SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 20, 1999
Date of Report (Date of earliest event reported)
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact Name of Registrant as Specified in its Charter)
Delaware 001-11981 52-1449733
(State or Other Jurisdiction (Commission File (IRS Employer Identification No.)
of Incorporation) Number)
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(Address of Principal Executive Office) (Zip Code)
(410) 962-8044
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
On November 2, 1999, Municipal Mortgage & Equity, LLC ("MuniMae") filed
a current report on Form 8-K announcing the acquisition of 100% of the capital
stock of Midland Financial Holdings, Inc. ("Midland"). MuniMae is filing this
amendment to the current report to provide additional information with
respect to this transaction, as set forth in the exhibits included
herewith, which are incorporated by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The following documents appear as Exhibits to this current
report on Form 8-K/A:
(i) Consolidated Financial Statements of Midland Financial
Holdings, Inc. as of December 31, 1998 and 1997 and for the
two years in the period ended December 31, 1998
(ii) Consolidated Financial Statements of Midland Financial
Holdings, Inc. as of December 31, 1997 and 1996 and for the
two years in the period ended December 31, 1997
(b) Pro-Forma Financial Information.
The following documents appear as Exhibits to this current
report on Form 8-K/A:
(i) Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1999
(ii) Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999
(c) Exhibits.
2.1 Stock Purchase and Contribution Agreement dated as of
September 30, 1999, by and among Municipal Mortgage & Equity,
LLC, and Robert J. Banks, Keith J. Gloeckl and Ray F. Mathis,
filed as an exhibit to MuniMae's Current Report on Form 8-K,
filed on October 8, 1999, and incorporated by reference.
2.2 Registration Rights Agreement, dated October 20, 1999, by and
between Municipal Mortgage & Equity, LLC, and Robert J. Banks,
Keith J. Gloeckl and Ray F. Mathis.
99.1 Press Release of Municipal Mortgage & Equity, LLC, dated
October 4, 1999, filed as an exhibit to MuniMae's Current
Report on Form 8-K, filed on October 8, 1999, and incorporated
by reference.
99.2 Press Release of Municipal Mortgage & Equity, LLC, dated
October 20, 1999 filed as an exhibit to MuniMae's Current
Report on Form 8-K, filed on November 2, 1999, and
incorporated by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, LLC
By: /s/Michael L. Falcone
Michael L. Falcone
President and Chief Operating Officer
Date: December 27, 1999
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
2.1 Stock Purchase and Contribution Agreement dated as of
September 30, 1999, by and among Municipal Mortgage &
Equity, LLC, and Robert J. Banks, Keith J. Gloeckl
and Ray F. Mathis, filed as an exhibit to MuniMae's
Current Report on Form 8-K, filed on October 8, 1999,
and incorporated by reference.
2.2 Registration Rights Agreement, dated October 20,
1999, by and between Municipal Mortgage & Equity,
LLC, and Robert J. Banks, Keith J. Gloeckl and Ray
F. Mathis.
99.1 Press Release of Municipal Mortgage & Equity, LLC,
dated October 4, 1999, filed as an exhibit to
MuniMae's Current Report on Form 8-K, filed on
October 8, 1999, and incorporated by reference.
99.2 Press Release of Municipal Mortgage & Equity, LLC,
dated October 20, 1999 filed as an exhibit to
MuniMae's Current Report on Form 8-K, filed on
November 2, 1999, and incorporated by reference.
Pro Forma Condensed Combined Financial Information:
P-1 Unaudited Pro Forma Condensed Combined Balance Sheet
as of September 30, 1999
P-2 Unaudited Pro Forma Condensed Combined Statements
of Operations for the year ended December 31, 1998
P-3 Unaudited Pro Forma Condensed Combined Statements
of Operations for the nine months ended September 30,
1999
P-4 Notes to the Pro Forma Condensed Combined Financial
Statements
Consolidated Financial Statements of Midland Financial Holdings, Inc. as of
December 31, 1998 and 1997 and for the two years in the period ended December
31, 1998:
F-1 Report of Independent Accountants
F-2 Consolidated Balance Sheets as of December 31, 1998
and 1997
F-3 Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997
F-4 Consolidated Statement of Stockholders' Equity for
the years ended December 31, 1998 and 1997
F-5 Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997
F-6 Notes to Consolidated Financial Statements
Consolidated Financial Statements of Midland Financial Holdings, Inc. as of
December 31, 1997 and 1996 and for the two years in the period ended December
31, 1997:
F-14 Report of Independent Accountants
F-15 Consolidated Balance Sheets as of December 31, 1997
and 1996
F-16 Consolidated Statements of Operations for the years
ended December 31, 1997 and 1996
F-17 Consolidated Statement of Stockholders' Equity
for the ears ended December 31, 1997 and 1996
F-18 Consolidated Statements of Cash Flows for the years
ended December 31, 1997 and 1996
F-19 Notes to Consolidated Financial Statements
<PAGE>
Exhibit 2.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of October 20, 1999, between
Municipal Mortgage & Equity, LLC, a Delaware limited liability company (the
"Company"), and the shareholders listed on the signature pages hereto (each, a
"Holder").
WHEREAS, the Company and the Holders have entered into a Stock Purchase
and Contribution Agreement dated as of September 30, 1999 (the "Purchase
Agreement") pursuant to which the Company has issued and may, in the future
issue, to the Holders up to $22,000,000 worth of the Company's common shares,
without par value (the "Common Shares"); and
WHEREAS, in order to induce the Holders to enter into the Purchase
Agreement and to consummate the transactions contemplated thereby, the Company
agreed to grant to the Holders the registration rights set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 5.
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, a Sunday or a
legal holiday on which banking institutions in the States of Maryland or New
York are not required to be open.
"Common Shares" has the meaning set forth in the introductory clauses.
"Company" has the meaning set forth in the introductory clauses.
"Delay Period" has the meaning set forth in Section 2(c).
"Effectiveness Period" has the meaning set forth in Section 2(c).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Holdback Period" has the meaning set forth in Section 4.
"Holder" has the meaning set forth in the introductory clauses and
includes any assignee thereof in accordance with Section 9 of this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c).
"Indemnifying Party" has the meaning set forth in Section 8(c).
"Inspectors" has the meaning set forth in Section 5(j).
"Interruption Period" has the meaning set forth in Section 5.
"Losses" has the meaning set forth in Section 8(a).
"NASD" means the National Association of Securities Dealers.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a).
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Purchase Agreement" has the meaning set forth in the introductory
clauses.
"Records" has the meaning set forth in Section 5(j).
"Registrable Shares" means the Common Shares issued, assigned or
transferred pursuant to the Purchase Agreement and owned by a Holder, unless (i)
they have been effectively registered under Section 5 of the Securities Act and
disposed of pursuant to an effective Registration Statement, (ii) such
securities can be freely sold and transferred without restriction under Rule 144
or any other restrictions under the Securities Act or any applicable state
securities laws or (iii) such securities have been transferred pursuant to Rule
144 under the Securities Act or any successor rule such that, after any such
transfer referred to in this clause (iii), such securities may be freely
transferred without restriction under the Securities Act.
"Registration" means registration under the Securities Act of an
offering of Registrable Shares pursuant to a Shelf Registration, a Piggyback
Registration or otherwise pursuant to the terms of this Agreement.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares pursuant
to the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration statement, including pre- and
post-effective amendments, all exhibits thereto and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Shelf Registration" has the meaning set forth in Section 2(a).
"Underwritten Registration or Underwritten Offering" means a
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
SECTION 2. Shelf Registration.
(a) The Company, within 45 days of each issuance, assignment or transfer of
Common Shares pursuant to the Purchase Agreement or a demand registration
pursuant to paragraph (b) of this Section 2, shall file with the SEC, and the
Company thereafter shall use its best efforts to cause to be declared effective
within 60 days after the date of such filing and in no event later than one year
after the date hereof, a Registration Statement on the appropriate form,
including Form S-3 (or its successor form) if such form is then available for
use by the Company, for the registration and sale, in accordance with the
intended method or methods of distribution, of the total number of Registrable
Shares held of record by the Holders, which shall include a "shelf" registration
(a "Shelf Registration") pursuant to Rule 415 under the Securities Act.
(b) The Company shall use commercially reasonable efforts to keep each
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the resale of the Registrable Shares covered thereby continuously
from the date on which the SEC declares such Registration Statement effective,
until all the Registrable Shares covered by such Registration Statement have
been sold (pursuant to such Registration Statement). If any Registration
Statement is the subject of a stop order or otherwise ceases to be effective
prior to the sale of all of the Registrable Shares covered thereby, the Company
shall, subject to the provisions of paragraph (c) of this Section 2, cause such
Registrable Shares to be registered on a Registration Statement upon of written
request of any Holder.
(c) The Company shall be entitled to postpone the filing of any Registration
Statement otherwise required to be prepared and filed by the Company pursuant to
this Section 2 (other than the Registration Statement required to be filed
within 45 days of the date hereof), or suspend the use of any effective
Registration Statement under this Section 2, for a reasonable period of time,
not to exceed 30 days (a "Delay Period"), if either the Chief Executive Officer
or the Executive Vice President of the Company determines that in such officer's
reasonable judgment and good faith the registration and distribution of the
Registrable Shares covered or to be covered by such Registration Statement would
materially interfere with any pending material financing, acquisition or
corporate reorganization or other material corporate development involving the
Company or any of its subsidiaries or would require premature disclosure thereof
and promptly gives the Holders written notice of such determination, containing
a general statement of the reasons for such postponement and an approximation of
the period of the anticipated delay; provided, however, that (i) the aggregate
number of days included in all Delay Periods during any consecutive 12 months
shall not exceed the aggregate of (x) 90 days minus (y) the number of days
occurring during all Holdback Periods (as defined in Section 4) and Interruption
Periods (as defined in Section 5(k)) during such consecutive 12 months and (ii)
a period of at least 60 days shall elapse between the termination of any Delay
Period, Holdback Period or Interruption Period and the commencement of the
immediately succeeding Delay Period. If the Company shall so postpone the filing
of a Registration Statement, such filing shall be commenced immediately
following the end of such Delay Period and each of the beginning date and the
end date of the time period for which the Company is required to maintain the
effectiveness of any Registration Statement shall be extended by the aggregate
number of days of all Delay Periods, all Holdback Periods and all Interruption
Periods occurring during such Registration, respectively, and such period and
any extension thereof is hereinafter referred to as the "Effectiveness Period."
