UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the quarterly period ended: March 31, 1999
Commission file number: 001-11981
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1449733
(State of Organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:(410) 962-8044
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
The Company had 16,803,662 Common Shares outstanding as of May 12, 1999, the
latest practicable date.
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
INDEX TO FORM 10-Q
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I. FINANCIAL STATEMENTS
Item 1. Financial Statements
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38,869 $ 23,164
Interest receivable 2,407 2,859
Investment in mortgage revenue bonds, net 222,308 201,858
Investment in mortgage revenue bonds pledged, net 145,361 96,566
Investment in other bond related investments, net 6,336 11,669
Investment in parity working capital loans, demand
notes and other loans, net 5,195 17,246
Other assets 1,163 682
Restricted assets 4,672 5,367
--------------- ---------------
Total assets $ 426,311 $ 359,411
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,833 $ 2,484
Unearned revenue 916 721
Guaranty liability 1,656 754
Long-term debt 67,000 -
--------------- ---------------
Total liabilities 71,405 3,959
--------------- ---------------
Commitments and contingencies - -
Shareholders' equity:
Preferred shares:
Series I (14,933 and 15,590 shares issued and outstanding, respectively) 10,297 10,985
Series II (7,226 and 7,350 shares issued and outstanding, respectively) 5,929 5,970
Preferred capital distribution shares:
Series I (7,798 and 8,325 shares issued and outstanding, respectively) 3,883 4,351
Series II (3,164 and 3,535 shares issued and outstanding, respectively) 1,774 1,958
Term growth shares (2,000 shares issued and outstanding) 128 105
Common shares (16,945,774 shares, including 16,938,446 issued
and 7,328 deferred shares at March 31, 1999 and
16,944,882 shares, including 16,938,446 issued and 6,436
deferred shares at December 31, 1998) 311,293 310,109
Less growth shares held in treasury at cost (142,447 shares
and 153,832, respectively) (2,391) (2,555)
Less unearned compensation - deferred shares (2,739) (2,892)
Accumulated other comprehensive income 26,732 27,421
--------------- ---------------
Total shareholders' equity 354,906 355,452
--------------- ---------------
Total liabilities and shareholders' equity $ 426,311 $ 359,411
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 7,314 $ 5,292
Interest on parity working capital loans, demand notes and other loans 648 1,080
Interest on short-term investments 243 372
Net gain on sales 1,463 321
Other income 416 268
-------------- --------------
Total income 10,084 7,333
-------------- --------------
EXPENSES:
Operating expenses 1,092 1,160
Interest expense 46 -
-------------- --------------
Total expenses 1,138 1,160
-------------- --------------
Net income $ 8,946 $ 6,173
============== ==============
Net income allocated to:
Preferred shares:
Series I ($23.78 and $13.96 per share, respectively) $ 355 $ 218
============== ==============
Series II ($25.51 and $19.78 per share, respectively) $ 184 $ 146
============== ==============
Preferred capital distribution shares:
Series I ($20.54 and $11.55 per share, respectively) $ 160 $ 96
============== ==============
Series II ($19.74 and $16.46 per share, respectively) $ 63 $ 58
============== ==============
Term growth shares $ 128 $ 125
============== ==============
Common shares $ 8,056 $ 5,530
============== ==============
Net income per common share
Basic $ 0.48 $ 0.41
============== ==============
Diluted $ 0.47 $ 0.41
============== ==============
Weighted average common shares outstanding
Basic 16,809,142 13,336,903
============== ==============
Diluted 17,031,327 14,098,161
============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net income $ 8,946 $ 6,173
--------------- --------------
Other comprehensive income (loss):
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising during the period (1,476) 604
Reclassification adjustment for (gains) losses included in net income 787 (268)
-------------- --------------
Other comprehensive income (loss) (689) 336
-------------- --------------
Comprehensive income $ 8,257 $ 6,509
============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,946 $ 6,173
