits
See (a) 2, above.
(d) Financial Statement Schedules
See (a) 2, above.
109
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, there-unto duly authorized.
INTERSTATE GENERAL COMPANY L.P.
By: Interstate General Management
Corporation
Managing General Partner
Dated: March 29, 1996 By: /s/ James J. Wilson
--------------------- -----------------------------
James J. Wilson
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ------------------------- ------
/s/ James J. Wilson March 29, 1996
- ---------------------- Chairman, Chief Executive ---------------
James J. Wilson Officer and Director
/s/ Gregory G. Kreizenbeck March 29, 1996
- ---------------------- President, Chief Operating ---------------
Gregory G. Kreizenbeck Officer and Director
/s/ Donald G. Blakeman March 29, 1996
- ---------------------- Executive Vice President ---------------
Donald G. Blakeman and Director
/s/ John E. Hans March 28, 1996
- ---------------------- Senior Vice President, ---------------
John E. Hans Chief Financial Officer
and Director
/s/ Jorge Colon-Nevares March 29, 1996
- ---------------------- Director ---------------
Jorge Colon-Nevares
/s/ Joel H. Cowan March 27, 1996
- ---------------------- Director ---------------
Joel H. Cowan
/s/ Thomas B. Wilson March 29, 1996
- ---------------------- Director ---------------
Thomas B. Wilson
/s/ Barbara A. Wilson March 27, 1996
- ---------------------- Director ---------------
Barbara A. Wilson
110
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Reference
- ------- ----------------------------------------- --------------------------
3(a) Third Amended and Restated Agreement of Exhibit 3(a) to Amendment
Limited Partnership of Interstate General No. 3 to Registration
Company L.P. Statement No. 33-10636 on
Form S-1, filed February
11, 1987 (Form "S-1")
(b) First Amendment to Third Amended and Exhibit 3(b) to 1987 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(c) Second Amendment to Third Amended and Exhibit 3(c) to 1988 10-K
Restated Agreement of Limited Partnership
of Interstate General Company L.P.
(d) Amended and Restated Certificate of Exhibit 3(b) to Form S-1
Limited Partnership of Interstate
General Company L.P.
(e) Certificate of Incorporation of Exhibit 3(c) to Form S-1
Interstate General Management Corporation
(f) Bylaws of Interstate General Management Exhibits 3(d) and 3(1) to
Corporation, as amended Form S-1
(g) Certificate of Incorporation of Exhibit 3(g) to Form S-1
Interstate Business Corporation
(formerly Interstate St. Charles, Inc.)
as amended
(h) Bylaws of Interstate Business Corporation Exhibit 3(h) to Form S-1
(formerly Interstate St. Charles, Inc.)
as amended February 4, 1986
(i) Amendment to Bylaws of Interstate Exhibit 3(i) to 1988 10-K
General Management Corporation dated
November 10, 1988
4(a) Form of beneficial assignment Exhibit 4(a) to Form S-1
certificate representing Units
(b) Form of certificate evidencing limited Exhibit 4(b) to Form S-1
partnership interest
(c) Certificate of Incorporation of Exhibit 4(c) to Form S-1
Interstate Management Title Company
dated September 19, 1986
(d) Bylaws of Interstate Management Title Exhibit 4(d) to Form S-1
Company dated September 25, 1986
111
(e) Amendment to Certificate of Incorporation Exhibit 4(e) to Form S-1
of Interstate Management Title Company
dated December 31, 1986
10. Material Contracts
(a) Employment Agreement with James J. Wilson Exhibit 10(a) to Form S-1
(b) Employment Agreement with Exhibit 10(b) to Form S-1
Donald G. Blakeman
(c) Employment Agreement with Exhibit 10(a) to Form 10-Q
Gregory G. Kreizenbeck for the quarter ended
March 31, 1994
(d) First Amendment to Employment Agreement Exhibit 10(d) to 1994 10-K
with Gregory G. Kreizenbeck
(e) Amended and Restated Employment Agreement Filed herewith
between Interstate General Properties L.P.
