AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998
REGISTRATION NO. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1449733
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
218 NORTH CHARLES STREET, SUITE 500
BALTIMORE, MARYLAND 21201
(410) 962-8044
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARK K. JOSEPH
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
218 NORTH CHARLES STREET, SUITE 500
BALTIMORE, MARYLAND 21201
(410) 962-8044
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
ROBERT E. KING, JR., ESQ.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. <square>
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. <checked-box>
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. <square>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <square>
If delivery of the prospectus is to be expected to be made pursuant to rule
434, please check the following box. <square>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT
OF
REGISTERED(1) REGISTERED(2)(3) PER UNIT(4) PRICE(2)(4)
REGISTRATION FEE(5)
<S> <C> <C> <C> <C>
Common Shares...............
Preferred Shares............ $175,000,000 $175,000,000
$51,625
Warrants....................
</TABLE>
(FOOTNOTES ON NEXT PAGE)
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
(1) This Registration Statement also covers securities which may be issued by
the Registrant under contracts pursuant to which the counterparty may be
required to purchase Common Shares, Preferred Shares or Warrants.
(2) In no event will the aggregate maximum offering price of the Common Shares,
Preferred Shares and Warrants registered under this Registration Statement
exceed $175,000,000. Any securities registered hereunder may be sold
separately or as units with other securities registered hereunder.
(3) $174,304,375 of Common Shares registered on Form S-3 (File No. 333-20945),
as to which filing fees of $52,820 were previously paid and are being applied
to this Registration Statement with respect to such shares, which are being
carried forward pursuant to Rule 429 of the rules and regulations under the
Securities Act of 1933, as amended.
(4) The proposed maximum offering price per unit (a) has been omitted pursuant
to instruction II.D. of Form S-3 and (b) will be determined, from time to time,
by the Registrant in connection with the issuance by the Registrant of the
securities registered hereunder.
(5) Calculated pursuant to Rule 457(o) of the rules and regulations promulgated
under the Securities Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT CONTAINS A COMBINED PROSPECTUS THAT ALSO RELATES TO $188,125,000 OF
COMMON SHARES REGISTERED ON FORM S-3, FILE NO. 333-20945, WHICH WAS DECLARED
EFFECTIVE ON JUNE 2, 1997 (THE "PREVIOUSLY REGISTERED EQUITY SECURITIES"),
WHICH HAVE NOT BEEN OFFERED OR SOLD AS OF THE DATE OF THE FILING OF THIS
REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT CONSTITUTES POST-EFFECTIVE
AMENDMENT NO. 1 TO REGISTRATION STATEMENT FILE NO. 333-20945, PURSUANT TO WHICH
THE TOTAL AMOUNT OF UNSOLD PREVIOUSLY REGISTERED EQUITY SECURITIES, REGISTERED
ON REGISTRATION STATEMENT FILE NO. 333-20945 MAY BE OFFERED AND SOLD BY THE
COMPANY.
===============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 4, 1998
PROSPECTUS
- ----------
$349,304,375
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MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
COMMON SHARES, PREFERRED SHARES AND WARRANTS
------------
Municipal Mortgage and Equity, L.L.C. (the "Company") may from time to
time offer, together or separately, in one or more series: (i) growth shares of
limited liability company interest ("Common Shares"); (ii) preferred shares of
limited liability company interest ("Preferred Shares"); and (iii) warrants or
other rights to purchase Common Shares, Preferred Shares, or any combination
thereof, as may be designated by the Company at the time of the offering
("Warrants"), with an aggregate public offering price of up to $175,000,000, in
amounts, at prices and on terms to be determined at the time of offering. The
Common Shares, Preferred Shares and Warrants (collectively, the "Securities")
may be offered, separately or together, in separate series and in amounts, at
prices and on terms to be set forth in one or more supplements to this
Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable, in the case of Common Shares, the number of
shares and the terms of the offering and sale; (ii) in the case of Preferred
Shares, the number of shares, the specific title, the aggregate amount, any
distribution (including the method of calculating payment of distributions),
seniority, liquidation, redemption, voting and other rights, any terms for any
conversion or exchange into other Securities, the initial public offering price
and any other terms; and (iii) in the case of Warrants, the designation and
number, the exercise price and any other terms in connection with the offering,
sale and exercise of the Warrants. The Common Shares are listed on the
American Stock Exchange, Inc. ("AMEX") under the symbol "MMA."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a national securities exchange of, the
Securities covered by such Prospectus Supplement, not contained in this
Prospectus.
The Securities may be offered directly to one or more purchasers, through
agents designated from time to time by the Company or to or through
underwriters or dealers. If any agents or underwriters are involved in the
sale of any of the Securities, their names, and any applicable purchase price,
fee, commission or discount arrangement between or among them, will be set
forth, or will be calculable from the information set forth, in an accompanying
Prospectus Supplement. The net proceeds to the Company from such sale will
also be set forth in an accompanying Prospectus Supplement. No Securities may
be sold by the Company without delivery of a Prospectus Supplement describing
the method and terms of the offering of such series of Securities. See "Plan
of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
The date of this Prospectus is , 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these
securities has been filed
with the Securities and Exchange
Commission. These securities may not be sold nor may offers to buy be accepted
prior to the time the
registration statement becomes
effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these
securities in any State in which
such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
State.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (of which this Prospectus is a part) on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities in respect of which this Prospectus is
being delivered. This Prospectus does not contain all the information set
forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission, and in the
exhibits thereto. Statements contained in this Prospectus as to the content of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Securities,
reference is hereby made to the Registration Statement and such exhibits and
schedules, which may be examined without charge at, or copies obtained upon
payment of prescribed fees from, the Commission and its regional offices listed
below.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. The Registration Statement, as well as such reports, proxy
statements and other information filed with the Commission, can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material also can be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates. The Company files its reports, proxy statements and other
information with the Commission electronically. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. The Common Shares are listed on the AMEX, and reports,
proxy statements and other information concerning the Company can be inspected
and copied at the offices of the American Stock Exchange at 86 Trinity Place,
New York, New York 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company under the Exchange
Act with the Commission and are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended by the Company's Form 10-K/A filed on
May 29, 1998.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended by the Company's Form 10-Q/A filed on
May 29, 1998.