Adjustments to reconcile net income and comprehensive income to net cash
provided by operating activities:
Decrease in valuation allowance on loans (462) -
Net gain on sales (1,463) (321)
Net amortization of premiums and discounts on investments 79 11
Depreciation 13 5
Deferred share compensation expense 153 66
Deferred shares issued under the Non-Employee Directors' Share Plans 15 15
Director fees paid by reissuance of treasury shares 6 7
(Increase) decrease in interest receivable 452 (60)
(Increase) decrease in other assets (454) 182
Increase (decrease) in accounts payable and accrued expenses (651) 174
Increase in unearned revenue, net 195 178
---------------- -----------------
Net cash provided by operating activities 6,829 6,430
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds, other bond related investments
and origination of other loans (22,833) (49,122)
Purchases of furniture and equipment (41) (15)
Net reduction (investment) in restricted assets 695 (981)
Net proceeds from sale of investments 39,857 4,544
Principal payments received 175 96
---------------- -----------------
Net cash provede by (used in) investing activities 17,853 (45,478)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares - 62,714
Retirement of preferred shares (927) (1,044)
Proceeds from stock options exercised - 7
Purchase of treasury shares (289) -
Distributions (7,761) (4,686)
---------------- -----------------
Net cash provided by (used in) financing activities (8,977) 56,991
---------------- -----------------
Net increase in cash and cash equivalents 15,705 17,943
Cash and cash equivalents at beginning of period 23,164 7,370
---------------- -----------------
Cash and cash equivalents at end of period $ 38,869 $ 25,313
================ =================
DISCLOSURE OF NON-CASH ACTIVITIES:
Investments and long-term debt recorded under SFAS No. 125 upon conversion
of P-FLOATs to Term Securitization Facility (see Note 2) $ 67,000 $ -
================ =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 THROUGH MARCH 31, 1999
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Preferred Capital Accumulated
Preferred Shares Distribution Shares Other
---------------- ------------------- Term Growth Common Treasury Unearned Comprehensive
Series I Series II Series I Series II Shares Shares Shares Compensation Income Total
-------- --------- -------- --------- ----------- ------- -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 10,985 $ 5,970 $ 4,351 $ 1,958 $ 105 $310,109 $ (2,555) $ (2,892) $ 27,421 $355,452
Net income 355 184 160 63 128 8,056 - - - 8,946
Unrealized losses on investments,
net of reclassifications - - - - - - - - (689) (689)
Distributions (580) (124) (353) (42) (105) (6,557) - - - (7,761)
Purchase of treasury shares - - - - - - (289) - - (289)
Reissuance of treasury shares - - - - - (447) 453 - - 6
Deferred shares issued under the
Non-Employee Directors' Share
Plans - - - - - 15 - - - 15
Retirement of preferred shares (463) (101) (275) (205) - 117 - - - (927)
Amortization of deferred
compensation - - - - - - - 153 - 153
-------- --------- -------- --------- ----------- ------- -------- ---------- -------- --------
Balance, March 31, 1999 $ 10,297 $ 5,929 $ 3,883 $ 1,774 $ 128 $311,293 $ (2,391) $ (2,739) $ 26,732 $354,906
======== ========= ======== ========= =========== ======= ======== ========== ======== ========
SHARE ACTIVITY:
Balance, January 1, 1999 15,590 7,350 8,325 3,535 2,000 16,791,050 153,832
Purchase of treasury shares - - - - - (15,000) 15,000
Reissuance of treasury shares - - - - - 26,385 (26,385)
Retirement of preferred shares (657) (124) (527) (371) - - -
Deferred shares issued under the
Non-Employee Directors' Share
Plans - - - - - 892 -
-------- --------- -------- --------- -------- ---------- --------
Balance, March 31, 1999 14,933 7,226 7,798 3,164 2,000 16,803,327 142,447
======== ========= ======== ========= ======== ========== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage & Equity, LLC (the "Company") is in the business of
originating, investing in and servicing tax-exempt mortgage revenue bonds issued
by state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
The Company, organized in July 1995 as a limited liability company under
Delaware law, is the successor to the business of the SCA Tax Exempt Fund
Limited Partnership (the "Partnership"), which was merged into the Company
effective August 1, 1996 (the "Merger").