and Gregory G. Kreizenbeck dated
January 15, 1996
(f) Employment Agreement with Exhibit 10(a) to Form 10-Q
John E. Hans for the quarter ended
September 30, 1994
(g) Employment Agreement with Exhibit 10(a) to Form 10-Q
Edwin L. Kelly for the quarter ended
June 30, 1994
(h) Amendment to Employment Agreement between Exhibit 10(a) to Form 10-Q
Interstate General Company L.P. and for the quarter ended
Edwin L. Kelly dated May 20, 1994 June 30, 1995
(i) Employment Agreement with Exhibit 10(e) to 1993 10-K
Donald Drew
(j) Employment Agreement between Interstate Filed herewith
General Company L.P. and James J. Wilson
dated January 15, 1996
(k) Indemnity Agreement among Interstate Exhibit 10(f) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc. and each director and
officer of Interstate General
Management Corporation
(l) Unit Incentive Plan for Directors, Exhibit 10(i) to 1994 10-K
Amended and Restated, dated
March 17, 1995
(m) Unit Incentive Plan for Employees, Exhibit 10(j) to 1994 10-K
Amended and Restated, dated
March 17, 1995
112
(n) Amended and Restated Certificate and Exhibit 10(11) to Form S-1
Agreement of Limited Partnership of
St. Charles Associates Limited
Partnership dated March 14, 1985
(o) Amended and Restated Certificate and Exhibit 10(j) to Form S-1
Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated December 31, 1986
(p) Second Amended and Restated Certificate Exhibit 10(kk) to Form S-1
and Agreement of Limited Partnership of
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(q) Fourth Amendment to Second Amendment Exhibit 10(lll) to
and Restated Certificate and Agreement 1991 10-K
of Interstate General Properties
Limited Partnership S.P., dated
June 29, 1981
(r) Fifth Amendment to Second Amendment and Exhibit 10(mmm) to
Restated Certificate and Agreement of 1991 10-K
Interstate General Properties Limited
Partnership S.P., dated June 29, 1981
(s) Third Amended and Restated Certificate Exhibit 10(kk) to
and Agreement of Limited Partnership of 1989 10-K
Interstate General Properties Limited
Partnership dated as of December 31, 1986
(t) Partnership agreement for Fox Chase Exhibit 10(p) to Form S-1
Apartments General Partnership as
amended January 29, 1986
(u) Amendment to Partnership Agreement for Exhibit 10(mm) to Form S-1
Fox Chase Apartments General Partnership
dated February 10, 1987
(v) Withdrawal, Mutual Release and Exhibit 10(q) to 1993 10-K
Indemnification Agreement and Amendment
to Fox Chase General Partnership Agreement
dated August 20, 1993
(w) Partnership agreement for Wakefield Third Exhibit 10(r) to Form S-1
Age Associates Limited Partnership dated
July 1, 1985
(x) Partnership agreement for Wakefield Exhibit 10(t) to Form S-1
Terrace Associates Limited Partnership
dated July 1, 1985
(y) Partnership agreement for Headen House Exhibit 10(v) to Form S-1
Associates Limited Partnership dated
July 1, 1985
113
(z) Partnership agreement for Palmer Exhibit 10(w) to Form S-1
Apartments Associates Limited
Partnership dated July 1, 1985
(aa) Partnership agreement for Chastleton Exhibit 10(dd) to Form S-1
Apartments Associates dated May 1, 1986
(bb) Partnership agreement for New Forest Exhibit 10(ff) to Form S-1
Apartments General Partnership dated
November 18, 1986
(cc) First Amendment to the General Exhibit 10(ii) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
February 24, 1987
(dd) Second Amendment to the General Exhibit 10(hh) to
Partnership Agreement of New Forest 1988 10-K
Apartments General Partnership dated
December 19, 1988
(ee) Withdrawal, Mutual Release and Exhibit 10(z) to 1993 10-K
Indemnification Agreement and Amendment
to New Forest Apartments General
Partnership Agreement dated
August 20, 1993
(ff) Limited Partnership Agreement and Exhibit 10(zz) to
Amended and Restated Limited Partnership 1988 10-K
Certificate of Coachman's Limited
Partnership dated June 2, 1988
(gg) Management Services Agreements between Exhibit 10(k) to Form S-1
Interstate General Properties Limited
Partnership and National General
Corporation (3 separate agreements)
(hh) Property Management Agreement between Exhibit 10(oo) to Form S-1
National General Corporation and
Interstate General Corporation and
Interstate General Properties Limited
Partnership as amended March 30, 1986
(ii) Property management agreement between Exhibit 10(n) to Form S-1