3. The Company's Current Report on Form 8-K filed January 23, 1998.
4. The Company's Current Report on Form 8-K filed January 29, 1998.
5. The Company's Prospectus/Consent Solicitation Statement included in
its Registration Statement on Form S-4 (File No. 33-99088), as
declared effective by the Commission on May 29, 1996, as it relates
to the description of the Company's Common Shares contained under
the caption "Description of Shares" and incorporated by reference
into Item 1 of Form 8-A filed with the Commission on July 25, 1996,
pursuant to 12(b) of the Exchange Act, including all amendments and
reports updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of filing hereof and prior to the
date on which the Company ceases offering and selling Securities pursuant to
2
<PAGE>
this Prospectus shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the dates of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed modified or superseded for the purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference herein by
reference, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the Registration Statement to which
this Prospectus relates or into such other documents. Requests for documents
should be directed to Municipal Mortgage and Equity, L.L.C., 218 North Charles
Street, Suite 500, Baltimore, Maryland 21201, Attention: Derek Cole, (410)
962-8044.
THE COMPANY
The Company is a self-advised and self-managed Delaware limited liability
company which, together with its predecessor, has since 1986 been in the
business of originating, investing in and servicing tax-exempt instruments
backed by multifamily housing developments. The Company's investments
principally represent interests in mortgage bonds which have been issued by
state and local governments or their agencies or authorities to finance
multifamily housing developments and other bond related investments (the
"Mortgage Bonds"). The Company owns a portfolio of investments (the
"Investments") secured directly or indirectly by properties (the "Properties")
located in a variety of states. Certain of the Investments are participating
Mortgage Bonds where the amount of the interest payments made to the Company is
based, in part, on property performance, providing the Company the opportunity
to realize greater returns if and to the extent property performance improves.
As a limited liability company, the Company combines the limited
liability, governance and management characteristics of a corporation with
outside directors together with the pass-through income features of a
partnership. As a result, the tax-exempt income derived from the investments
may be passed through to shareholders. Approximately 85% of the Company's
interest income in 1997 was tax-exempt.
The principal executive offices of the Company are located at 218 North
Charles Street, Suite 500, Baltimore, Maryland 21201, and its telephone number
at that location is (410) 962-8044.
RISK FACTORS
RISKS OF INVESTING IN MORTGAGE BONDS SECURED BY MULTIFAMILY APARTMENT
PROPERTIES
One of the major risks of investing in Mortgage Bonds secured by
multifamily residential properties is the possibility that the property
securing a Mortgage Bond (a "Mortgaged Property") will not generate income
sufficient to meet its operating expenses, including debt service on the
related Mortgage Bonds, or that the net proceeds of a sale of such Mortgaged
Property will not be sufficient to repay the related Mortgage Bonds. In that
event, delays in payments on the Mortgage Bonds and/or losses of principal on
the Mortgage Bonds may occur. The factors affecting the operations of each
Mortgaged Property and its potential for appreciation in value include general
and local economic or market conditions, changes in neighborhood
characteristics, changes in real estate taxes, insurance premiums, cost of
utilities, changes in the amount of operating, administrative and maintenance
costs relating to the Mortgaged Property, rental values, rent strikes,
collection difficulties, governmental rules and fiscal policies, vandalism,
uninsured losses and competition from existing and future housing complexes in
the vicinity of the Mortgaged Properties. A significant portion of the
Mortgaged Properties have failed in the past to meet required debt service
under the Mortgage Bonds, and a number of the Mortgage Bonds have been refunded
on terms which defer, and in certain circumstances reduce, the amounts payable
3
<PAGE>
thereunder. There can be no assurance that such defaults and refundings will
not occur in the future.
INVESTMENTS IN JUNIOR MORTGAGES
When the Company invests in mortgages (or related bonds) which are junior
to senior mortgages on a particular property, the Company is subject to the
risks of such investment, which include the risks that borrowers may not be
able to make debt service payments on both the senior and the junior mortgages,
that the value of the mortgaged property may be less than the amounts owed
under both mortgages and that debt service collected on the junior mortgages
may be lower than the Company's cost of funds. If any of the above occurred,
the Company's ability to make expected distributions to the Company's
shareholders could be adversely affected.
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by declining property values or
performance, particularly declines in the value or performance of multifamily
properties. Any material decline in property values increases the loan-to-
value ratios of Mortgage Bonds previously issued, thereby weakening collateral
coverage and increasing the possibility of a loss in the event of default.
With respect to a significant portion of the Investments, a decline in
performance of the related underlying multifamily properties will directly
affect the Company's interest income. Significant declines in the late 1980s
and early 1990s in the value of the underlying Properties and in cash flow on
the Properties led to defaults on most of the bonds held by the Company's
predecessor and to restructuring, refinancing or extension of many of such
investments. There can be no assurance that similar problems may not occur in
the future. See "-Risks of Investing in Mortgage Bonds Secured by Multifamily
Apartment Properties."
Each Mortgage Bond owned by the Company is secured by an assignment to
the Company of the related mortgage loan, which in turn is secured by a
mortgage on the underlying property and assignment of rents. Although such
Mortgage Bonds are issued by state or local governments or their agencies or
authorities, the Mortgage Bonds are not general obligations of any state or
local government, no government is liable under the Mortgage Bonds, nor is the
taxing power of any government pledged to the payment of principal or interest
under the Mortgage Bonds. In addition, the underlying mortgage loans are
nonrecourse, which means that the owners of the underlying Properties, which
are also the borrowers under the mortgage loans, are not liable for the payment
of principal and interest under the loans except to the extent of cash flow
from, and value of, the Properties. Accordingly, the sole source of funds for
payment of principal and interest under the Mortgage Bonds is the revenue
derived from operation of the Properties and amounts derived from the sale,
refinancing or other disposition of such Properties.
RISKS OF SECURITIZATIONS
The Company seeks to enhance its overall return on its Investments and to
purchase additional investments through the securitization of part of its
portfolio of Mortgage Bonds. In a typical securitization, the Company's
Mortgage Bond is sold and deposited into a trust. Short term floating rate
interests in the trust, which have first priority on the cash flow from the
Mortgage Bonds, are sold to third party investors and these interests are paid
before the Company's residual interest described herein. The Company retains
the residual cash flow from the trust and receives the proceeds from the sale
of the floating rate interests less certain transaction costs. The Company
will recognize taxable capital gains (or losses) upon the deposit of Mortgage
Bonds in a trust. In the event the trust cannot meet its obligations, all or a
portion of the deposited Mortgage Bonds may be distributed to the floating rate
interest holders or sold to satisfy such obligations. Therefore, cash flow
from these Mortgage Bonds may not be available to pay any amounts on the
residual interest held by the Company and in the event of the liquidation of
the Mortgage Bonds, no payment will be made to the Company except to the extent
that the market value of the Mortgage Bonds exceeds the amounts due on the
other obligations of the trust. In certain circumstances, additional Mortgage
Bonds may be pledged to secure repayment of the floating rate certificates.