In February 1999, MuniMae TEI Holdings, LLC ("TEI Holdings") was
organized as a wholly owned subsidiary of the Company to invest in and otherwise
deal in tax-exempt bonds and related tax-exempt investments. MuniMae TE Bond
Subsidiary, LLC ("TE Bond Sub"), a limited liability company wholly owned by TEI
Holdings, was organized in February 1999 for the same purpose. Also in February
1999, MMA Credit Enhancement I, LLC ("MMACE I, LLC") was organized as a wholly
owned subsidiary of TE Bond Sub to provide credit enhancement for and on behalf
of securitizations by TE Bond Sub and to pledge all or any portion of its assets
in connection with providing credit enhancement for such securitizations. The
consolidated financial statements of the Company include the Company, the
entities above, The SCA Tax Exempt Trust, MuniMae Servicing, MuniMae
Investments, MMA Servicing and the MuniMae Compensation Trust. See Note 1 to the
financial statements appearing in the Company's 1998 Annual Report on Form 10-K
(the "Company's 1998 Form 10-K").
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and in the opinion of management contain all adjustments
(consisting of only normal recurring accruals) necessary to present a fair
statement of the results for the periods presented. These results have been
determined on the basis of accounting principles and policies discussed in Note
2 to the Company's 1998 Form 10-K. Certain information and footnote disclosures
normally included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. The accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1998 Form 10-K.
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
NOTE 2 - TERM SECURITIZATION FACILITY
<PAGE>
In March 1999, the Company consummated a transaction with an affiliate
of Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("Merrill Lynch") to
convert a portion of its investment in the P-FLOATs(sm) program into a longer
term securitization facility. As a result, this facility enables the Company to
reduce its exposure to credit and annual renewal risks associated with the
liquidity and credit enhancement features of the P-FLOATs(sm) trusts (defined in
Note 4) and the swap agreements. In order to facilitate this transaction, the
Company sold to Merrill Lynch its $0.7 million par-value RITES(sm) (defined in
Note 4) investments in two P- FLOATs(sm) trusts containing the Gannon-Dade bond
($55.1 million) and the Whispering Palms bond ($12.7 million) for $1.0 million.
The Company recognized a gain on the sale of these RITES(sm) of $0.1 million.
Merrill Lynch then collapsed the Gannon-Dade and Whispering Palms P-FLOATs(sm)
trusts and deposited the bonds ($67.8 million) into a new securitization trust
(the "Term Securitization Facility").
Two classes of certificates were sold out of the Term Securitization
Facility: Class A and Class B trust certificates. The $67.0 million par-value
Class A certificates, which are senior to the Class B certificates, were sold to
qualified third party investors and bear interest at a fixed rate of 4.95% per
annum through the remarketing date, August 15, 2005. The interest rate will be
reset on the remarketing date to the lowest rate that would result in the sale
of the Class A certificates at par plus any appreciation in the value of the
underlying bonds attributable to the Class A certificates. The $0.8 million
par-value Class B certificates were purchased by TE Bond Sub. The Class B
certificates receive the residual interest from the Term Securitization Facility
after payment of (1) trustee fees and expenses, (2) all interest and any
principal due on the Class A certificates in accordance with the terms of the
documents and (3) servicing fees. The Term Securitization Facility is subject to
optional liquidation in whole, but not in part, on each February 15, May 15,
August 15 or November 15, commencing February 15, 2000, at the direction of a
majority of the Class B certificate holders. The Class A certificates are
subject to mandatory tender on the remarketing date. The Term Securitization
Facility terminates on August 1, 2008. The Company receives a fee of 0.15% of
the weighted average balance of the trust certificates outstanding per annum for
acting as the servicer of the Term Securitization Facility.