Smallwood Village Associates Limited
Partnership and Interstate General
Properties Limited Partnership as
contained in the Smallwood Village
Associates Limited Partnership Amended
and Restated Certificate and Agreement
of Limited Partnership dated July 1, 1985
114
(jj) Property management agreement between Exhibit 10(o) to Form S-1
Smallwood Village Office Building
Associates Limited Partnership and
Interstate General Properties and
Interstate General Properties Limited
Partnership as contained in the
Smallwood Village Office Building
Associates Amended and Restated Certificate
and Agreement of Limited Partnership
dated July 1, 1985
(kk) Management service agreement between Exhibit 10(jj) to
Interstate General Company L.P. and 1989 10-K
Coachman's Limited Partnership dated
May 2, 1988
(ll) Amendment to Management Service Exhibit 10(hh) to
Agreement between Interstate General 1993 10-K
Company L.P. and Coachman's Limited
Partnership dated January 1, 1993
(mm) Management Agreement by and between Exhibit 10(zzzz) to
Interstate Properties and Interstate 1992 10-K
St. Charles, Inc. (El Monte), dated
January 5, 1987
(nn) First Amendment to Management Agreement Exhibit 10(aaaaa) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated January 4, 1988
(oo) Second Amendment to Management Agreement Exhibit 10(bbbbb) to
by and between Interstate Properties and 1992 10-K
Interstate Business Corporation (El Monte),
dated December 31, 1992
(pp) Management Agreement by and between Exhibit 10(ccccc) to
Interstate General Properties and 1992 10-K
Interstate St. Charles, Inc. (Santa Maria
Shopping Center), dated January 5, 1987
(qq) First Amendment to Management Agreement Exhibit 10(ddddd) to
by and between Interstate General 1992 10-K
Properties Limited Partnership and
Interstate Business Corporation (Santa
Maria Shopping Center), dated
January 4, 1988
(rr) Second Amendment to Management Agreement Exhibit 10(eeeee) to
by and between Interstate General 1992 10-K
Properties Limited Partnership S.E. and
Interstate Business Corporation and
Santa Maria Associates S.E., dated
December 28, 1990
115
(ss) Two (2) Property management agreements Exhibit 10(aa) to Form S-1
between Interstate General Properties
Limited Partnership and Capitol Park
Associates as amended December 31, 1984
(tt) Lease for office space between Interstate Exhibit 10(r) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated May 21, 1981
(uu) Lease for office space between Interstate Exhibit 10(m) to Form S-1
General Business Corporation and
Smallwood Village Associates Limited
Partnership dated June 15, 1981
(vv) Lease Amendment to Lease for commercial Exhibit 10(c) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated October 1, 1991
(ww) Lease Amendment II to Lease for commercial Exhibit 10(d) to Form 10-Q
space between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(xx) Store Lease between Interstate General Exhibit 10(fff) to
Business Corporation and Smallwood 1991 10-K
Village Associates Limited Partnership
dated April 1, 1988
(yy) Store Lease between Smallwood Village Exhibit 10(e) to Form 10-Q
Associates and Interstate General for the quarter ended
Company L.P. dated December 1, 1987 September 30, 1995
(zz) Lease Amendment to Store Lease between Exhibit 10(f) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. dated September 30, 1995
February 1, 1989
(aaa) Lease Amendment II to Store Lease Exhibit 10(g) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated December 1, 1992
(bbb) Lease Amendment III to Store Lease Exhibit 10(h) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 30, 1994
(ccc) Lease Amendment IV to Store Lease Exhibit 10(i) to Form 10-Q
between Smallwood Village Associates for the quarter ended
and Interstate General Company L.P. September 30, 1995
dated September 5, 1995
(ddd) Office Lease between Smallwood Village Exhibit 10(a) to Form 10-Q
Associates and Interstate General Company for the quarter ended
L.P. for Smallwood Village Center dated September 30, 1995
August 25, 1995
116
(eee) Amendment to Office Lease between Exhibit 10(b) to Form 10-Q
Smallwood Village Associates and for the quarter ended
Interstate General Company L.P. for September 30, 1995
Smallwood Village Center dated
September 5, 1995
(fff) Lease Agreement between Interstate Filed herewith