Upon any default in repayment of such certificates, the pledged Mortgage Bonds
may be subject to foreclosure and sale and the Company may lose the cash flow
therefrom, and/or its ownership interest therein. The Company may have a
limited ability to remedy defaults inside the trust and prevent the loss of its
investment in the residual interest. As a result of these securitizations, the
Company generally owns higher yielding but riskier portions of bond related
investments such as Residual Interest Tax Exempt Securities receipts
4
<PAGE>
("RITES<reg-trade-mark>"). Furthermore, the RITES<reg-trade-mark> may be
subject to call in certain circumstances which are beyond the control of the
Company. Where the Mortgage Bonds bear fixed rates of interest, securitization
may also create interest rate risks, as described below. See "-Interest Rate
Risks; Hedging Risks" below.
The Company relies, in part, on securitizations to fund acquisitions of
its investments. Accordingly, the ability of the Company to achieve its
investment objectives depends on its ability to successfully securitize its
Mortgage Bonds and manage its interest rate exposure. Certain of the Company's
Mortgage Bonds may have credit or other characteristics which make them
unsuitable for securitization at this time. Any failure to consummate
securitization and interest rate swap transactions could reduce the Company's
net interest income and have a material adverse effect on the Company's
operations.
INTEREST RATE RISKS; HEDGING RISKS
An increase in market interest rates may lead prospective purchasers of
the Company's existing assets or holders of the Company's debt or equity
securities to demand a higher annual yield than they would have otherwise and
could increase the cost to the Company of borrowing funds for investment in
additional assets, any of which could adversely affect the amount of funds
available for distribution to the holders of Securities. Any increase in
market interest rates also may reduce the market value of the Company's assets
and the market value of the Securities.
The results of the Company's operations depend on, among other things,
the level of net interest income derived from the difference between the return
on the securitized Mortgage Bonds and the short term floating rate payments
owed to the floating rate certificate holders. While the interest rate on the
securitized Mortgage Bonds is fixed, the third party holders of the floating
rate certificates in the securitization are paid interest at a floating rate
that is reset periodically. The Company, as holder of the residual trust
interest, receives the balance of interest on the Mortgage Bonds not used to
pay the third party trust certificates. Rising short term interest rates would
therefore reduce the net interest income available to the Company, and possibly
result in a loss.
To reduce the Company's exposure to rising interest rates, the Company
enters into interest rate swaps, which are contracts exchanging an obligation
to pay a floating rate approximating the rate on the floating rate trust
certificates for an obligation to pay a fixed rate. Net swap payments received
by the Company, if any, will be taxable income, even though the investment
being hedged pays tax-exempt interest. The interest rate swaps are for limited
time periods which generally match the anticipated prepayment date of the
underlying Mortgage Bond. However, there is no certainty that prepayment will
occur at the end of the swap period, and the swap period is typically shorter
than the term of the underlying bond. There can be no assurance that the
Company will be able to acquire interest rate swaps at favorable prices, or at
all, when the existing arrangements expire, in which case the Company would be
fully exposed to the interest rate risks described above.
Developing an effective interest rate risk management strategy is complex
and no management strategy can completely insulate the Company from all
potential risks associated with interest rate changes. In addition, hedging
involves transaction costs. In the event the Company hedges against interest
rate risks, the Company may substantially reduce its net income or adversely
affect its financial condition. Furthermore, there can be no assurance that
the Company's interest rate hedging activities will be effective.
In the event that the Company purchases interest rate swaps or other
instruments, the Company must rely for payment under these agreements on the
creditworthiness of the counterparties which to date has been Merrill Lynch
Capital Services, Inc. ("MLCS"). There can be no assurance any third party
will honor its payment obligations under the agreements. If the provider of
such swap or other instrument becomes financially unsound or insolvent, the
Company may be forced to unwind such swap or other instrument with such
provider and may take a loss thereon. Further, the Company could suffer the
adverse consequences against which the hedging transaction was intended to
protect. No assurance can be given that the Company can avoid risks of third
party insolvency.
5
<PAGE>
The Company may also engage in limited amounts of buying and selling of
other mortgage hedging securities or other hedging products, including, but not
limited to, buying and selling financial futures contracts and options on
financial futures contracts and trading forward contracts in order to hedge
commitments. These types of hedging devices and mortgage instruments are
complex and can produce volatile results. Accordingly, there can be no
assurance that the Company's hedging strategy will have the desired beneficial
impact on the Company's cash flow and on the resulting distribution yield of
the Securities.
CONFLICTS OF INTEREST
Affiliates of certain directors and officers of the Company are also
responsible for a full range of property management functions for certain
Mortgaged Properties for which they receive property management fees pursuant
to management contracts. The Company's management believes that these
contracts provide for fees which are at or below market rates for property
management fees. These management contracts will continue to be renewed only
if (i) such affiliates are providing such property management services at a
price competitive with the prices which would be charged for such goods and
services by independent parties for comparable goods and services in the same
geographic location, and (ii) in the case of any management contract with any
affiliate of any member of the Company's Board of Directors, such management
contract is approved by the independent directors of the Company. Nonetheless,
conflicts may exist in determining whether to renew or terminate these
management contracts, and in setting the fees payable under such contracts,
since any change in such fees could affect the amounts payable under the
related Mortgage Bonds.
Certain entities which control certain Mortgaged Properties are
controlled by Mark K. Joseph, the Chairman of the Board and Chief Executive
Officer of the Company. As a result, such entities could have interests which
do not fully coincide with, or even are adverse to, the interests of the
Company. Such entities could choose to act in accordance with their own
interests, which could adversely affect the Company. Among the actions such
entities could desire to take might be selling a Mortgaged Property, and
thereby causing a redemption event, at a time and under circumstances which
would not be advantageous to the Company.
Management and certain affiliates own Term Common Shares, which
participate in the cash flow of the Company. The Term Common Shares, which
will be redeemed when the preferred equity of the Company issued in 1996 is
fully redeemed, are expected to have little or no residual value, but while
outstanding receive an aggregate of 2% of the net cash flow of the Company.