In conjunction with this transaction, the Company purchased the
outstanding P- FLOATs(sm) in the Cedar Run P-FLOATs(sm) trust. The Company then
collapsed the Cedar Run P- FLOATs(sm) trust and became the holder of the Cedar
Run bond. The Company contributed the Cedar Run bond, along with three other
investments to TEI Holdings. TEI Holdings, in turn, contributed these assets to
TE Bond Sub. TE Bond Sub then contributed these four investments having a total
principal amount of $59.6 million (the "credit enhancement assets") to MMACE I,
LLC. MMACE I, LLC provides credit enhancement for the bonds and liquidity
support for the Class A certificates in the Term Securitization Facility. In
fulfillment of this obligation, MMACE I, LLC pledged the credit enhancement
assets to the Term Securitization Facility.
<PAGE>
This transaction was accounted for using the concepts outlined in
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS No. 125"). As a result of certain call provisions available to the B
certificate holders, the Company has accounted for this transaction as a
borrowing. Accordingly, the Class A certificates were recorded as long-term
debt and the Gannon-Dade and Whispering Palm bonds are included in
investments in mortgage revenue bonds. In conjunction with the
recording of the $67.0 million in long-term debt, the Company capitalized
$500,000 in debt issue costs. These debt issue costs are being amortized over
the life of the Term Securitization Facility, based on the amount of outstanding
debt, using the effective interest method.
NOTE 3 - INVESTMENTS IN MORTGAGE REVENUE BONDS AND MORTGAGE
REVENUE BONDS PLEDGED
The Company invests in various mortgage revenue bonds, the proceeds of
which are used to make nonrecourse mortgage loans on multifamily housing
developments. The Company's rights and the specific terms of the bonds are
defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of each bond are described in Note 3
to the Company's 1998 Form 10-K.
The following table provides certain information with respect to the
bonds held by the Company at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------------------ ----------------------------------
Base Face Amortized Unrealized Fair Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate Date (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- ---------------------- -------- ------- --------- -------- --------- ----------- ------ ------ ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> C> <C> <C> <C> <C>
Participating Bonds (1):
Alban Place (2), (4) 1986 7.875 Oct. 2008 $10,065 $10,065 ($1,067) $8,998 10,065 $10,065 ($1,067) $8,998
Creekside Village (2) 1987 7.500 Nov. 2009 11,760 7,396 - 7,396 11,760 7,396 - 7,396
Emerald Hills (2) 1988 7.750 Apr. 2008 6,725 6,725 2,167 8,892 6,725 6,725 1,875 8,600
Lakeview Garden (2) 1987 7.750 Aug. 2007 9,003 4,919 - 4,919 9,003 4,919 - 4,919
Newport-on-Seven (2) 1986 8.125 Aug. 2008 10,125 7,898 2,291 10,189 10,125 7,898 2,227 10,125
North Pointe (2),(4) 1986 7.875 Aug. 2006 25,185 12,738 3,843 16,581 25,185 12,738 3,811 16,549
Northridge Park (2) 1987 7.500 June 2012 8,815 8,815 (951) 7,864 8,815 8,815 (943) 7,872
Riverset (2),(4) 1988 7.875 Nov. 1999 19,000 19,000 33 19,033 19,000 19,000 (70) 18,930
Southfork Village (2),(8) 1988 7.875 Jan. 2009 10,375 10,375 2,541 12,916 10,375 10,375 2,451 12,826
Stone Mountain (7) 1997 7.875 Oct. 2027 33,900 35,269 (861) 34,408 33,900 35,284 184 35,468
Villa Hialeah (2) 1987 7.875 Oct. 2009 10,250 8,004 1,220 9,224 10,250 8,004 - 8,004
Mountain View
(Willowgreen) (2) 1986 8.000 Dec. 2010 9,275 6,770 756 7,526 9,275 6,770 756 7,526
The Crossings 1997 8.000 July 2007 6,959 6,867 534 7,401 6,975 6,883 518 7,401