Business Corporation and American Family
Homes for Office Building dated
June 28, 1994
(ggg) Fourth Amendment to Interstate General Exhibit 10(yyyy) to
Company L.P. Retirement Plan, dated 1992 10-K
July 1, 1992
(hhh) Fifth Amendment to Interstate General Exhibit 10(b) to Form 10-Q
Company L.P. Retirement Plan dated for the quarter ended
June 5, 1995 June 30, 1995
(iii) Agreement Regarding Partnership Interest Exhibit 10(nn) to Form S-1
in Chastleton Apartment Associates
dated January, 1987
(jjj) Stockholders Agreement among Interstate Exhibit 10(pp) to Form S-1
and certain stockholders of Interstate
St. Charles, Inc. dated as of
December 1, 1986
(kkk) License Agreement between Interstate Exhibit 10(qq) to Form S-1
General Company L.P., Interstate
General Business Corporation and
Interstate St. Charles, Inc., dated
as of December 31, 1986
(lll) Amendment to License Agreement between Exhibit 10(rr) to Form S-1
Interstate General Company L.P.,
Interstate General Business Corporation
and Interstate General Company L.P.,
dated as of February 9, 1987
(mmm) Unitholders Agreement among Interstate Exhibit 10(ss) to Form S-1
General Business Corporation, Interstate
St. Charles, Inc., and Interstate
Properties Trust dated as of
February 9, 1987
(nnn) Agreement dated March 15, 1990 among Exhibit 10(ddd) to
Interstate General Company L.P., 1990 10-K
Interstate Business Corporation and
Interstate General Properties
(ooo) Management service agreement between Exhibit 10(ee) to Form S-1
Interstate General Business Corporation Amendment Exhibit 10(ee)
and Chastleton Apartments Associates to 1989 10-K
as amended February 26, 1987
117
(ppp) Amendment to February 26, 1987 Exhibit 10(bbb) to
Management Service Agreement between 1993 10-K
Interstate General Business Corporation
and Chastleton Apartment Associates
dated January 1, 1993
(qqq) Property management agreement between Exhibit 10(z) to Form S-1
Interstate General Properties Limited Amendment Exhibit 10(z) to
Partnership and G.L. Limited Partnership 1989 10-K
as amended September 30, 1985 and as
amended March 1, 1989
(rrr) Amendment to Property Management Exhibit 10(ddd) to
Agreement between Interstate General 1993 10-K
Properties Limited Partnership and
G. L. Limited Partnership dated
January 1, 1993
(sss) Second Amendment and Restatement of Exhibit 10(eee) to
Purchase Agreement by and between Land 1993 10-K
Development Associates S.E. and Wal-Mart
Puerto Rico, Inc., dated November 30, 1993
(ttt) Sale and Purchase Agreement between Exhibit 10(hhhhh) to
Interstate General Company L.P. and 1992 10-K
K. Hovnanian at Montclair, Inc., dated
September 30, 1992
(uuu) First Amendment to Sale and Purchase Exhibit 10(ggg) to
Agreement by and between Interstate 1993 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
October 16, 1992
(vvv) Second Amendment to Sale and Purchase Exhibit 10(hhh) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
August 18, 1994
(www) Third Amendment to Sale and Purchase Exhibit 10(iii) to
Agreement by and between Interstate 1994 10-K
General Company L.P. and K. Hovnanian
at Montclair, Inc., dated
December 16, 1994
(xxx) Amended and Restated Lease Agreement Exhibit 10.8 to the
between Housing Development Associates Registration Statement on
S.E. and El Comandante Operating Company, S-4 of El Comandante
dated December 15, 1993 Capital Corp. and Housing
Development Associates
S.E. Registration
# 33-75284 (the "S-4")
(yyy) Third Amended and Restated Partnership Exhibit 3.3 to the S-4
Agreement for Housing Development
Associates, S.E. dated December 15, 1993
118
(zzz) Fourth Amended and Restated Partnership Exhibit 10(b) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated July 21, 1994 June 30, 1994
(aaaa) Fifth Amended and Restated Partnership Exhibit 10(c) to Form 10-Q
Agreement of Housing Development for the quarter ended
Associates, S.E. dated August 1, 1994 June 30, 1994
(bbbb) Sixth Amended and Restated Partnership Exhibit 2.2 to the Report
Agreement of Housing Development on Form 8-K of Equus
Associates, S.E. dated March 8, 1995 Gaming Company L.P. dated
March 23, 1995,
File No. 000-25306
(the "Equus 8-K")
(cccc) Seventh Amended and Restated Partnership Exhibit 10.37 to the
Agreement of Housing Development Report on Form 10-K of
Associates, S.E. dated February 7, 1996 Equus Gaming Company L.P.