The Company shall not be entitled to initiate a Delay Period unless it shall (A)
to the extent permitted by agreements with other security holders of the
Company, concurrently prohibit sales by such other security holders under
registration statements covering securities held by such other security holders
and (B) in accordance with the Company's policies from time to time in effect,
forbid purchases and sales in the open market by senior executives of the
Company.
(d) Except to the extent required by agreements with other security holders of
the Company entered into prior to the date of the Purchase Agreement and listed
on Schedule 2(d) attached hereto, the Company shall not include any securities
that are not Registrable Shares in any Registration Statement filed pursuant to
this Section 2 without the prior written consent of the Holders of a majority in
number of the Registrable Shares covered by such Registration Statement.
SECTION 3. Piggyback Registration.
(a) Right to Piggyback. If at any time while the Holders hold Registrable Shares
the Company proposes to file a registration statement under the Securities Act
with respect to a public offering of securities of the same type as the
Registrable Shares pursuant to a firm commitment underwritten offering solely
for cash for its own account (other than a registration statement (i) on Form
S-4 or Form S-8 or any successor forms thereto, or (ii) filed solely in
connection with a dividend reinvestment plan or employee benefit plan covering
officers or directors of the Company or its Affiliates) or for the account of
any holder of securities of the same type as the Registrable Shares (to the
extent that the Company has the right to include Registrable Shares in any
registration statement to be filed by the Company on behalf of such holder),
then the Company shall give written notice of such proposed filing to the
Holders at least 30 days before the anticipated filing date. Such notice shall
offer the Holders the opportunity to register such amount of Registrable Shares
as they may request (a "Piggyback Registration"). Subject to Section 3(b), the
Company shall include in each such Piggyback Registration all Registrable Shares
with respect to which the Company has received written requests for inclusion
therein within 15 days after notice has been given to the Holders. Each Holder
shall be permitted to withdraw all or any portion of the Registrable Shares of
such Holder from a Piggyback Registration at any time prior to the effective
date of such Piggyback Registration; provided, however, that if such withdrawal
occurs after the filing of the Registration Statement with respect to such
Piggyback Registration, the withdrawing Holders shall reimburse the Company for
the portion of the SEC registration fee paid by the Company with respect to the
Registrable Shares so withdrawn.
(b) Priority on Piggyback Registrations. The Company shall permit the Holders to
include all such Registrable Shares on the same terms and conditions as any
similar securities, if any, of the Company included therein. Notwithstanding the
foregoing, if the Company or the managing underwriter or underwriters
participating in such offering advise the Holders in writing that in their good
faith determination the total amount of securities requested to be included in
such Piggyback Registration exceeds the amount which can be sold in (or during
the time of) such offering without delaying or jeopardizing the success of the
offering (including the price per share of the securities to be sold), then the
amount of securities to be offered for the account of the Holders and other
holders of securities who have piggyback registration rights with respect
thereto shall be reduced (to zero if necessary) pro rata on the basis of the
number of common stock equivalents requested to be registered by each such
Holder or holder participating in such offering.
(c) Right to Abandon. Nothing in this Section 3 shall create any liability on
the part of the Company to the Holders if the Company in its sole discretion
should decide not to file a registration statement proposed to be filed pursuant
to Section 3(a) or to withdraw such registration statement subsequent to its
filing, regardless of any action whatsoever that a Holder may have taken,
whether as a result of the issuance by the Company of any notice hereunder or
otherwise.
SECTION 4. Holdback Period.
(a) Holdback Agreement. If (i) during the Effectiveness Period, the Company
shall file a registration statement (other than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act) with
respect to the Common Shares or similar securities or securities convertible
into, or exchangeable or exercisable for, such securities and (ii) with
reasonable prior notice, the Company (in the case of a non-underwritten public
offering by the Company pursuant to such registration statement) advises the
Holders in writing that a public sale or distribution of such Registrable Shares
would materially adversely affect such offering or the managing underwriter or
underwriters (in the case of an underwritten public offering by the Company
pursuant to such registration statement) advises the Company in writing (in
which case the Company shall notify the Holders) that a public sale or
distribution of Registrable Shares would materially adversely impact such
offering, then each Holder shall, to the extent not inconsistent with applicable
law, refrain from, and agree in a writing to the Company and the underwriter or
underwriters to refrain from, effecting any public sale or distribution of
Registrable Shares during the ten days prior to the effective date of such
registration statement and until the earliest of (A) the abandonment of such
offering, (B) 90 days from the effective date of such registration statement and
(C) if such offering is an underwritten offering, the termination in whole or in
part of any "hold back" period obtained by the underwriter or underwriters in
such offering from the Company in connection therewith but in no event longer
than 180 days (each such period, a "Holdback Period"). Notwithstanding the
above, the Company agrees that (i) the Holders will not be subject to more than
one Holdback Period initiated in any two-year period; (ii) the Holders will not
be subject to a Holdback Period unless all of the executive officers and
directors of the Company are subject to the same Holdback Period; and (iii) the
Holders shall not be subject to a Holdback Period unless they are an executive
officer or director of the Company.
(b) Each Holder shall, so long as they are an executive officer or director of
the Company, refrain from effecting any public sale or distribution of
Registrable Shares during any period in which all of the executive officers and
directors of the Company are not able to effect any public sale or distribution,
(A) in accordance with internal Company policy, (B) because the Company's
executive officers and directors have entered into "lock-up agreements" with any
underwriter or underwriters, which "lock-up period" shall not be longer than 180
days, or (C) because of some other limitation of applicable law.
(c) Each Holder shall, so long as they are an executive officer or director of
the Company, to the extent that all of the Company's executive officers or
directors enter into "lock-up agreements" with any underwriter or underwriters,
agree in writing upon the same terms as the Company's executive officers and
directors, to refrain from effecting any public sale or distribution of
Registrable Shares during any "lock-up period," which "lock-up period" shall not
be longer than 180 days.
SECTION 5. Registration Procedures. In connection with the registration
obligations of the Company pursuant to and in accordance with Sections 2 and 3
(and subject to Sections 2 and 3), the Company shall use commercially reasonable
efforts to effect such registration to permit the sale of such Registrable
Shares in accordance with the intended method or methods of disposition thereof,
and pursuant thereto the Company shall as expeditiously as possible (but subject
to Sections 2 and 3):
(a) prepare and file with the SEC a Registration Statement for the sale of the
Registrable Shares on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate in accordance with such Holders'
intended method or methods of distribution thereof, subject to Section 2(a) and,
subject to the Company's right to terminate or abandon a registration pursuant
to Section 3(c), use commercially reasonable efforts to cause such Registration
Statement to become effective and remain effective as provided herein;
(b) prepare and file with the SEC such amendments and supplements (including
post-effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the rules, regulations or
instructions applicable to the Securities Act during the applicable period in
accordance with the intended methods of disposition specified by the Holders of
the Registrable Shares covered by such Registration Statement, make generally
available earnings statements satisfying the provisions of Section 11(a) of the
Securities Act (provided that the Company shall be deemed to have complied with
this clause if it has complied with Rule 158 under the Securities Act), and
cause the related Prospectus as so supplemented to be filed pursuant to Rule 424
under the Securities Act; provided, however, that before filing a Registration
Statement or Prospectus, or any amendments or supplements thereto (other than
reports required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Shares covered by such Registration
Statement and their counsel for review and comment, copies of all documents
required to be filed;
(c) notify the Holders of any Registrable Shares covered by such Registration
Statement promptly and (if requested) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to such Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to such Registration Statement or the related
Prospectus or for additional information regarding such Holders, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of such
Registration Statement or the initiation of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, and (v) of the happening of any event that
requires the making of any changes in such Registration Statement, Prospectus or
documents incorporated or deemed to be incorporated therein by reference so that
they will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) use commercially reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such Registration Statement, or the lifting of
any suspension of the qualification or exemption from qualification of any
Registrable Shares for sale in any jurisdiction in the United States;
(e) furnish to the Holder of any Registrable Shares covered by such Registration
Statement, each counsel for such Holders and each managing underwriter, if any,
without charge, one conformed copy of such Registration Statement, as declared
effective by the SEC, and of each post-effective amendment thereto, in each case
including financial statements and schedules and all exhibits and reports
incorporated or deemed to be incorporated therein by reference; and deliver,
without charge, such number of copies of the preliminary prospectus, any amended
preliminary prospectus, each final Prospectus and any post-effective amendment
or supplement thereto, as such Holder may reasonably request in order to
facilitate the disposition of the Registrable Shares of such Holder covered by
such Registration Statement in conformity with the requirements of the
Securities Act;
(f) prior to any public offering of Registrable Shares covered by such
Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as the Holders of such Registrable Shares shall
reasonably request in writing; provided, however, that the Company shall in no
event be required to qualify generally to do business as a foreign corporation
or as a dealer in any jurisdiction where it is not at the time so qualified or
to execute or file a general consent to service of process in any such
jurisdiction where it has not theretofore done so or to take any action that
would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject;
(g) upon the occurrence of any event contemplated by paragraph 5(c)(ii), (iii),
(iv) and (v), promptly prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference and file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Shares being sold thereunder (including upon the termination of any Delay
Period), such Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(h) use commercially reasonable efforts to cause all Registrable Shares covered
by such Registration Statement to be listed on each securities exchange or
automated interdealer quotation system, if any, on which similar securities
issued by the Company are then listed or quoted;
(i) on or before the effective date of such Registration Statement, provide the
transfer agent of the Company for the Registrable Shares with printed
certificates for the Registrable Shares covered by such Registration Statement,
which are free of any and all restrictive legends, in a form eligible for
deposit with The Depository Trust Company and in such denominations and
registered in such names as each Holder may reasonably request;
(j) if such offering is an underwritten offering, make available for inspection
by any Holder of Registrable Shares included in such Registration Statement, any
underwriter participating in any offering pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial and other
records and other information, pertinent corporate documents and properties of
any of the Company and its subsidiaries and affiliates (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibilities; provided, however, that the Records that the
Company determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs a confidentiality agreement reasonably satisfactory
to the Company (which shall permit the disclosure of such Records in such
Registration Statement or the related Prospectus if necessary to avoid or
correct a material misstatement in or material omission from such Registration
Statement or Prospectus) or either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction; provided further,
however, that (A) any decision regarding the disclosure of information pursuant
to subclause (i) shall be made only after consultation with counsel for the
applicable Inspectors and the Company and (B) with respect to any release of
Records pursuant to subclause (ii), each Holder of Registrable Shares agrees
that it shall, promptly after learning that disclosure of such Records is sought
in a court having jurisdiction, give notice to the Company so that the Company,
at the Company's expense, may undertake appropriate action to prevent disclosure
of such Records; and
(k) if such offering is an underwritten offering, enter into such agreements
(including an underwriting agreement in form, scope and substance as is
customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by the Holders of a majority of the Registrable
Shares being sold in connection therewith (including those reasonably requested
by the managing underwriters) in order to expedite or facilitate the disposition
of such Registrable Shares, and in such connection, (i) use commercially
reasonable efforts to obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters and counsel to the Holders
of the Registrable Shares being sold), addressed to each selling Holder of
Registrable Shares covered by such Registration Statement and each of the
underwriters as to the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such counsel and underwriters, (ii) use commercially reasonable efforts to
obtain "cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement), addressed to
each selling holder of Registrable Shares covered by the Registration Statement
(unless such accountants shall be prohibited from so addressing such letters by
applicable standards of the accounting profession) and each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings, (iii) if requested and if an underwriting agreement is entered into,
provide indemnification provisions and procedures substantially to the effect
set forth in Section 8 hereof with respect to all parties to be indemnified
pursuant to such Section. The above shall be done at each closing under such
underwriting or similar agreement, or as and to the extent required thereunder.