While these shares remain outstanding, the holders may have conflicts of
interest in determining whether redemption of the preferred equity issued in
1996 and Term Common Shares is in the best interest of the Company, in
particular due to the limited residual value of the Term Common Shares.
Holders of Term Common Shares also receive a greater return as cash flow
increases in total, regardless of whether per share cash flow increases or
there is a distribution to shareholders. See "Description of Preferred
Shares."
7
<PAGE>
DEPENDENCE ON KEY EMPLOYEES
The Company is wholly dependent for the selection, structuring and
monitoring of its Mortgage Bonds and other Investments on the diligence and
skill of its executive officers, many of whom would be difficult to replace.
REGISTRATION UNDER THE INVESTMENT COMPANY ACT
The Company at all times intends to conduct its business so as not to
become regulated as an investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Investment Company Act
exempts entities that are "primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under current interpretation of the staff of the
Securities and Exchange Commission, in order to qualify for this exemption, the
Company must maintain at least 55% of its assets directly in Qualifying
Interests and the balance in real estate-type interests. For example, unless
certain mortgage securities represent all of the certificates issued with
respect to an underlying pool of mortgages, such mortgage securities may be
treated as securities separate from the underlying mortgage loans and, thus,
may not be considered Qualifying Interests for purposes of the 55% requirement.
Similar interpretations mandate that the Company own "whole" bonds in order for
its Mortgage Bonds to be Qualifying Interests. Based on advice of counsel, the
Company believes it meets the 55% test. However, the Company's
RITES<reg-trade-mark> interests and certain of its Mortgage Bonds are not
Qualifying Interests. The requirement that the Company maintain 55% of its
assets in Qualifying Interests may inhibit the Company's ability to acquire
certain kinds of assets or to securitize additional interests in the future.
If the Company fails to qualify for exemption from registration as an
investment company, its ability to maintain its financing strategies would be
substantially reduced, and it would be unable to conduct its business as
described herein. Such a failure to qualify could have a material adverse
effect on the Company.
LIMITED OPERATING HISTORY DOES NOT PREDICT FUTURE PERFORMANCE
The Company embarked on its acquisition growth strategy in 1996 and,
accordingly, has not yet developed an extensive financial history or
experienced a wide variety of interest rate fluctuations or market conditions.
Consequently, the Company's financial results to date may not be indicative of
future results. Furthermore, there can be no assurance that the Company will
receive returns on its investments sufficient to compensate for interest rate
and credit risks inherent in the Company's investment strategy.
FAILURE TO MANAGE EXPANSION MAY ADVERSELY AFFECT RESULTS OF OPERATIONS
The Company's expansion as a result of its investment of the net proceeds
of an offering may cause a significant strain on the Company's financial,
management and other resources. To manage the Company's growth effectively,
the Company must continue to improve and expand its existing resources and
management information systems. If the Company is unable to manage growth
effectively, the Company's financial conditions and results of operations may
be adversely affected.
INVESTMENTS IN MORTGAGE BONDS AND RITES<reg-trade-mark> MAY BE ILLIQUID
The Company's Investments lack a regular trading market and may be
illiquid. In addition, during turbulent market conditions, the liquidity of all
of the Company's Investments may be adversely impacted. There is no limit to
the percentage of the Company's assets that may be invested in illiquid
Mortgage Bonds and RITES<reg-trade-mark>. In the event the Company required
additional cash, the Company may be required to liquidate its Investments on
unfavorable terms which could substantially reduce the value of the Securities.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
8
<PAGE>
hazardous or toxic substances. The costs of such removal or remediation could
be substantial and could negatively impact the availability of property cash
flow for payments on the Investments. On 27 of the Properties, Phase I
environmental site assessments (which involve inspection without soil sampling
or groundwater analysis) have been conducted by independent environmental
consultants ("Phase I Assessments") and have not revealed any environmental
conditions as of the time such studies were completed which the Company
believes would have a material adverse effect on its business, assets or
results of operations. Some of the Phase I Assessments were conducted as long
ago as 1994. No assurance can be given that these Phase I Assessments or the
Company's inspections have revealed all environmental liabilities and problems
relating to the Properties or that nothing has occurred since the completion of
such Phase I Assessments. Management is not aware of any material
environmental problems with respect to the Properties. No assurance can be
given that the Properties on which no environmental assessment was conducted do
not contain regulated toxic or hazardous substances.
BOARD OF DIRECTORS' ABILITY UNILATERALLY TO EFFECT CHANGES IN
INVESTMENT, FINANCING AND CERTAIN OTHER POLICIES
The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, debt, capitalization and distributions, will
be determined by the Company's Board of Directors. Although the Board of
Directors of the Company has no present intention to change the Company's
business plan, the Board of Directors may amend or revise these and certain
other policies from time to time without a vote of the Company's shareholders.
Accordingly, the Company's shareholders will have no control over changes in
the policies of the Company (except for certain policies directly affecting
holders of the Company's preferred shares), and changes in the Company's
policies may not fully serve the interests of all of the Company's
shareholders.
PROVISIONS THAT MAY DISCOURAGE CHANGES OF CONTROL
The Company's organizational documents contain provisions that may be
deemed to have an anti-takeover effect, including the staggered terms of the
Company's directors, business combination and fair price provisions and control
share acquisition provisions. The Company has adopted a shareholder rights
plan. Further, the employment agreements of certain of the officers provide
them with substantial payments should their employment terminate as a result of
a change of control. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the Company's Board of
Directors and management and in the policies formulated by the Board of
Directors and to discourage an unsolicited takeover of the Company if the Board
of Directors determines that such takeover is not in the best interests of the
persons to which the Board of Directors feels it owes a fiduciary duty,
including the Company's shareholders. These provisions may, however, have the
effect of delaying, deferring or preventing a takeover attempt that a
shareholder might consider to be in the shareholder's best interest, including
offers that might result in a premium over market price for the Common Shares.
These provisions may reduce interest in the Company as a potential acquisition
target or reduce the likelihood of a change in the management or voting control
of the Company without the consent of the then incumbent Board of Directors.
In addition, in the event that certain business combination or share
acquisition transactions occur, and the Company's special shareholder does not
approve of such transaction, such special shareholder has the right to withdraw
as a shareholder of the Company; and in the event of such withdrawal, (i) the
Company would be obligated to pay the withdrawing special shareholder
$1,000,000, and (ii) a new special shareholder might have to be found in order
to ensure that the Company is not deemed to be taxable as a corporation, any of
which may have an adverse effect on the Company or the Common Shares.