Palisades Park 1998 7.125 Aug. 2028 - - - - 9,728 9,541 187 9,728
--------- --------- ------ ---------- ------- --------
Subtotal participating bonds 144,841 10,506 155,347 154,413 9,929 164,342
--------- --------- ------ ---------- ------- --------
Non-Participating Bonds:
Riverset Phase II 1996 9.500 Oct. 2019 110 105 11 116 110 105 11 116
Charter House 1996 7.450 July 2026 30 30 1 31 30 30 1 31
Hidden Valley 1996 8.250 Jan. 2026 1,670 1,670 192 1,862 1,680 1,680 176 1,856
Oakbrook 1996 8.200 July 2026 3,150 3,180 112 3,292 3,165 3,195 113 3,308
Torries Chase 1996 8.150 Jan. 2026 2,040 2,040 143 2,183 2,050 2,050 84 2,134
Gannon Portfolio (4) 1998 12.000 Dec. 2029 3,500 3,500 70 3,570 3,500 3,500 70 3,570
Italian Gardens (5) 1998 7.800 May 2030 8,000 7,985 215 8,200 8,000 7,985 95 8,080
Coleman Senior (5) 1998 8.000 May 2030 8,050 8,035 236 8,271 8,050 8,035 116 8,151
Lake Piedmont (4),(5) 1998 5.800 Apr. 2034 19,150 19,056 (98) 18,958 19,150 19,056 285 19,341
Orangevale 1998 7.000 Oct. 2013 2,511 2,510 (26) 2,484 2,543 2,543 (76) 2,467
Western Hills (5) 1998 7.750 Dec. 2029 3,040 3,040 - 3,040 3,040 3,040 - 3,040
Oakmont/Towne Oaks 1998 7.200 Jan. 2034 11,285 11,263 22 11,285 11,287 11,265 - 11,265
Briarwood 1998 6.950 Apr. 2023 13,221 13,221 - 13,221 13,221 13,221 - 13,221
Gannon - Dade (9) 1999 7.125 Dec. 2029 55,050 55,325 - 55,325 - - - -
Gannon - Whispering (9) 1999 7.125 Dec. 2029 12,750 12,814 - 12,814 - - - -
Gannon - Cedar Run (4) 1999 7.125 Dec. 2025 13,200 13,239 - 13,239 - - - -
Wheeler Creek (6) 1999 6.000 Jan. 2002 51 51 - 51 - - - -
--------- -------- ------- ---------- ------- --------
Subtotal non-participating bonds 157,064 878 157,942 75,705 875 76,580
--------- -------- -------- ---------- ------- --------
Participating Subordinate Bonds (1):
Barkley Place (3) 1995 16.000 Jan. 2030 3,480 2,445 1,947 4,392 3,480 2,445 3,055 5,500
Gilman Meadows (3) 1995 3.000 Jan. 2030 2,875 2,530 1,939 4,469 2,875 2,530 2,233 4,763
Hamilton Chase (3) 1995 3.000 Jan. 2030 6,250 4,140 55 4,195 6,250 4,140 91 4,231
Mallard Cove I (3) 1995 3.000 Jan. 2030 1,670 798 516 1,314 1,670 798 707 1,505
Mallard Cove II (3) 1995 3.000 Jan. 2030 3,750 2,429 1,076 3,505 3,750 2,429 1,446 3,875
Meadows (3) 1995 16.000 Jan. 2030 3,635 3,716 71 3,787 3,635 3,716 90 3,806
Montclair (3), (4) 1995 3.000 Jan. 2030 6,840 1,691 2,100 3,791 6,840 1,691 2,028 3,719
Newport Village (3) 1995 3.000 Jan. 2030 4,175 2,973 794 3,767 4,175 2,973 2,171 5,144
Nicollet Ridge (3), (4) 1995 3.000 Jan. 2030 12,415 6,075 945 7,020 12,415 6,075 973 7,048
Steeplechase (3) 1995 16.000 Jan. 2030 5,300 4,224 32 4,256 5,300 4,224 - 4,224
Whispering Lake (3), (4) 1995 3.000 Jan. 2030 8,500 4,779 3,747 8,526 8,500 4,779 4,376 9,155
Riverset Phase II 1996 10.000 Oct. 2019 1,489 - 1,449 1,449 1,489 - 1,449 1,449
--------- ------- ------ ---------- ------- --------
Subtotal participating subordinate bonds 35,800 14,671 50,471 35,800 18,619 54,419
--------- ------- ------ ---------- ------- --------
Non-Participating Subordinate Bonds:
Independence Ridge 1996 12.500 Dec. 2015 1,045 1,045 178 1,223 1,045 1,045 230 1,275
Locarno 1996 12.500 Dec. 2015 675 675 108 783 675 675 108 783
Cinnamon Ridge 1999 5.00 Jan. 2015 1,899 1,285 - 1,285 - - - -
Olde English 1998 10.000 Nov. 2033 1,030 1,025 (407) 618 - 1,025 - 1,025
--------- ------- ------- ---------- ------- --------
Subtotal non-participating subordinate bonds 4,030 (121) 3,909 2,745 338 3,083
--------- ------- ------ ---------- ------- --------
Total investment in mortgage revenue bonds $341,735 $25,934 $367,669 $268,663 $29,761 $298,424
========== ======== ========= ========= ======== ========
<PAGE>
(1) These bonds also contain additional interest features contigent on
available cash flow.