The Company may require each Holder of Registrable Shares covered by a
Registration Statement to furnish such information regarding such Holder and
such Holder's intended method of disposition of such Registrable Shares as it
may from time to time reasonably request in writing. If any such information is
not furnished within a reasonable period of time after receipt of such request,
the Company may exclude such Holder's Registrable Shares from such Registration
Statement.
Each Holder of Registrable Shares covered by a Registration Statement
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v),
that such Holder shall forthwith discontinue disposition of any Registrable
Shares covered by such Registration Statement or the related Prospectus until
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 5(g), or until such Holder is advised in writing (the "Advice") by the
Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amended or supplemented Prospectus or any additional or
supplemental filings which are incorporated, or deemed to be incorporated, by
reference in such Prospectus (such period during which disposition is
discontinued being an "Interruption Period") and, if requested by the Company,
the Holder shall deliver to the Company (at the expense of the Company) all
copies then in its possession, other than permanent file copies then in such
holder's possession, of the Prospectus covering such Registrable Shares at the
time of receipt of such request.
Each Holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering of such
Registrable Shares.
SECTION 6. Registration Expenses. Whether or not any Registration Statement is
filed or becomes effective, the Company shall pay all costs, fees and expenses
incident to the Company's performance of or compliance with this Agreement,
including (i) all registration and filing fees, including NASD filing fees, (ii)
all fees and expenses of compliance with securities or Blue Sky laws, including
reasonable fees and disbursements of counsel in connection therewith, (iii)
printing expenses (including expenses of printing certificates for Registrable
Shares and of printing prospectuses if the printing of prospectuses is requested
by the Holders or the managing underwriter, if any), (iv) messenger, telephone
and delivery expenses, (v) fees and disbursements of counsel for the Company,
(vi) fees and disbursements of all independent certified public accountants of
the Company (including expenses of any "cold comfort" letters required in
connection with this Agreement) and all other persons retained by the Company in
connection with such Registration Statement, (vii) fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities and (viii)
all other costs, fees and expenses incident to the preparation of Registration
Statements and Prospectuses or incident to the Company's performance of or
compliance with this Agreement. Notwithstanding the foregoing, the fees and
expenses of any persons retained by any Holder and any discounts, commissions or
brokers' fees or fees of similar securities industry professionals and any
transfer taxes relating to the disposition of the Registrable Shares by a
Holder, will be payable by such Holder and the Company will have no obligation
to pay any such amounts.
SECTION 7. Underwriting Requirements. In the case of any underwritten offering
pursuant to a Piggyback Registration, the Company shall select the institution
or institutions that shall manage or lead such offering. No Holder shall be
entitled to participate in an underwritten offering unless and until such Holder
has entered into an underwriting or other agreement (including a "holdback
agreement" to the effect set forth in Section 4) with such institution or
institutions for such offering in such form as the Company and such institution
or institutions shall reasonably determine.
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company shall, without limitation as to
time, indemnify and hold harmless, to the fullest extent permitted by law, each
Holder of Registrable Shares whose Registrable Shares are covered by a
Registration Statement or Prospectus and each underwriter if such offering is an
underwritten offering, the officers, directors and agents and employees of each
of them, each Person who controls each such Holder or underwriter, as the case
may be (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act), and the officers, directors, agents and employees of each
such controlling person, to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgment, costs (including, without
limitation, costs of preparation of a Registration Statement or Prospectus and
reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred,
arising out of or based upon (A) any untrue or alleged untrue statement of a
material fact contained in such Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon information furnished in writing to
the Company by or on behalf of such Holder expressly for use therein; provided,
however, that the Company shall not be liable to any such Holder to the extent
that any such Losses arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
prospectus if (i) having previously been furnished by or on behalf of the
Company with copies of the Prospectus, such Holder failed to send or deliver a
copy of the Prospectus with or prior to the delivery of written confirmation of
the sale of Registrable Shares by such Holder to the person asserting the claim
from which such Losses arise and (ii) the Prospectus would have corrected in all
material respects such untrue statement or alleged untrue statement or such
omission or alleged omission; and provided further, however, that the Company
shall not be liable in any such case to the extent that any such Losses arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if (x) such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in all
material respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of Registrable Shares or (B) any violation by the Company of any
federal or state securities rule or regulation applicable to the Company and
relating to any action or inaction by the Company in connection with such
registration. Such indemnification and reimbursement obligations shall remain in
full force and effect following the transfer of Registrable Shares.
(b) Indemnification by Holder of Registrable Shares. In connection with any
Registration Statement in which a Holder is participating, such Holder shall
furnish to the Company in writing such information as the Company reasonably
requests for use in connection with such Registration Statement or the related
Prospectus and agrees to indemnify and hold harmless, to the full extent
permitted by law, the Company, its directors, officers, agents or employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act) and the directors, officers,
agents or employees of such controlling Persons, from and against all Losses
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in such Registration Statement or the related Prospectus
or any amendment or supplement thereto, or any preliminary prospectus, or
arising out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent that such untrue or alleged untrue statement or
omission or alleged omission is based upon any information so furnished in
writing by or on behalf of such Holder to the Company expressly for use in such
Registration Statement or Prospectus; provided that the aggregate amount which
any such Holder shall be required to pay pursuant hereto shall be limited to the
amount of net proceeds received by the Holder upon the sale of the Registrable
Shares pursuant to the Registration Statement giving rise to such matters.
(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to
indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall give
prompt notice to the party from which such indemnity is sought (the
"Indemnifying Party") of any claim or of the commencement of any proceeding with
respect to which such Indemnified Party seeks indemnification or contribution
pursuant hereto; provided, however, that the delay or failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party from any obligation
or liability except to the extent that the Indemnifying Party has been
prejudiced by such delay or failure. The Indemnifying Party shall have the
right, exercisable by giving written notice to an Indemnified Party promptly
after the receipt of written notice from such Indemnified Party of such claim or
proceeding, to assume, at the Indemnifying Party's expense, the defense of any
such claim or proceeding, with counsel reasonably satisfactory to such
Indemnified Party; provided, however, that (i) an Indemnified Party shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless: (1) the Indemnifying
Party agrees to pay such fees and expenses; (2) the Indemnifying Party fails
promptly to assume the defense of such claim or proceeding or fails to employ
counsel reasonably satisfactory to such Indemnified Party; or (3) the named
parties to any proceeding (including impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it that are inconsistent with those available to the Indemnifying
Party or that a conflict of interest is likely to exist among such Indemnified
Party and any other indemnified parties (in which case the Indemnifying Party
shall not have the right to assume the defense of such action on behalf of such
Indemnified Party); and (ii) subject to clause (3) above, the Indemnifying Party
shall not, in connection with any one such claim or proceeding or separate but
substantially similar or related claims or proceedings in the same jurisdiction,
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one firm of attorneys (together with appropriate
local counsel) at any time for all of the indemnified parties, or for fees and
expenses that are not reasonable. Whether or not such defense is assumed by the
Indemnifying Party, such Indemnified Party shall not be subject to any liability
for any settlement made without its consent. The Indemnifying Party shall not
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release, in form and substance reasonably
satisfactory to the Indemnified Party, from all liability in respect of such
claim or litigation for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) Contribution. If the indemnification provided for in this Section 8 is
unavailable to an Indemnified Party in respect of any Losses (other than in
accordance with its terms), then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party, on
the one hand, and such Indemnified Party, on the other hand, in connection with
the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party, on the one hand, and Indemnified Party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement of a material fact or omission or alleged
omission to state a material fact, has been taken by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent any such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include any legal or other
fees or expenses incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an Indemnifying Party that
is a Holder shall not be required to contribute any amount which is in excess of
the amount by which the total proceeds received by such Holder from the sale of
the Registrable Shares sold by such Holder (net of all underwriting discounts
and commissions) exceeds the amount of any damages that such Indemnifying Party
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
SECTION 9. Transfer of Registration Rights. The rights to cause the Company to
register Registrable Shares pursuant to this Agreement may not be assigned by a
Holder to a transferee or assignee of such securities except to (i) a Person who
acquires Registrable Shares and who has agreed to be bound by the terms of this
Agreement as if such Person were a Holder, (ii) a Person who is upon the death
of any Holder, the executor of the estate of such Holder or any of such Holder's
heirs, devisees, legatees or assigns or (iii) upon the disability of any Holder,
any guardian or conservator of such Holder.