ISSUANCE OF ADDITIONAL SECURITIES
The Company may issue additional securities, including additional
preferred interests in the Company, in the public or private market to obtain
funds for the acquisition of additional assets or may exchange such securities
for additional assets. The ability of the Company to sell or exchange such
securities will depend on conditions then prevailing in the relevant capital
markets and the Company's results of operations, financial condition and
business prospects. The issuance of such additional securities will not be
subject to the approval of the holders of Securities, could affect the timing
and amount of distributions to the holders of Securities, and may affect the
trading price of the Securities. The holders of Securities will not have any
9
<PAGE>
preemptive rights in connection with the issuance of any additional securities
of the Company.
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus and the other
reports incorporated by reference contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from results or plans
expressed or implied by such forward-looking statements. Such factors include,
among other things, adverse changes in the real estate markets, risk of default
under the Mortgage Bonds, financial condition and bankruptcy of tenants,
interest rate fluctuations, tax treatment of the Company and its Investments,
environmental/safety requirements, adequacy of insurance coverage, and general
and local economic and business conditions. Although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any
of the assumptions could be inaccurate and, therefore, there can be no
assurance that the forward-looking statements included or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus will
prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements, the inclusion of such information, including
the information presented herein and under "The Company," should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to combined fixed charges and preferred
distributions will be included in any Prospectus Supplement relating to
preferred shares or warrants for the purchase of preferred shares.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net cash proceeds from the sale of Securities in
respect of which this Prospectus is being delivered for general corporate
purposes, including new investments and working capital. Pending such uses,
the Company may invest such net proceeds in short term liquid investments. Any
specific allocation of the net proceeds of an offering of Securities to a
specific purpose will be determined at the time of such offering and will be
described in the related Prospectus Supplement.
DESCRIPTION OF COMMON SHARES
The following brief description of the Common Shares does not purport to
be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Amended and Restated Certificate of Formation
and Operating Agreement (the "Operating Agreement") and By-laws, copies of
which are exhibits to the Registration Statement of which this Prospectus is a
part.
GENERAL
The Operating Agreement does not limit the number of Common Shares which
the Company's Board of Directors may cause the Company to issue. The Company
had 14,359,407 Common Shares outstanding at March 31, 1998. The Company will
pay distributions to holders of the Common Shares on a PRO RATA basis when
declared by its Board of Directors out of funds legally available therefor.
Distributions to the holders of Common Shares are subject to preferences on
distributions on the Company's then Outstanding Preferred Shares (as defined
below), and any other preferred securities which may be issued by the Company
in the future.
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<PAGE>
Holders of Common Shares have no preemptive, conversion, sinking fund or
cumulative voting rights. The shares of Common Shares are not redeemable,
except pursuant to certain anti-takeover provisions adopted by the Company.
The Operating Agreement and By-laws of the Company set forth the
relationship of the shareholders to the Company and to one another and the
manner in which the Company will conduct its operations, much like the articles
and bylaws of a Delaware corporation or the partnership agreement of a Delaware
general or limited partnership. While, as a limited liability company, the
Company is not subject to the Delaware General Corporation Law (the "DGCL"),
the Delaware Limited Liability Company Act permits a limited liability company
agreement to provide, and the Operating Agreement and By-laws of the Company do
provide, that the management of a limited liability company shall be conducted
by a board of directors and officers designated by such board and that the
holders of shares in such limited liability company (as is the case with the
holders of the Common Shares) be afforded substantially all of the rights that
are afforded holders of the common shares issued by a corporation organized
under the DGCL. In all material respects, the fiduciary duties of the
directors and officers of the Company and any duties of shareholders of the
Company and their affiliates are the same as those applicable under the DGCL.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, telephone
number (908) 272-8511.
DESCRIPTION OF PREFERRED SHARES
Under the Company's Operating Agreement, the Company's Board of Directors
(without any further vote or action by the Company's shareholders) is
authorized to provide for the issuance, in one or more series, of an unlimited
amount of Preferred Shares. The Board of Directors is authorized to fix the
number of shares, the relative powers, preferences and rights, and the
qualifications, limitations or restrictions applicable to each series thereof
by resolution authorizing the issuance of such series.
OUTSTANDING PREFERRED SHARES
In connection with the merger of its predecessor with the Company in
1996, the Company issued the original preferred shares (the "Original Preferred
Shares") and Preferred CD Shares (collectively, the "Outstanding Preferred
Shares"). The Company is required to distribute to the holders of the
Outstanding Preferred Shares cash flow attributable to such shares (defined in
the Operating Agreement to be the cash flow derived from a specific pool of 22
Mortgage Bonds (the "Original Bonds")). In addition, the Company is required
to distribute 2% of the Company's net cash flow to the holders of the 2000
shares of Term Common Shares.
As of March 31, 1998, there were 22,940 Original Preferred Shares and
11,860 Preferred CD Shares outstanding. The Company does not intend to issue
any shares of the series of Outstanding Preferred Shares. The terms of the
Outstanding Preferred Shares require that no other Preferred Shares be senior
in rank or priority of payment to the Outstanding Preferred Shares with respect
to the cash flow from the Original Bonds.
The description below sets forth certain general terms and provisions of
the Company's Preferred Shares to which a Prospectus Supplement may relate. The
specific terms of any series of Preferred Shares in respect of which this
Prospectus is being delivered (the "Offered Preferred Shares") will be
described in the Prospectus Supplement relating to such Offered Preferred
Shares. The following summary of certain provisions governing the Company's
preferred shares does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Operating Agreement and the
resolutions of the Board of Directors relating to each particular series of
Offered Preferred Shares in connection with such Offered Preferred Shares.
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If so indicated in the applicable Prospectus Supplement, the terms of any
series of Offered Preferred Shares may differ from the terms set forth below,
except those terms required by the Operating Agreement.
GENERAL
The Offered Preferred Shares, when issued in accordance with the terms of
the Operating Agreement and of the applicable resolutions of the Board of
Directors and as described in the applicable Prospectus Supplement, will be
fully paid and non-assessable.