(2) One of the original 22 bonds.
(3) Series B Bonds derived from original 22 bonds.
(4) These assets were pledged as collateral as of March 31, 1999.
(5) The interest rate represents the rate during the construction or
rehabilitation period which is anticipated to be sixteen months for Italian
Gardens and Coleman Senior and one year for Lake Piedmont and Western Hills.
The permanent interest rate will be 7.25% for Italian Gardens and Coleman
Senior, 7.725% for Lake Piedmont and 7.0% for Western Hills.
(6) The interest rate for the first 24 months of construction is 6% and
thereafter the rate resets monthly based on 90% of the 30 day treasury bill.
(7) The underlying bond is held in a trust; the Company pledged the
Principal and Interest custodial receipt related to the underlying bond as
collateral as of March 31, 1999. The Company owns all of the custodial
receipts related to the underlying bond.
(8) The bond was traunched and 87% of the principal and base interest of the
bond was pledged as collateral as of March 31, 1999. The Company owns all of
the custodial receipts related to the underlying bond.
(9) The underlying bonds are held in the trust; the Company owns a
certificate in the trust which represents the residual cash flows
generated on the underlying bonds. See Note 2.
</TABLE>
<PAGE>
In January 1999, the Company purchased, for $1.4 million, a $2.0
million subordinate tax-exempt mortgage revenue bond collateralized by Cinnamon
Ridge Apartments in Eagan, Minnesota. The purchase price of $1.4 million
included an origination fee of $0.2 million paid to the broker who structured
the transaction. The bond bears interest at an annual rate of 5.0%. Principal
amortization on the bond began in January 1999 and continues through maturity in
January 2015. The bond can be prepaid at any time at par.
In March 1999, the Company sold the $9.7 mortgage revenue bond
collateralized by the Palisades Park apartment community located in Universal
City, Texas through the Merrill Lynch P-FLOATs(sm) program. In April 1999, the
Company purchased a $100,000 par-value Palisades Park RITES(sm) interest for
$129,100. The Company recognized a gain of $0.2 million on this transaction.
In order to facilitate the securitization of certain assets at higher
leverage ratios than otherwise available to the Company without the posting of
additional collateral, the Company has pledged additional bonds to a pool that
acts as collateral for the senior interests in certain P- FLOATs(sm) trusts.
Additionally, investments owned by MMACE I, LLC have been pledged as collateral
for the Term Securitization Facility discussed in Note 2. At March 31, 1999 the
total carrying amount of the mortgage revenue bonds pledged as collateral was
$145.4 million.