SECTION 10. Miscellaneous.
(a) Termination. This Agreement and the obligations of the Company and the
Holders hereunder (other than Section 8) shall terminate on the first date on
which no Registrable Shares remain outstanding and no further initial Common
Shares may be issued, assigned or transferred by the Company pursuant to the
Purchase Agreement.
(b) Notices. All notices or communications hereunder shall be in writing
(including telecopy or similar writing), addressed as follows:
To the Company:
Municipal Mortgage & Equity, LLC
218 N. Charles St., Suite 500
Baltimore, Maryland 21201
Attention: Michael L. Falcone
Telecopier: (410) 727-5387
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Robert E. King, Jr., Esq.
Telecopier: (212) 878-8375
To the Holders:
To the Addresses set forth on the Signature Pages hereto
with a copy to:
Honigman, Miller, Schwartz & Cohn
2290 First National Building
Detroit, Michigan 48226
Attention: Greg DeMars, Esq.
Telecopier: (313) 465-7357
or such other addresses as each of the parties hereto or any future Holder may
designate to the other parties.
Any such notice or communication shall be deemed given (i) when made,
if made by hand delivery, (ii) upon transmission, if sent by confirmed
telecopier, (iii) one Business Day after being deposited with a next-day
courier, postage prepaid, or (iv) three business days after being sent certified
or registered mail, return receipt requested, postage prepaid, in each case
addressed as above (or to such other address or to such other telecopier number
as such party may designate in writing from time to time).
(c) Separability. If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
(d) Assignment. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, devisees, legatees, legal
representatives, successors and assigns; provided that the Company may not
assign any of its obligations hereunder.
(e) Entire Agreement. This Agreement represents the entire agreement of the
parties and shall supersede any and all previous contracts, arrangements or
understandings between the parties hereto with respect to the subject matter
hereof.
(f) Amendments and Waivers. Except as otherwise provided herein, the provisions
of this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of at least a majority in
number of the Registrable Shares then outstanding.
(g) Publicity. No public release or announcement concerning the transactions
contemplated hereby shall be issued by any party without the prior consent of
the other parties, except to the extent that such party is advised by counsel
that such release or announcement is necessary or advisable under applicable law
or the rules or regulations of any securities exchange, in which case the party
required to make the release or announcement shall to the extent practicable
provide the other party with an opportunity to review and comment on such
release or announcement in advance of its issuance.
(h) Expenses. Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, all costs and expenses
incurred in connection with the execution of this Agreement shall be paid by the
party incurring such costs or expenses, except as otherwise set forth herein.
(i) Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(j) Counterparts. This Agreement may be executed in two or more counterparts,
all of which shall be one and the same agreement, and shall become effective
when counterparts have been signed by each of the parties and delivered to each
other party.
(k) Governing Law. This Agreement shall be construed, interpreted, and governed
in accordance with the internal laws of Maryland without giving regard to the
principles of conflicts of law.
(l) Waiver. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
(m) Calculation of Time Periods. Except as otherwise indicated, all periods of
time referred to herein shall include all Saturdays, Sundays and holidays;
provided, however, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first written above.
MUNICIPAL MORTGAGE & EQUITY, LLC
By: /s/Michael L. Falcone
Name: Michael L. Falcone
Title: President and Chief Operating Officer
SHAREHOLDERS
/s/Robert J. Banks
Robert J. Banks
9912 Windtree Blvd.
Seminole, Florida 33772
/s/Keith J. Gloeckl
Keith J. Gloeckl
1647 Sand Key Estates Court
Clearwater, Florida 33767
/s/Ray F. Mathis
Ray F. Mathis
11890 Walker Avenue
Seminole, Florida 33772
<PAGE>
Schedule 2(d) - Agreements With Other Security Holders
NONE
P-1
MUNICIPAL MORTGAGE & EQUITY, LLC
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
acquisition by Municipal Mortgage & Equity, LLC ("MuniMae") of Midland Financial
Holdings, Inc. and Subsidiaries ("Midland") in a transaction to be accounted for
as a purchase. The unaudited pro forma balance sheet is based on the individual
balance sheets of MuniMae and Midland and has been prepared to reflect the
acquisition by MuniMae of Midland as of September 30, 1999. The unaudited pro
forma statement of income for the nine months ended September 30, 1999 is based
on the individual statements of income of MuniMae and Midland, and combines the
results of operations of MuniMae and of Midland (acquired by MuniMae on October
20, 1999) as if the acquisition occurred on January 1, 1999. The unaudited pro
forma statement of income for the year ended December 31, 1998 is based on the
individual statements of income of MuniMae and Midland, and combines the results
of operations of MuniMae and of Midland (acquired by MuniMae on October 20,
1999) as if the acquisition occurred on January 1, 1998. These unaudited pro
forma financial statements should be read in conjunction with the historical
financial statements and notes thereto of MuniMae and of Midland included
elsewhere in this Current Report on Form 8-K/A.
<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(in thousands)
(unaudited)
Pro Forma Pro Forma
MuniMae Midland Adjustments Combined
------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 31,450 $ 226 $ (23,000)(a) $ 8,676
Tax exempt bonds and other bond related investments, net 442,247 - 442,247
Taxable loans, notes and other 28,253 212,132 240,385
Other investments - 5,080 - 5,080
Property and equipment, net 323 568 891
Identifiable intangibles and goodwill - - 25,244 (c) 25,244
Other assets 12,367 2,595 (764)(d) 14,198
------------ ------------- ---------------- -------------
Total assets $514,640 $220,601 $ 1,480 $ 736,721
============ ============= ================ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 2,813 $ 3,398 $ 6,211
Loans payable - 199,219 199,219
Other liabilities 6,638 7,220 13,858
Deferred tax liability - - 244 (e) 244
Long-term debt 67,000 - 67,000
------------ ------------- ---------------- -------------
Total liabilities 76,451 209,837 244 286,532
------------ ------------- ---------------- -------------
Commitments and contingencies - - - -
Preferred shareholders' equity in a subsidiary company 81,597 - 81,597
Shareholders' equity:
Preferred shares 15,844 - 15,844
Preferred capital distribution shares 5,394 - 5,394
Term growth shares 156 - 156
Common shares 311,036 - 12,000 (a) 323,036
Paid-in capital - 1,060 (1,060)(b) -
Retained earnings - 9,704 (9,704)(b) -
Less growth shares held in treasury at cost (2,355) - (2,355)
Less unearned compensation - restricted shares (2,447) - (2,447)
Accumulated other comprehensive income 28,964 - 28,964
------------ ------------- ---------------- -------------
Total shareholders' equity 356,592 10,764 1,236 368,592
------------ ------------- ---------------- -------------
Total liabilities and shareholders' equity $514,640 $220,601 $ 1,480 $736,721
============ ============= ================ =============
</TABLE>
<PAGE>
P-2
<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except share and per share data)
(unaudited)
Pro Forma Pro Forma
MuniMae Midland Adjustments Combined
------------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 23,241 $ - $ - $ 23,241
Interest on parity working capital loans, demand notes and other loans 4,563 - 4,563
Interest on loans and short-term investments 1,330 17,334 18,664
Loan service fees 1,351 2,910 4,261
Brokerage and consulting fees - 5,875 5,875
Net gain on sales 4,743 - 4,743
Other income 230 197 427
------------- ---------- --------------- -------------
TOTAL INCOME 35,458 26,316 - 61,774
------------- ---------- --------------- -------------
EXPENSES:
Interest expense - 15,156 15,156
Salaries and employee benefits 3,309 5,678 8,987
Depreciation and amortization 38 208 1,262 (2) 1,508
Other operating expenses 2,655 3,452 6,107
Other-than-temporary impairments 2,049 - 2,049
------------- ---------- --------------- -------------
TOTAL EXPENSES 8,051 24,494 1,262 33,807
------------- ---------- --------------- -------------
NET INCOME BEFORE INCOME TAXES 27,407 1,822 (1,262) 27,967
INCOME TAXES - 70 629 (2) 699
------------- ---------- --------------- -------------
NET INCOME $ 27,407 $ 1,752 $ (1,891) $ 27,268
============= ========== =============== =============
NET INCOME ALLOCATED TO:
Preferred shares $ 1,533 $ - $ - $ 1,533
Preferred CD shares 641 - 641
Term growth Shares 505 - 22 (3) 527
------------- ---------- --------------- -------------
Common Shares/principals $ 24,728 $ 1,752 $ (1,913)(3) $ 24,567
============= ========== =============== =============
Net income per common share:
BASIC $ 1.62 $ 1.55
============= =============
DILUTED $ 1.60 $ 1.53
============= =============
Weighted average common shares outstanding:
BASIC 15,233,380 15,822,945
============= =============
DILUTED 15,938,249 16,528,728
============= =============
</TABLE>
<PAGE>
P-3
<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except share and per share data)
(unaudited)
Pro Forma Pro Forma
MuniMae Midland Adjustments Combined
-------------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 26,251 $ - $ - $ 26,251
Interest on parity working capital loans, demand notes and other loans 1,637 - 1,637
Interest on loans and short-term investments 1,075 15,324 16,399
Loan service fees 763 2,711 3,474
Brokerage and consulting fees - 6,973 6,973
Net gain on sales 1,478 - 1,478
Other income 609 82 691
-------------- ---------- --------------- -------------
TOTAL INCOME 31,813 25,090 - 56,903
-------------- ---------- --------------- -------------
EXPENSES:
Interest expense 1,746 12,421 14,167
Salaries and employee benefits 3,159 5,182 8,341
Depreciation and amortization 44 159 947 (2) 1,150
Other operating expenses 1,546 2,826 4,372
-------------- ---------- --------------- ------------
TOTAL EXPENSES 6,495 20,588 947 28,030
-------------- ---------- --------------- ------------
NET INCOME BEFORE DISTRIBUTIONS TO PREFERRED
SHAREHOLDERS IN A SUBSIDIARY COMPANY 25,318 4,502 (947) 28,873
INCOME ALLOCABLE TO PREFERRED SHAREHOLDERS IN A
SUBSIDIARY COMPANY 1,989 - - 1,989
-------------- ---------- --------------- ------------
NET INCOME BEFORE INCOME TAX EXPENSE 23,329 4,502 (947) 26,884
INCOME TAX EXPENSE - - 1,753 (2) 1,753
-------------- ---------- --------------- ------------
NET INCOME $ 23,329 $ 4,502 $ (2,700) $ 25,131
============== ========== =============== ============
NET INCOME ALLOCATED TO:
Preferred shares $ 1,224 $ - $ - $ 1,224
Preferred CD shares 485 - - 485
Term growth Shares 438 - 55 (3) 493
-------------- ---------- --------------- ------------
Common Shares $ 21,182 $ 4,502 $ (2,755)(3) $ 22,929
============== ========== =============== ============
Net income per common share:
BASIC $ 1.26 $ 1.32
============== ============
DILUTED $ 1.24 $ 1.29
============== ============
Weighted average common shares outstanding:
BASIC 16,806,229 17,395,794
============== ============
DILUTED 17,338,361 18,119,702
============== ============
</TABLE>
<PAGE>
P-4
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1 - The pro forma condensed combined balance sheet as of September 30, 1999
has been prepared to reflect the acquisition of Midland Financial Holdings, Inc.