dated April 1, 1996,
File No. 54-1719877
(dddd) Conversion Agreement dated February 3, Exhibit 2.3 to the
1995 and First Amendment thereto dated Equus 8-K
March 6, 1995
(eeee) Indenture dated December 15, 1993 among Exhibit 4.1 to the S-4
El Comandante Corp., Housing Development
Associates S.E. and Banco Popular De
Puerto Rico
(ffff) Warrant Agreement between HDA Management Exhibit 10.3 to the S-4
Corporation, Housing Development
Associates S.E. and Banco Popular De
Puerto Rico as Warrant Agent dated
December 15, 1993
(gggg) Limited Partnership Agreement of Equus Exhibit 10(d) to Form 10-Q
Gaming Company L.P. dated August 1, 1994 for the quarter ended
June 30, 1994
(hhhh) First Amendment to the Limited Exhibit 10(e) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
(iiii) Second Amendment to the Limited Exhibit 10(f) to Form 10-Q
Partnership Agreement of Equus Gaming for the quarter ended
Company L.P. dated August 1, 1994 June 30, 1994
(jjjj) Third Amendment to the Limited Exhibit 3.4 to
Partnership Agreement of Equus Gaming to Registration Statement
Company L.P. on Form S-11 of Equus
Gaming Company L.P.
Registration # 33-82750
(the "Equus S-11")
119
(kkkk) Amended and Restated Distribution Exhibit 2.1 to the Equus
Agreement dated November 22, 1994, S-11
between Equus Gaming Company L.P.
(the "Company") and Interstate General
Company L.P. ("IGC")
(llll) Registration Rights Agreement with Exhibit 10.4 to the S-4
respect to the Warrants dated
December 15, 1993, among HDAMC, HDA,
Oppenheimer & Co., Inc. and The
Argosy Securities Group L.P.
(mmmm) Amended and Restated Management Exhibit 10.6 to the S-4
Agreement dated December 15, 1993,
between Interstate General Properties
Limited Partnership S.E. ("IGP") and
HDA
(nnnn) Master Support and Services Agreement Exhibit 10.20 to the
dated December 9, 1994, between IGC Equus S-11
and Equus Gaming Company L.P.
(oooo) Consulting Agreement dated December 15, Exhibit 10.21 to the
1993, between El Comandante Operating Equus S-11
Company and Interstate General
Properties Limited Partnership
(pppp) First Supplemental Indenture dated Exhibit 10.27 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(qqqq) Second Supplemental Indenture dated Exhibit 10.28 to the
December 22, 1994, to the Indenture Equus S-11
dated December 15, 1993 among El
Comandante Corp., Housing Development
Associates S.E. and Banco Popular de
Puerto Rico
(rrrr) Amended and Restated Registration Rights Exhibit 10.29 to the
Agreement with Respect to the Warrants Equus S-11
dated December 12, 1994, among HDAMC,
HDA, Oppenheimer & Co., Inc., the
Argosy Securities Group L.P. and Equus
Gaming Company L.P.
(ssss) Agreement of Purchase and Sale between Exhibit 10(dddd) to
Interstate General Company L.P. and 1994 10-K
Interstate Business Corporation dated
December 30, 1994 for the Partnership
Interests in:
New Forest Apartments General Partnership
Headen House Associates Limited Partnership
Fox Chase Apartments General Partnership
Palmer Apartments Associates
Wakefield Terrace Associates
Wakefield Third Age Associates
120
(tttt) Agreement of Sale between Land Development Exhibit 10(j) to Form 10-Q
Associates S.E. and Twenty First Century for the quarter ended
Homes S.E. dated September 8, 1995 September 30, 1995
(uuuu) Option Agreement between Land Development Exhibit 10(k) to Form 10-Q
Associates S.E. and Compri Caribe for the quarter ended
Hospitality Corp. dated March 31, 1995 September 30, 1995
(vvvv) Amendment to Option Agreement between Exhibit 10(l) to Form 10-Q
Land Development Associates S.E. and for the quarter ended
Compri Caribe Hospitality Corp. dated September 30, 1995
November 13, 1995
(wwww) Employment Agreement for Donald Drew Exhibit 10(eeee) to
dated December 14, 1993 1994 10-K
21. List of Subsidiaries of Interstate Filed herewith
General Company L.P.
27. Financial Data Schedule Filed herewith