To the extent not fixed in the Operating Agreement, the relative rights,
preferences, powers, qualifications, limitations or restrictions of the Offered
Preferred Shares of any series will be fixed pursuant to resolutions of the
Board of Directors relating to such series. The Prospectus Supplement relating
to the Offered Preferred Shares of each such series shall specify the terms
thereof, including:
(1) The class, series title or designation and stated value (if
any) for such Offered Preferred Shares;
(2) The maximum number of shares of Offered Preferred Shares in
such series, the liquidation preference per share and the offering price
per share for such Offered Preferred Shares;
(3) The distribution preferences and the distribution rate(s),
period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Offered Preferred Shares;
(4) The date from which distributions on such Offered Preferred
Shares will accumulate, if applicable, and whether distributions will be
cumulative;
(5) The provisions for a retirement or sinking fund, if any, with
respect to such Offered Preferred Shares;
(6) The provisions for redemption, if applicable, of such Offered
Preferred Shares;
(7) The voting rights, if any, of shares of such Offered Preferred
Shares;
(8) Any listing of such Offered Preferred Shares for trading on
any securities exchange or any authorization of such Offered Preferred
Shares for quotation in an interdealer quotation system of a registered
national securities association;
(9) The terms and conditions, if applicable, upon which such
Offered Preferred Shares will be convertible into, or exchangeable for,
any other equity securities of the Company, including the title of any
such securities and the conversion or exchange price therefor;
(10) A discussion of federal income tax considerations applicable
to such Offered Preferred Shares; and
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Offered Preferred Shares.
Subject to the terms of the Operating Agreement and to any limitations
contained in the resolutions of the Board of Directors pertaining to any series
of Outstanding Preferred Shares, the Company may issue additional series of
Preferred Shares at any time or from time to time, with such powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as the Board of Directors
shall determine, all without further action of the shareholders, including the
holders of any series of Outstanding Preferred Shares of the Company.
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<PAGE>
DISTRIBUTIONS
Holders of any series of Offered Preferred Shares will be entitled to
receive cash distributions when, as and if declared by the Board of Directors
of the Company out of funds of the Company legally available therefor, at such
rate and on such dates as will be set forth in the applicable Prospectus
Supplement. Each distribution will be payable to holders of record as they
appear on the share ledger of the Company on the record date fixed by the Board
of Directors. Distributions, if cumulative, will be cumulative from and after
the date set forth in the applicable Prospectus Supplement.
LIQUIDATION RIGHTS
The Company's Operating Agreement provides that, in the event of a
liquidation or dissolution of the Company, or a winding up of its affairs,
whether voluntary or involuntary, or in the event of a merger or consolidation
of the Company, no distributions will be made to holders of any class of the
Company's capital shares until after payment or provision for payment of the
debts or liabilities of the Company. The holders of the Outstanding Preferred
Shares have priority on the proceeds derived from the liquidation of the
Original Bonds and to the allocation of items of income and deduction up to the
value of their respective capital accounts. The applicable Prospectus
Supplement will specify the amount and type of distributions to which the
holders of any series of Offered Preferred Shares would be entitled upon the
occurrence of any such event.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Offered
Preferred Shares will be redeemable in whole or in part at the option of the
Company, at the times, at the redemption prices and in accordance with any
additional terms and conditions set forth therein. The Operating Agreement
provides that the Company may not redeem shares of any series until all of the
Outstanding Preferred Shares are redeemed.
VOTING RIGHTS
Except as indicated in the applicable Prospectus Supplement, or except as
expressly required by applicable law, the holders of any series of Offered
Preferred Shares will not be entitled to vote.
CONVERSION
The terms and conditions, if any, on which shares of the Offered
Preferred Shares are convertible into any other class of the Company's
securities will be set forth in the Prospectus Supplement relating thereto.
Such terms will include the designation of the security into which such shares
are convertible, the conversion price, the conversion period, provisions as to
whether conversion will be at the option of the holder or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of the Offered Preferred Shares. In
the case of conversion of the Offered Preferred Shares into Common Shares or
into any other security of the Company for which there exists an established
public trading market at the time of such conversion, such terms may include
provisions under which the amount of such security to be received by the
holders of the Offered Preferred Shares would be calculated according to the
market price of such security as of a time stated in the Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Offered Preferred Shares will be
named in the applicable Prospectus Supplement.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Shares,
Preferred Shares or any combination thereof. Warrants may be issued
independently, together with any other Securities offered by a Prospectus
Supplement, and may be attached to or separate from such Securities. Warrants
may be issued under warrant agreements (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of a
particular series and will not assume any obligation or relationship of agency
or trust for or with any holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (i) the title of such Warrants; (ii) the
aggregate number of such Warrants; (iii) the price or prices at which such
Warrants will be issued; (iv) the designation, number and terms of the Common
Shares, Preferred Shares or combination thereof, purchasable upon exercise of
such Warrants; (v) the designation and terms of the other Securities, if any,
with which such Warrants are issued and the number of such Warrants issued with
each such Security; (vi) the date, if any, on and after which such Warrants and
the related underlying Securities will be separately transferable; (vii) the
price at which each underlying Security purchasable upon exercise of such
Warrants may be purchased; (viii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (ix) the
minimum amount of such Warrants which may be exercised at any one time;
(x) information with respect to book-entry procedures, if any; (xi) a
discussion of any applicable federal income tax considerations; and (xii) any
other terms of such Warrants, including terms, procedures and limitations
relating to the transferability, exchange and exercise of such Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters or dealers,
directly to other purchasers, or through agents. The Prospectus Supplement
with respect to any Securities will set forth the terms of the offering of the
Securities, including the name or names of any underwriters, dealers or agents,
the price of the offered Securities and the net proceeds to the Company from
such sale, any underwriting discounts or other items constituting underwriters'
compensation, any discounts or concessions allowed or reallowed or paid to
dealers and any national securities exchanges on which such Securities may be
listed.
If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
price or at varying prices determined at the time of sale. The underwriter or
underwriters with respect to a particular underwritten offering of Securities
will be named in the Prospectus Supplement relating to such offering, and if an
underwriting syndicate is used, the managing underwriter or underwriters will
be set forth on the cover of such Prospectus Supplement. Unless otherwise set
forth in the Prospectus Supplement, the obligations of the underwriters or
agents to purchase the Securities will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all the Securities
if any are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If a dealer is utilized in the sale of any Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. The
name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Securities may be sold directly by the Company to one or more
institutional purchasers, or through agents designated by the Company from time
to time, at a fixed price, or prices, which may be changed, or at varying
prices determined at the time of sale. Any agent involved in the offer or sale
of the Securities will be named, and any commissions payable by the Company to
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such agent will be set forth, in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
In connection with the sale of the Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities for whom
they may act as agents in the form of discounts, concessions, or commissions.