and Subsidiaries by Municipal Mortgage & Equity, LLC for an aggregate purchase
price of up to $45 million, consisting of cash of $23 million, common shares of
MuniMae of approximately $12 million at October 20, 1999 (date of acquisition)
and contingent consideration in the form of common shares of MuniMae of
approximately $10 million payable ratably over a three year period provided that
Midland's performance meets certain yearly performance targets. Pro forma
adjustments are made to reflect:
(a) The payment of $23 million and issuance of $12 million of MuniMae common
shares to the principals of Midland necessary to complete the purchase
acquisition.
(b) The elimination of the common shareholders' equity accounts of Midland.
(c) The net assets of Midland at estimated fair value at the acquisition date,
the identifiable intangibles and the excess of acquisition cost over the fair
value of the net assets acquired (goodwill). Allocation of purchase price is
as follows:
<TABLE>
<CAPTION>
Historical Purchase
Allocation Cost Adjustment
---------------- ---------------- ------------------
<S> <C> <C> <C>
Current assets acquired $ 226 $ 226 $ -
Loans receivable 212,132 212,132 -
Property and equipment 568 568 -
Identifiable intangibles and other assets 27,839 2,595 25,244
Current liabilities (3,398) (3,398) -
Other liabilities (206,439) (206,439) -
Deferred tax liability 244 - 244
Shareholders' equity - (10,764) 10,764
---------------- ---------------- ------------------
Cash and common shares $ 31,172 $ (5,080) $ 36,252
================ ================ ==================
</TABLE>
The allocation of purchase price is preliminary due to contingent
consideration to be issued, as noted above. Management expects the
allocation of purchase price to be adjusted annually over the three
year period which will determine the amount of contingent consideration
which will be paid; the final amounts will differ from the estimates
provided herein. It is anticipated that all the contingent consideration
will be allocated to goodwill as incurred.
<PAGE>
(d) Prepaid acquisition costs incurred associated with the acquisition of
Midland.
(e) Recognition of a deferred tax liability for federal and state tax purposes
associated with the change in status of Midland from a Subchapter S corporation
to a C corporation for income tax purposes. Income tax expense associated with
the change in status was determined using an effective tax rate of 40% for the
year ended December 31, 1998 and 39% for the nine months ended September 30,
1999.
NOTE 2 - The pro forma condensed statements of income for the year ended
December 31, 1998 and the nine months ended September 30, 1999 give effect to
the following pro forma adjustments necessary to reflect the acquisition as
outlined in Note 1:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
---------------- ----------------
(in thousands)
<S> <C> <C>
Amortization of incremental intangibles $ 1,262 $ 947
Income tax expense (Note 1) 629 1,753
</TABLE>
Identifiable intangibles and goodwill will be amortized and expensed over their
expected useful life of 20 years, respectively.
NOTE 3 - Allocation of net income related to pro forma adjustments to Term
Growth Shares and Common Shares.
<PAGE>
F-1
Report of Independent Accountants
To the Board of Directors
Midland Financial Holdings, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income, changes in stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Midland Financial Holdings, Inc.
and subsidiaries (the "Company") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
March 10, 1999
<PAGE>
F-2
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Cash and short-term investments $ 1,391,068 $ 2,989,706
Loans receivable 178,819,311 187,491,907
Income taxes receivable 18,025 -
Accrued interest receivable 1,803,640 2,135,723
Property and equipment, net of accumulated depreciation 581,693 673,357
Other assets 1,648,294 2,082,764
----------------- -----------------
$ 184,262,031 $195,373,457
================= =================
Liabilities
Notes payable $ 169,585,619 $ 181,839,647
Accrued interest payable 1,595,150 2,019,132
Accounts payable and accrued expenses 1,576,990 1,319,831
Income taxes payable - 126,363
Deferred loan fees 2,130,932 1,142,638
----------------- -----------------
174,888,691 186,447,611
----------------- -----------------
Commitments (Note 6)
Stockholders' Equity
Common stock - $.10 par value; 10,000 shares authorized; 1,000
shares issued and outstanding 100 100
Paid-in capital 1,059,900 1,059,900
Retained earnings 8,313,340 7,865,846
----------------- -----------------
9,373,340 8,925,846
----------------- -----------------
$ 184,262,031 $195,373,457
================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-3
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Income
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Revenues
Interest from loans and short-term investments $17,333,802 $19,385,288
Loan service fees 1,842,390 2,131,846
Brokerage and consulting fees 5,874,865 9,944,416
Other 1,265,617 1,702,968
---------------- ----------------
26,316,674 33,164,518
---------------- ----------------
Expenses
Interest 15,155,934 16,880,698
Salaries and employee benefits 5,678,226 6,668,539
Other operating expenses 3,660,179 5,264,611
---------------- ----------------
24,494,339 28,813,848
---------------- ----------------
Income before income taxes 1,822,335 4,350,670
Income tax expense (benefit) 69,841 (72,109)
---------------- ----------------
Net income $1,752,494 $4,422,779
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-4
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Paid-In Retained
-------------------------
Issued Par Value Capital Earnings Total
---------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 1,000 $ 100 $1,059,900 $4,983,067 $6,043,067
Net income- 1997 4,422,779 4,422,779
Dividends paid (1,540,000) (1,540,000)
---------- ------------- --------------- --------------- ---------------
Balance - December 31, 1997 1,000 100 1,059,900 7,865,846 8,925,846
Net income - 1998 1,752,494 1,752,494
Dividends paid (1,305,000) (1,305,000)
---------- ------------- --------------- --------------- ---------------
Balance - December 31, 1998 1,000 $ 100 $1,059,900 $8,313,340 $9,373,340
========== ============= =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-5
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Cash received for loan service, brokerage and consulting fees $ 9,971,166 $ 12,884,971
Interest received 17,665,885 19,419,232
Cash paid to employees and suppliers (8,780,352) (13,328,733)
Interest paid (15,579,916) (16,249,581)
Income taxes received (paid) (214,229) 271,851
------------------ -------------------
Net cash provided by operating activities 3,062,554 2,997,740
------------------ -------------------
Cash Flows from Investing Activities
Loans originated (222,292,048) (162,213,980)
Loans collected 230,964,644 158,700,933
Expenditures for property and equipment (114,918) (319,842)
Proceeds from sale of property and equipment - 142,986
Proceeds from sale of partnership interests - 395,000
Other 345,308 (464,410)
------------------ -------------------
Net cash provided by (used in) investing activities 8,902,986 (3,759,313)
------------------ -------------------
Cash Flows from Financing Activities
Borrowings from credit facilities 228,752,304 201,102,860
Repayment of credit facilities (241,006,332) (201,632,661)
Borrowings repaid under mortgage payable - (96,028)
Loan costs (5,150) -
Dividends paid (1,305,000) (1,540,000)
------------------ -------------------
Net cash used in financing activities (13,564,178) (2,165,829)
------------------ -------------------
Net decrease in cash (1,598,638) (2,927,402)
Cash and short-term investments, beginning of period 2,989,706 5,917,108
------------------ -------------------
Cash and short-term investments, end of period $ 1,391,068 $ 2,989,706
================== ===================
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Net income $ 1,752,494 $ 4,422,779
------------------ -------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 207,624 174,195
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 332,083 33,944
(Increase) decrease in income taxes (144,388) 401,722
(Increase) decrease in other assets 93,270 (1,248,955)
Increase (decrease) in accrued interest payable (423,982) 631,117
(Decrease) increase in accounts payable and accrued expenses 257,159 (378,456)
Decrease in deferred income tax liability - (201,980)
Increase (decrease) in deferred loan fees 988,294 (310,818)
Gain on sale of partnership interest - (583,441)
Loss from disposal of fixed assets - 57,633
------------------ -------------------
Total adjustments 1,310,060 (1,425,039)
------------------ -------------------
Net cash provided by operating activities $ 3,062,554 $ 2,997,740
================== ===================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
F-6
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
1. Ownership and Operations
The accompanying financial statements include Midland Financial Holdings,
Inc. (the "Parent"), and its wholly owned subsidiaries, Midland Mortgage
Investment Corporation ("Midland") and its subsidiary, Midland Realty
Investment Corporation ("Realty"), Midland Capital Corporation ("Capital"),
Midland Equity Corporation ("Equity"), Midland Securities Corporation
("Securities") and Midland Advisory Services, Inc.
("Advisory").
Midland's primary business is the origination, financing and servicing of
low to moderate-income, multi-family and commercial construction and
permanent loans throughout the continental United States. Capital provides
construction period working capital loans to developers of low to
moderate-income apartment projects and finances investor notes for direct
participation programs offered by Equity. Realty is a real estate brokerage
company, which primarily manages properties. Equity is a syndicator of
low-income housing projects. Securities is a securities dealer, registered
with the National Association of Securities Dealers. Advisory functions as
a real estate advisor for pension funds.
During 1998 approximately 80% of Midland's loans and 100% of Capital's
loans were made to developers of low to moderate-income apartment projects.
All of Equity's syndications were of projects which receive tax credits for
low-income rental housing under Internal Revenue Code Section 42.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
and its subsidiaries (the "Group"). All material intercompany profits,
transactions and balances have been eliminated.
Loan Origination Fees
Loan origination fees are being deferred and amortized over the contractual
lives of the related loans.
Allowance for Loan Losses
The Group provides an allowance for possible losses on loans receivable
based upon management's evaluation of all loans in the Group's portfolio.
When it is determined that a loan will not be fully realized, an allowance
is established for the full amount of the estimated loss. At December 31,
1998 and 1997, management determined that no allowance for possible loan
losses was necessary.
<PAGE>
F-7
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
2. Summary of Significant Accounting Policies, continued
Depreciation
Property and equipment consisting primarily of furniture and fixtures is
depreciated using the straight-line method over the estimated useful lives
(2 to 10 years) of the assets for financial reporting purposes. Accumulated
depreciation as of December 31, 1998 and 1997 amounted to $628,951 and
$422,369, respectively.
Income Taxes
Effective January 1, 1997, the Group elected S corporation status. Earnings
and losses after that date are included in the personal income tax returns
of the Parent's stockholders. Accordingly, the Group will normally not
incur additional tax obligations, and future financial statements will
normally not include a provision for federal income taxes. However, the
Company continues to be subject to state income taxes in certain states.
Consolidated Statement of Cash Flows
Cash equivalents include cash and short-term cash investments with
maturities at the date of acquisition of three months or less.
The Company considers loan service fees to be operating transactions
and has reflected these funds as operating activities in the accompanying
statements of cash flows.
Concentrations of Credit Risk
Financial instruments which potentially subject the Group to concentrations
of credit risk consist principally of cash, short-term cash investments,
and loans receivable.
The Group maintains its cash and short-term cash investments with, what it
believes to be, high credit quality financial institutions as determined by
the Group's management. At December 31, 1998, the Group's cash and
short-term cash investments were primarily on deposit at United Bank &
Trust Company. Concentrations of credit risk with respect to loans
receivable are limited due to commitments for permanent financing from
lenders determined to have the financial ability to honor such commitments.
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 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.
<PAGE>
F-8
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
3. Loans Receivable
1998 1997
<S> <C> <C>
Construction Loans on Low to Moderate-Income Apartment Projects:
Collateralized by the properties under construction and personall
guaranteed by the borrowers; interest ranges from 8.25% to 10%,
(fixed rate loans), and adjustable rates range from money center
bank prime to 2.5% over money center bank prime (7.75% at December 31,
1998); principal amounts mature through 2001; pledged as collateral for
notes payable to investor; repayment is expected to be from the
permanent lenders upon successful completion of the projects. $ 166,818,758 $183,753,525
Working Capital Loans:
Personally guaranteed by the borrowers; interest at 8% to 12% fixed and
1% to 3% over money center bank prime (7.75% at December 31, 1998);
principal amounts mature through 2001; pledged as collateral for
amounts due on lines of credit; repayments are expected to be from
construction profits and syndication procedures. 2,257,191 2,375,199
Direct Participation Program:
Collateralized by the related limited partnership's notes receivable;
interest at varying rates ranging from 10.5% to 11%; principal amounts
mature through January 31, 2002; pledged as collateral for pension
fund notes payable; repayment is expected to be from investor note
collections. 599,356 1,363,183
Syndication-Related Notes and Advances:
Short-term notes to a partnership syndicated by Equity and to a
developer of a property syndicated by Equity; mostly non-interest
bearing. 9,144,006 -
----------------- -----------------
$178,819,311 $ 187,491,907
================= =================
</TABLE>
<PAGE>
F-9
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
4. Notes Payable
1998 1997
<S> <C> <C>
Investors:
Used to finance the construction lending activities; fixed interest
rates range from 7.143% to 8.75%; variable interest rates range
from 1.2% under to 1.75% over money center bank prime (7.75% at
December 31, 1998); principal amounts mature through 2001;
collateralized by the related construction loans receivable. $ 155,305,937 $168,407,514
Group Trust:
Used to finance the interim construction and permanent lending
activities; interest at 6% to 6.55%; principal amount matures January
1999; collateralized by the related loan receivable. 550,000 7,950,000
Used of finance syndication advances of a limited partnership;
collateralized by a security interest in a promissory note from the
limited partnership; interest at .5% over money center bank prime
(7.75% at December 31, 1998); principal due in 1999. 8,595,000 -
Bank:
Note payable dated July 31, 1996 in the original amount of $2,500,000;
interest only payments through January 31, 1997; monthly principal
payments of $46,297 plus interest at 1% over money center bank prime
(7.75% at December 31, 1998) beginning March 1, 1997 until August 1, 2001
maturity; collateralized by 100% of outstanding shares of Parent's
stock and personally guaranteed by the stockholders. 1,435,169 1,990,733
Bank Line of Credit:
$3,000,000 line used to finance working capital lending activities;
interest rate is the higher of (a) bank prime less 2.25% (8.63% at
December 31, 1998), or (b) 1.25% above weekly average one-year Treasury
index rate (4.63% at December 31, 1998); collateralized by the related
working capital and investor notes receivable and personally guaranteed
by the stockholders; the line expires upon 180 days written notice by
bank. 1,965,000 1,900,000
</TABLE>
<PAGE>
F-10
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
4. Notes Payable, continued
1998 1997
<S> <C> <C>
Individuals:
Demand notes; interest at 3/4% over money center bank prime
(7.75% at December 31, 1998). $ 646,592 $ 564,155
Stockholders:
Demand notes to stockholders of Parent; uncollateralized; interest at 3/4%
over money center bank prime (7.75% at December 31,
1998). 1,087,921 1,027,245
---------------- -----------------
$ 169,585,619 $ 181,839,647
================ =================
</TABLE>
Maturities of notes payable are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Amount
-----------------
<S> <C>
1999 $ 130,801,516
2000 31,066,133
2001 7,717,970
-----------------
$ 169,585,619
=================
</TABLE>
5. Income Taxes
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Currently payable $ 69,841 $ 129,871
Deferred - (201,980)
---------------- ----------------
$ 69,841 $ (72,109)
================ ================
</TABLE>
The income tax expense for the year ended December 31, 1998 represents
estimated state income taxes. The income tax benefit for the year ended
December 31, 1997 represents the reversal of the deferred income tax
liability provided prior to the Group's election as an S corporation, net
of the income taxes on the built-in-gain related to the gain realized on
the sale of partnership interests and estimated state income taxes.
<PAGE>
F-11
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
6. Commitments
Lease Commitments
Midland has entered into noncancelable operating leases for office space
and equipment. Minimum future annual rental payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 540,000
2000 483,000
2001 473,000
2002 452,000
2003 182,000
-----------------
$ 2,130,000
=================
Rent expense was approximately $633,000 and $462,000 for the years ended December 31, 1998 and 1997,
respectively.
</TABLE>
Unfunded Loan Commitments
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
At December 31, 1998, the aggregate total of unfunded construction loan
commitments was approximately $173,559,000. Midland has unfunded
commitments from investors in a like amount. Commitments outstanding under
unused lines of credit were approximately $197,900 at December 31, 1998.
The commitments are not reflected in the financial statements. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. There are no
significant concentrations of credit risk with any individual counterparty
to originate loans.
7. Profit Sharing Plan
The Group maintains a profit sharing plan covering substantially all
employees. Contributions to the plan are at the discretion of management.
Contributions to the plan approximated $194,000 and $184,000 for the years
ended December 31, 1998 and 1997, respectively.
8. Related Party Transactions
During 1998, Advisory received administrative service fees of approximately
$1,603,000 from Midland Affordable Housing Group Trust (Group Trust), a
group trust of which stockholders of the Parent are Trustees. As of
December 31, 1998, Midland had a $5,000,000 Line of Credit available for
the group trust, with no outstanding balance. The line matures on December
31, 1999, and bears interest at the rate of 10.25%. The collateral for the
line is the net assets of the group trust.
<PAGE>
F-12
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
8. Related Party Transactions, continued
At December 31, 1998 and 1997, Midland has notes payable with an
outstanding balance of $111,886,532 and $109,641,947, respectively, due to
the Group Trust. The notes were made to finance construction loans and are
collateralized by the related construction loan receivables.
At December 31, 1998, Midland has a $40,000,000 warehouse facility,
provided by the Group Trust, with an outstanding balance of $550,000. This
warehouse facility is provided for interim funding of permanent loans,
completed construction loans, and GNMA MBS advances until funded by
permanent lender or security holder and is collateralized by a security
interest in the loans, bears interest of 6%, and due in 1999.