Underwriters, agents, and dealers participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of the
Securities by them may be deemed to be underwriting discounts or commissions
under the Securities Act.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Securities, other than the Common Shares, will be a new issue with no
established trading market. Any Common Shares sold pursuant to a Prospectus
Supplement will be listed on the AMEX subject to official notice of issuance.
The Company may elect to list any series of the Securities on an exchange, but
it is not obligated to do so. Any underwriters to whom Securities are sold by
the Company for public offering and sale may make a market in such Securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any Securities.
Under agreements entered into with the Company, underwriters, dealers,
and agents may be entitled to indemnification by the Company against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto. Underwriters,
dealers, or agents and their associates may be customers of, engage in
transactions with and perform services for, the Company in the ordinary course
of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws
of the jurisdiction to which such purchaser is subject. The underwriters and
such other agents will not have any responsibility in respect in respect of the
validity or performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain states Securities may not be sold unless they have been registered or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Securities offered hereby may not engage in
market making activities with respect to the Securities for a period of two
business days prior to the commencement of such distribution.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of the Company for the year ended December 31,
1997 have been so incorporated in reliance on the report (which contains an
explanatory paragraph relating to management's estimates of fair value of
mortgage revenue bonds and other bond related investments as described in Note
2 to the financial statements) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
15
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Rogers &
Wells LLP, New York, New York.
16
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table summarizes the costs and expenses to be incurred by
the Company in connection with the issuance and distribution of the Securities
being registered hereby, other than underwriting discounts and commissions.
All amounts are estimates, except for the Securities and Exchange Commission
Registration Fee:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee.................. $ 51,625
Printing and Engraving Expenses...................................... 200,000
Accounting Fees and Expenses......................................... 200,000
Legal Fees and Expenses (other than Blue Sky)........................ 375,000
Blue Sky Fees and Expenses........................................... 15,000
Miscellaneous 125,000
---------
Total................................................................ $ 966,625
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Certificate of Formation and Operating
Agreement dated as of August 1, 1996 (the "Operating Agreement") contains the
following provisions relating to indemnification of directors and officers.
All terms capitalized below and not otherwise defined shall have the meanings
set forth in the Operating Agreement.
"8.1. LIMITATIONS ON LIABILITY, AND INDEMNIFICATION OF, DIRECTORS
------------------------------------------------------------
AND OFFICERS.
------------
(a) No directors or officer of the Company shall be
liable, responsible or accountable in damages or otherwise to
the Company or any of the Shareholders for any act or omission
performed or omitted by him or her, or for any decision, except
in the case of fraudulent or illegal conduct of such person.
For purposes of this Section 8.1, the fact that an action,
omission to act or decision is taken on the advice of counsel
for the Company shall be evidence of good faith and lack of
fraudulent conduct.
(b) All Directors and officers of the Company shall be
entitled to indemnification from the Company for any loss,
damage or claim (including any reasonable attorney's fees
incurred by such person in connection therewith) due to any act
or omission made by him or her, except in the case of fraudulent
or illegal conduct of such person; PROVIDED, that any indemnity
shall be paid out of, and to the extent of, the assets of the
Company only (or any insurance proceeds available therefor), and
no Shareholder shall have any personal liability on account
thereof.
(c) The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create
a presumption that the Person acted fraudulently or illegally.
II-1
<PAGE>
(d) The indemnification provided by this Section 8.1
shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any agreement, vote of
Shareholders or Directors, or otherwise, and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
(e) Any repeal or modification of this Section 8.1 shall
not adversely affect any right or protection of a Director or
officer of the Company existing at the time of such repeal or
modification.
(f) The Company may, if the Board of Directors of the
Company deems it appropriate in its sole discretion, obtain
insurance for the benefit of the Company's Directors and
officers, relating to the liability of such persons."
The Company has purchased insurance for the benefit of the directors and
officers of the Company, relating to the liability of such persons. The
directors and officers liability insurance insures (i) the officers and
directors of the Company from any claim arising out of an alleged wrongful act
by such persons while acting as directors and officers of the Company and (ii)
the Company to the extent that it has indemnified the directors and officers
for such loss.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1* Form of Underwriting Agreement (for Common Shares, Preferred Shares and Warrants)
4.1*** Amended and Restated Certificate of Formation and Operating Agreement of the Company
4.2*** By-laws of the Company
4.3 Specimen Copy of Common Share (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 33-99088), filed November 7, 1995, and incorporated
by reference herein)
4.4** Form of specimen certificate representing Preferred Share
4.5** Form of Warrant
5.1* Opinion of Rogers & Wells LLP
8.1** Opinion of Rogers & Wells LLP as to certain tax matters
12.1** Statement regarding computation of ratios
23.1** Consent of Rogers & Wells LLP (contained in the opinion filed as Exhibit 5.1)
23.2* Consent of Price Waterhouse LLP
24.1* Powers of Attorney
</TABLE>
- --------------------
* Filed herewith.
** To be filed by amendment hereto or incorporated by reference to a Current
Report on Form 8-K in connection with the offering of Securities.
*** Filed as an Exhibit to the Company's Amended Annual Report on Form 10-K/A
for the year 1997 and incorporated herein by reference.
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ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") that are incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial BONA
FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
II-3
<PAGE>
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baltimore, State of Maryland, on this 4th day
of June, 1998.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C
By: /S/ MARK K. JOSEPH
-------------------------------------------
Name: Mark K. Joseph
Title: Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of DVI, hereby severally constitute Mark K. Joseph and Michael L.
Falcone and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including without limitation
any amendments filed pursuant to Section 462(b) of the Securities Act of 1933),
and generally to do all such things in our names and in our capacities as
officers and directors to enable Municipal Mortgage and Equity, L.L.C. to
comply with the provisions of the Securities Act of 1933, and all requirements
of the Securities and Exchange Commission, hereby ratifying and confirming our
signature as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS, IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ MARK K. JOSEPH Chairman of the Board, Chief Executive June 2, 1998
- -------------------------------------- Officer (Principal Executive Officer)
Mark K. Joseph and Director
/S/ GARY A. MENTESANA Chief Financial Officer (Principal June 2, 1998
- -------------------------------------- Financial Officer and Principal
Gary A. Mentesana Accounting Officer)
/S/ CHARLES BAUM Director June 2, 1998
- --------------------------------------
Charles Baum
/S/ RICHARD O. BERNDT Director June 2, 1998
- --------------------------------------
Richard O. Berndt
<PAGE>
/S/ ROBERT S. HILLMAN Director June 2, 1998
- --------------------------------------
Robert S. Hillman
/S/ WILLIAM L. JEWS Director June 2, 1998
- --------------------------------------
William L. Jews
/S/ CARL W. STERN Director June 2, 1998
- --------------------------------------
Carl W. Stern
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1* Form of Underwriting Agreement (for Common Shares, Preferred Shares and Warrants)
4.1*** Amended and Restated Certificate of Formation and Operating Agreement of the Company
4.2*** By-laws of the Company
4.3 Specimen Copy of Common Share (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 33-99088), filed November 7, 1995, and incorporated
by reference herein)
4.4** Form of specimen certificate representing Preferred Share
4.5** Form of Warrant
5.1* Opinion of Rogers & Wells LLP
8.1** Opinion of Rogers & Wells LLP as to certain tax matters
12.1** Statement regarding computation of ratios
23.1** Consent of Rogers & Wells LLP (contained in the opinion filed as Exhibit 5.1)
23.2* Consent of Price Waterhouse LLP
24.1* Powers of Attorney
</TABLE>
- --------------------
* Filed herewith.