Additionally, at December 31, 1998, Midland has a $10,000,000 line of
credit provided by the Group Trust, with an outstanding balance of
$8,595,000. This line is used for fund syndication advances of limited
partnerships syndicated by Midland. The line is collateralized by a
security interest in a promissory note given by the limited partnership,
bears interest at 0.5% over Money Center bank prime (7.75% at December 31,
1998), and is due in 1999.
9. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value is defined as the price at which a financial
instrument could be liquidated in an orderly manner over a reasonable time
period under present market conditions. Fair values estimates, methods and
assumptions are set forth below for the Company's financial instruments.
Cash and Short-Term Investments
For cash and short-term investments, the carrying amount is a reasonable
estimate of fair value.
Notes Receivable
The estimated fair value of the Company's fixed rate loans was calculated
by discounting contractual cash flows adjusted for current prepayment
estimates. The discount rates were based on the interest rate charged to
current customers for comparable loans. The Company's adjustable rate loans
reprice frequently at current market rates. Therefore, the fair value of
these loans has been estimated to be approximately equal to their carrying
value amount.
The impact of delinquent loans on the estimation of the fair values
described above is not considered to have a material effect and,
accordingly, delinquent loans have been discarded in the valuation
methodologies used.
<PAGE>
F-13
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
9. Fair Value of Financial Instruments, continued
Notes Payable
The estimated fair value of the Company's fixed rate notes payable was
calculated by discounting contractual cash flows. The discount rates were
based on the interest rates paid to current lenders for comparable notes
payable. The Company's adjustable rate notes payable reprice frequently at
current market rates. Therefore, the fair value of these notes payable has
been estimated to be approximately equal to their carrying value amount.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
(in thousands) (in thousands)
1998 1997
---------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 1,391 $ 1,391 $ 2,990 $ 2,990
Loans - fixed rate 41,957 41,888 38,499 38,488
Loans - adjustable rate 136,862 136,862 148,993 148,993
Financial liabilities:
Notes payable - fixed rate 15,409 15,420 29,838 29,821
Notes payable - adjustable rate 154,177 154,177 152,002 152,002
</TABLE>
Limitations
The fair value estimates are made at a discrete point in time based on
relevant market information and information about the financial instrument.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
In addition, the fair value estimates are based on existing on- and
off-balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
<PAGE>
F-14
Report of Independent Accountants
To the Board of Directors
Midland Financial Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Midland
Financial Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Midland Financial
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Tampa, Florida
March 13, 1998
<PAGE>
F-15
<TABLE>
<CAPTION>
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Assets
Cash and short-term investments $ 2,989,706 $ 5,917,108
Loans receivable 187,491,907 183,978,859
Income taxes receivable - 275,359
Accrued interest receivable 2,135,723 2,169,667
Property and equipment, net of accumulated depreciation 673,357 728,329
Other assets 2,082,764 369,909
----------------- -----------------
$195,373,457 $193,439,231
================= =================
Liabilities
Notes payable $181,839,647 $182,465,476
Accrued interest payable 2,019,132 1,388,015
Accounts payable and accrued expenses 1,319,831 1,887,237
Income taxes payable 126,363 -
Deferred income tax liability - 201,980
Deferred loan fees 1,142,638 1,453,456
----------------- -----------------
186,447,611 187,396,164
----------------- -----------------
Commitments (Note 6)
Stockholders' Equity
Common stock - $.10 par value; 10,000 shares authorized; 1,000
shares issued and outstanding 100 100
Paid-in capital 1,059,900 1,059,900
Retained earnings 7,865,846 4,983,067
----------------- -----------------
8,925,846 6,043,067
----------------- -----------------
$195,373,457 $193,439,231
================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-16
<TABLE>
<CAPTION>
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Income
For the Years Ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Revenues
Interest from loans and short-term investments $19,385,288 $17,013,768
Loan service fees 2,131,846 2,308,458
Brokerage and consulting fees 9,944,416 5,170,591
Other 1,702,968 648,259
---------------- ----------------
33,164,518 25,141,076
---------------- ----------------
Expenses
Interest 16,880,698 14,692,127
Salaries and employee benefits 6,668,539 6,084,694
Other operating expenses 5,264,611 3,058,457
---------------- ----------------
28,813,848 23,835,278
---------------- ----------------
Income before income taxes 4,350,670 1,305,798
Income tax expense (benefit) (72,109) 386,507
---------------- ----------------
Net income $4,422,779 $ 919,291
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-17
<TABLE>
<CAPTION>
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended Decemer 31, 1997 and 1996
Common Stock Paid-In Retained
Shares
Issued Par Value Capital Earnings Total
---------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance - January 1, 1996 1,000 $ 100 $1,059,900 $4,116,776 $5,176,776
Net income 919,291 919,291
Dividends paid (53,000) (53,000)
---------- ------------- --------------- --------------- ---------------
Balance - December 31, 1996 1,000 100 1,059,900 4,983,067 6,043,067
Net income - 1997 4,422,779 4,422,779
Dividends paid (1,540,000) (1,540,000)
---------- ------------- --------------- --------------- ---------------
Balance - December 31, 1997 1,000 $ 100 $1,059,900 $7,865,846 $8,925,846
========== ============= =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-18
<TABLE>
<CAPTION>
Midland Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities
Cash received for loan service, brokerage and consulting fees $ 12,884,971 $ 7,830,612
Interest received 19,419,232 16,145,257
Cash paid to employees and suppliers (13,328,733) (8,501,325)
Interest paid (16,249,581) (14,137,991)
Income taxes received (paid) 271,851 (485,510)
------------------ -------------------
Net cash provided by operating activities 2,997,740 851,043
------------------ -------------------
Cash Flows from Investing Activities
Loans originated (162,213,980) (194,433,447)
Loans collected 158,700,933 139,828,256
Expenditures for property and equipment (319,842) (276,683)
Proceeds from sale of property and equipment 142,986 -
Proceeds from sale of partnership interests 395,000 -
Other (464,410) 65,659
------------------ -------------------
Net cash provided by (used in) investing activities (3,759,313) (54,816,215)
------------------ -------------------
Cash Flows from Financing Activities
Borrowings from credit facilities 201,102,860 227,290,938
Repayment of credit facilities (201,632,661) (170,399,558)
Borrowings repaid under mortgage payable (96,028) (3,853)
Dividends paid (1,540,000) (53,000)
------------------ -------------------
Net cash used in financing activities (2,165,829) 56,834,527
------------------ -------------------
Net decrease in cash (2,927,402) 2,869,355
Cash and short-term investments, beginning of period 5,917,108 3,047,753
------------------ -------------------
Cash and short-term investments, end of period $ 2,989,706 $ 5,917,108
================== ===================
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Net income $ 4,422,779 $ 919,291
------------------ -------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 174,195 122,084
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 33,944 (721,875)
(Increase) decrease in income taxes 401,722 (90,485)
(Increase) decrease in other assets (1,248,955) 102,760
Increase (decrease) in accrued interest payable 631,117 407,501
(Decrease) increase in accounts payable and accrued expenses (378,456) 615,280
Decrease in deferred income tax liability (201,980) (8,520)
Increase (decrease) in deferred loan fees (310,818) (506,558)
Gain on sale of partnership interest (583,441) -
Loss from disposal of fixed assets 57,633 11,565
------------------ -------------------
Total adjustments (1,425,039) (68,248)
------------------ -------------------
Net cash provided by operating activities $ 2,997,740 $ 851,043
================== ===================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
F-19
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997 and 1996
1. Ownership and Operations
The accompanying financial statements include Midland Financial Holdings,
Inc. (the "Parent"), and its wholly owned subsidiaries, Midland Mortgage
Investment Corporation ("Midland") and its subsidiary, Midland Realty
Investment Corporation ("Realty"), Midland Capital Corporation ("Capital"),
Midland Equity Corporation ("Equity"), Midland Securities Corporation
("Securities") and Midland Advisory Services, Inc.
("Advisory").
Midland's primary business is the origination, financing and servicing of
low to moderate-income, multi-family and commercial construction and
permanent loans throughout the continental United States. Capital provides
construction period working capital loans to developers of low to
moderate-income apartment projects and finances investor notes for direct
participation programs offered by Equity. Realty is a real estate brokerage
company, which primarily manages properties. Equity is a syndicator of
low-income housing projects. Securities is a securities dealer, registered
with the National Association of Securities Dealers. Advisory functions as
a real estate advisor for pension funds.
During 1997 approximately 84% of Midland's loans and 97% of Capital's loans
were made to developers of low to moderate-income apartment projects. All
of Equity's syndications were of projects which receive tax credits for
low-income rental housing under Internal Revenue Code Section 42.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
and its subsidiaries (the "Group"). All material intercompany profits,
transactions and balances have been eliminated.
Loan Origination Fees
Loan origination fees are being deferred and amortized over the contractual
lives of the related loans.
Allowance for Loan Losses
The Group provides an allowance for possible losses on loans receivable
based upon management's evaluation of all loans in the Group's portfolio.
When it is determined that a loan will not be fully realized, an allowance
is established for the full amount of the estimated loss. At December 31,
1997 and 1996, management determined that no allowance for possible loan
losses was necessary.
<PAGE>
F-20
2. Summary of Significant Accounting Policies, continued
Depreciation
Property and equipment consisting primarily of furniture and fixtures is
depreciated using the straight-line method over the estimated useful lives
(2 to 10 years) of the assets for financial reporting purposes. Accumulated
depreciation as of December 31, 1997 and 1996 amounted to $422,369 and
$364,958, respectively.
Income Taxes
Prior to January 1, 1997, the Group filed a consolidated federal income tax
return. Income tax liabilities were allocated among members of the
affiliated group, as if a separate income tax return had been filed, and
settled among the Group annually. Effective January 1, 1997, the Group
elected S corporation status. Earnings and losses after that date are
included in the personal income tax returns of the Parent's stockholders
and taxed depending upon their personal tax strategies. Accordingly, the
Group will normally not incur additional tax obligations, and future
financial statements will normally not include a provision for federal
income taxes. However, the Company continues to be subject to state income
taxes in certain states.
New Accounting Pronouncements
Effective January 1, 1996, the Company was required to adopt Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights." The impact of adopting this pronouncement was not significant. In
June 1996, the Financial Accounting Standards Board (FASB) issued SFAS 125,
which was effective for transactions that occurred after December 31, 1996.
Among other requirements, this standard provided additional guidance with
respect to the accounting for mortgage servicing rights as well as criteria
for recognition of sales in connection with transfers of financial
instruments including loans. The impact of this standard on the Company was
not significant.
Consolidated Statement of Cash Flows
Cash equivalents include cash and short-term cash investments with
maturities at the date of acquisition of three months or less.
The Company considers loan service fees to be operating transactions and
has reflected these funds as operating activities in the accompanying
statements of cash flows.
Concentrations of Credit Risk
Financial instruments which potentially subject the Group to concentrations
of credit risk consist principally of cash, short-term cash investments,
and loans receivable.
<PAGE>
F-21
2. Summary of Significant Accounting Policies, continued
The Group maintains its cash and short-term cash investments with high
credit quality financial institutions as determined by the Group's
management. At December 31, 1997, the Group's cash and short-term cash
investments were primarily on deposit at United Bank & Trust Company.
Concentrations of credit risk with respect to loans receivable are limited
due to commitments for permanent financing from lenders determined to have
the financial ability to honor such commitments.
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 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.
3. Loans Receivable
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Construction Loans on Low to Moderate-Income Apartment Projects:
Collateralized by the properties under construction and personally
guaranteed by the borrowers; interest ranges from 9.25% to 10.5%,
(fixed rate loans), and adjustable rates range from .75% to 2.5% over
money center bank prime (8.5% at December 31, 1997); principal amounts
mature through 1999; pledged as collateral for notes payable to investor;
repayment is expected to be from the permanent lenders upon successful
completion of the projects. $183,753,525 $179,121,611
Working Capital Loans:
Personally guaranteed by the borrowers; interest at 8% to 12% foxed and 1%
to 3% over money center bank prime (8.5% at December 31, 1997);
principal amounts mature through 2000; pledged as collateral for amounts
due on lines of credit; repayments are expected to be from construction
profits and syndication procedures. 2,375,199 2,193,427
Direct Participation Program:
Collateralized by the related limited partnership's notes receivable;
interest at varying rates ranging from 10.5% to 11%; principal amounts
mature through January 31, 2002; pledged as collateral for pension
fund notes payable; repayment is expected to be from investor note
collections. 1,363,183 2,663,821
----------------- -----------------
$187,491,907 $183,978,859
================= =================
</TABLE>
<PAGE>
F-22
4. Notes Payable
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Investors:
Used to finance the construction lending activities; fixed interest
rates range from 7.143% to 8.8%; variable interest rates range from
.75 to 2.5% over money center bank prime (8.5% at December 31, 1997);
principal amounts mature through 1999; collateralized by the related
construction loans receivable. $168,407,514 $ 175,109,547
Group Trust:
Used to finance the interim construction and permanent lending
activities; interest at 6.55%; principal amount matures January 20,
1998; collateralized by the related
permanent loan receivable. 7,950,000 -
Mortgage Payable:
Note dated July 25, 1995 in the original amount of $100,800; payable at
$934 per month principal and interest at a rate of 7.50% per annum
fixed; with a maturity of September 1, 2010; collateralized by real
property; note was paid off May 22, 1997. - 96,028
Bank:
Note payable dated July 31, 1996 in the original amount of $2,500,000;
interest only payments through January 31, 1997; monthly principal
payments of $46,297 plus interest at 1% over money center bank prime
(8.5% at December 31, 1997) beginning March 1, 1997 until August 1,
2001 maturity; collateralized by 100% of outstanding shares of Parent's
stock and personally guaranteed by the stockholders. 1,990,733 2,500,000
Bank Line of Credit:
$1,900,000 line used to finance working capital lending activities;
interest rate is 1.25% above weekly average one year Treasury
index rate (5.55% at December 31, 1997); collateralized by the
related working capital and investor notes receivable and personally
guaranteed by the stockholders; the line expires upon 180 days written
notice by bank. 1,900,000 1,900,000
Individuals:
Demand notes personally guaranteed by stockholders of the Parent;
interst at 3/4% over money center bank prime (8.5% at December 31,
1997). $ 564,155 $ 418,577
Stockholders:
Demand notes to stockholders of Parent; uncollateralized; interest at
3/4% over money center bank prime (8.5% at December 31, 1997). 1,027,245 1,157,652
Pension Fund:
Notes payable collateralized by the related investor notes receivable;
interest at 9% to 9.25%; principal amounts mature through 1998. - 1,283,672
-------------- -----------------
$181,839,647 $182,465,476
============== =================
</TABLE>
<PAGE>
F-23
Provisions of certain loans require the Company to maintain certain
financial ratios over the life of the loan agreement. The most restrictive
covenant requires that the outstanding aggregate principal balance of the
limited partner notes constituting a part of the collateral shall not be
less than one hundred forty-eight percent (148%) of the outstanding
principal balance of the loan at any time during the term of the loan.
Maturities of notes payable are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Amount
-------------------
<S> <C>
1998 $ 152,188,520
1999 28,771,520
2000 555,564
2001 324,043
-------------------
$ 181,839,647
===================
</TABLE>
<PAGE>
F-24
Income Taxes
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Currently payable $ 129,871 $ 395,027
Deferred (201,980) (8,520)
---------------- ----------------
$ (72,109) $ 386,507
================ ================
</TABLE>
The income tax benefit for the year ended December 31, 1997 represents the
reversal of the deferred income tax liability provided prior to the Group's
election as an S corporation, net of the income taxes on the built-in-gain
related to the gain realized on the sale of partnership interests and
estimated state income taxes.
For 1996, the tax provision is less than the federal statutory rate due to
the deductibility of certain expenses for income tax purposes which are not
recognized for financial reporting purposes and the use of low income
housing tax credits.
Commitments
Lease Commitments
Midland has entered into noncancelable operating leases for office space
and equipment. Minimum future annual rental payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 498,000
1999 532,000
2000 478,000
2001 470,000
2002 291,000
Thereafter 201,000
-----------------
$ 2,470,000
=================
</TABLE>
Rent expense was approximately $462,000 and $446,000 for the years ended
December 31, 1997 and 1996, respectively.
Unfunded Loan Commitments
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
<PAGE>
F-25
6. Commitments, continued
At December 31, 1997, the aggregate total of unfunded construction loan
commitments was approximately $127,031,000. Midland has unfunded
commitments from investors in a like amount. Commitments outstanding under
unused lines of credit were approximately $333,000 at December 31, 1997.
The commitments are not reflected in the financial statements. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. There are no
significant concentrations of credit risk with any individual counterparty
to originate loans.
7. Profit Sharing Plan
The Group maintains a profit sharing plan covering substantially all
employees. Contributions to the plan are at the discretion of management.
Contributions to the plan approximated $184,000 and $136,000 for the years
ended December 31, 1997 and 1996, respectively.
8. Related Party Transactions
During 1997, Advisory received administrative service fees of approximately
$1,290,000 from Midland Affordable Housing Group Trust (Group Trust), a
group trust of which stockholders of the Parent are Trustees. As of
December 31, 1997, Midland had a $5,000,000 Line of Credit available for
the Group Trust, with no outstanding balance. The line matures on December
31, 1999, and bears interest at the rate of 10.25%. The collateral for the
line is the net assets of the group trust.
From time to time subsidiaries and affiliates of the Company will guarantee
outstanding indebtedness for related entities. These amounts have been
adequately disclosed in the individual entities' financial statements.
9. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value is defined as the price at which a financial
instrument could be liquidated in an orderly manner over a reasonable time
period under present market conditions. Fair values estimates, methods and
assumptions are set forth below for the Company's financial instruments.
Cash and Short-Term Investments
For cash and short-term investments, the carrying amount is a reasonable
estimate of fair value.
<PAGE>
F-26
9. Fair Value of Financial Instruments, continued
Notes Receivable
The estimated fair value of the Company's fixed rate loans was calculated
by discounting contractual cash flows adjusted for current prepayment
estimates. The discount rates were based on the interest rate charged to
current customers for comparable loans. The Company's adjustable rate loans
reprice frequently at current market rates. Therefore, the fair value of
these loans has been estimated to be approximately equal to their carrying
value amount.
The impact of delinquent loans on the estimation of the fair values
described above is not considered to have a material effect and,
accordingly, delinquent loans have been discarded in the valuation
methodologies used.
Notes Payable
The estimated fair value of the Company's fixed rate notes payable was
calculated by discounting contractual cash flows. The discount rates were
based on the interest rates paid to current lenders for comparable notes
payable. The Company's adjustable rate notes payable reprice frequently at
current market rates. Therefore, the fair value of these notes payable has
been estimated to be approximately equal to their carrying value amount.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
(in thousands) (in thousands)
1997 1996
---------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 2,990 $ 2,990 $ 5,917 $ 5,917
Loans - fixed rate 38,499 38,488 28,213 28,198
Loans - adjustable rate 148,993 148,993 155,765 155,765
Financial liabilities:
Notes payable - fixed rate 29,838 29,821 1,380 1,398
Notes payable - adjustable rate 152,002 152,002 181,086 181,086
</TABLE>
<PAGE>
F-27
Midland Financial Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997 and 1996
9. Fair Value of Financial Instruments, continued
Limitations
The fair value estimates are made at a discrete point in time based on
relevant market information and information about the financial instrument.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
In addition, the fair value estimates are based on existing on- and
off-balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
<PAGE>