** To be filed by amendment hereto or incorporated by reference to a Current
Report on Form 8-K in connection with the offering of Securities.
*** Filed as an Exhibit to the Company's Amended Annual Report on Form 10-K/A
for the year 1997 and incorporated herein by reference.
NH42410.4
<PAGE>
EXHIBIT 5.1
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Tel: (212) 878-8000 Fax: (212) 878-8375
June 4, 1998
Municipal Mortgage and Equity, L.L.C.
218 North Charles Street, Suite 500
Baltimore, MD 21201
Re: Registration on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for Municipal Mortgage and Equity, L.L.C., a
Delaware limited liability company (the "Company"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement"), filed by the
Company with the Securities and Exchange Commission (the "Commission") for
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of securities of the Company consisting of (i) growth shares of limited
liability interest (the "Common Shares"); (ii) preferred shares of limited
liability company interest (the "Preferred Shares"); and (iii) warrants or
other rights to purchase Common Shares, Preferred Shares, or any combination
thereof, as may be designated by the Company at the time of the Offering
("Warrants" and, collectively with the Common Shares and the Preferred Shares,
the "Securities") to be offered from time to time by the Company for aggregate
proceeds of up to $175,000,000. All of the Securities have no par value.
Capitalized terms used and not otherwise defined herein have the respective
meanings ascribed to such terms in the Registration Statement.
In so acting, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of the Company's Amended and
Restated Certificate of Formation and Operating Agreement (the "Operating
Agreement") and such corporate records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below. As to factual matters relevant to the
opinions set forth below we have, with your permission, relied upon
certificates of officers of the Company and public officials.
Based upon the foregoing and on such examination of law as we have deemed
necessary, we are of the opinion that:
1. The Common Shares have been duly authorized by all necessary limited
liability company action and when specifically authorized for issuance by
all necessary action of the Company's Board of Directors (the "Board"),
and when issued, delivered and paid for in accordance with such
authorization, or upon conversion, exchange or exercise of any Preferred
Shares or Warrants in accordance with the terms of such Preferred Shares
<PAGE>
Municipal Mortgage and Equity, L.L.C. Page 2
June 4, 1998
or Warrants, as the case may be, or the instrument governing such
Preferred Shares or Warrants providing for such conversion, exchange or
exercise as approved by the Board, for the consideration approved by the
Board, such Common Shares will be validly issued, fully paid and
nonassessable (subject to the Distribution Liability (as defined in the
Operating Agreement)).
2. The Preferred Shares, as described in the prospectus contained in the
Registration Statement, have been duly authorized by all necessary limited
liability company action and when (a) the Board has created the Preferred
Shares by setting the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms
or conditions of redemption, and (b) the Preferred Shares have been
issued, delivered and paid for in accordance with such authorization, such
Preferred Shares will be validly issued, fully paid and nonassessable
(subject to the Distribution Liability (as defined in the Operating
Agreement)).
3. With respect to the Warrants, when (a) the Board has taken all necessary
limited liability company action to approve the creation of and the
issuance and terms of the Warrants, the terms of the offering thereof, and
related matters, (b) the warrant agreement or agreements relating to the
Warrants have been duly authorized and validly executed and delivered by
the Company and the warrant agent appointed by the Company, and (c) the
Warrants or certificates representing the Warrants have been duly
executed, countersigned, registered and delivered in accordance with the
appropriate warrant agreement or agreements and the applicable definitive
purchase, underwriting or similar agreement approved by the Board and
against payment of the consideration therefor provided for therein, the
Warrants will be validly issued.
In rendering the foregoing opinions, we have assumed that (i) the definitive
terms of each class and series of the Securities not presently provided for in
the Registration Statement or the Operating Agreement will have been
established in accordance with all applicable provisions of law, the Operating
Agreement and the Company's by-laws and the authorizing resolutions of the
Board, and reflected in appropriate documentation approved by us, (ii) the
Registration Statement, and any amendments thereto, will have become and at the
time of issuance of the Securities will continue to be effective, (iii) a
Prospectus Supplement describing each class or series of Securities offered
pursuant to the Registration Statement will have been filed with the
Commission, (iv) the resolutions authorizing the Company to register, offer,
sell, and issue the Securities will remain in effect and unchanged at all times
during which the Securities are offered, sold, or issued by the Company and (v)
all Securities will be issued in compliance with applicable federal and state
securities laws.
We are members of the Bar of the State of New York and the opinions set forth
in this letter relate only to the federal laws of the United States of America,
the laws of the State of New York and the Delaware Limited Liability Company
Act. References in this letter to governmental authorities are limited to
federal and New York State authorities.
<PAGE>
Municipal Mortgage and Equity, L.L.C. Page 3
June 4, 1998
We understand that prior to offering for sale any Securities you will advise us
in writing of the terms of such offering and of such Securities, will afford us
an opportunity to review the operative documents (including the applicable
Prospectus Supplement and any applicable underwriting agreement) pursuant to
which the Securities are to be offered, sold, and issued and will file as an
exhibit to the Registration Statement such supplement or amendment to this
opinion (if any) as we may reasonably consider necessary or appropriate by
reason of the terms of such Securities or any changes in the Company's capital
structure or other pertinent circumstances.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us in the Prospectus under the
caption "Legal Matters." In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated February 4, 1998 appearing in Part IV, Item 14 of Municipal Mortgage
and Equity, L.L.C.'s Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Linthicum, Maryland
June 1, 1998
<PAGE>