<PAGE>
NOTE 4 - OTHER BOND RELATED INVESTMENTS AND FINANCIAL RISK
MANAGEMENT
The Company's other bond related investments are primarily investments
in Residual Interest Tax-Exempt Securities Receipts ("RITES(sm)"), a security
offered by Merrill Lynch through its RITES(sm)/Puttable Floating Option
Tax-Exempt Receipts ("P-FLOATs(sm)") Program. The RITES(sm) are part of a
program under which a bond is placed into a trust and two types of securities
are sold by the trust, P-FLOATs(sm) and RITES(sm). The P-FLOATs(sm) are the
senior security and bear interest at a rate that is reset weekly by the
Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOATs(sm) at
par. The RITES(sm) are the subordinate security and receive the residual
interest. The residual interest is the remaining interest on the bond after
payment of all fees and the P-FLOATs(sm) interest. In conjunction with the
purchase of the RITES(sm) with respect to fixed rate bonds, the Company enters
into interest rate swap contracts to hedge against interest rate exposure on the
Company's investment in the RITES(sm). In order to facilitate the securitization
of certain assets at higher leverage ratios than otherwise available, the
Company has pledged additional bonds to a pool that acts as collateral for the
senior interests in certain P-FLOATs(sm) trusts. The following table provides
certain information with respect to the other bond related investments held by
the Company at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------------------- -----------------------------------
Face Amortized Unrealized Fair Face Amortized Unrealized Fair
Year Amount Cost Gain (Loss) Value Amount Cost Gain (Loss) Value
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- ------------------------------------------- ---------- -------- ---------- ----------- ------ ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RITES -Indian Lake 1997 $ 3,300 $ 3,445 $ 698 $ 4,143 $ 3,320 $3,470 $ 336 $ 3,806
Interest rate swap (6/30/97 - 1/03/06) (1) 1997 6,500 - (235) (235) 6,500 - (320) (320)
RITES -Charter House 1996 80 314 20 334 80 323 66 389
P-FLOATs - Charter House (2) 1996 - - - - 7,440 7,440 - 7,440
RITES -Southgate 1997 102 617 283 900 105 633 272 905
RITES -Southwood 1997 440 283 92 375 440 279 548 827
RITES -Riverset Phase II 1996 75 434 53 487 75 466 21 487
Interest rate swap
(11/24/97 - 11/23/07) (1), (3) 1997 - - - - 58,000 - (2,170) (2,170)
Cinnamon Ridge Total Return Swap
(12/11/97 - 12/31/99) (1) 1997 10,257 - 718 718 10,570 - 729 729
Cinnamon Ridge Interest Rate Swap
(12/10/99 - 12/1/09) (1) 1997 7,000 - (113) (113) 7,000 - (275) (275)
RITES -Gannon (2) 1998 - - - - 814 1,048 374 1,422
Interest rate swap (2/2/98 - 2/1/08) (1) 1998 73,000 - (252) (252) 73,000 - (1,470) (1,470)
Interest rate swap (5/1/98 - 4/30/99) (1) 1998 9,675 - (8) (8) 9,675 - (25) (25)
Interest rate swap (5/1/99 - 4/30/09) (1) 1998 9,675 - (150) (150) 9,675 - (325) (325)
Interest rate swap (8/28/98 - 8/20/08) (1) 1998 7,500 - (28) (28) 7,500 - (165) (165)
Interest rate swap (8/20/98 - 8/5/99) (1) 1998 6,185 - 14 14 6,185 - 15 15
RITES-Villas at Sonterra 1998 5 35 72 107 5 35 72 107
RITES-Queen Anne IV 1998 65 65 (65) - 65 65 32 97
RITES-Oklahoma City pool 1998 195 248 (248) - 195 250 (55) 195
RITES-Olde English 1999 76 97 (21) 76 - - - -
Rillito Total Return Swap
(3/26/99 - 4/30/99) (1) 1999 6,905 - - - - - - -
Club West Total Return Swap
(3/29/99 - 9/28/00) (1) 1999 7,960 - (119) (119) - - - -
Willow Key Total Return Swap
(3/29/99 - 8/19/01) (1) 1999 17,440 - 87 87 - - - -
----------------------------- ----------------------------
Subtotal other bond related investments $ 5,538 $ 798 $ 6,336 $ 14,009 $ (2,340) $ 11,669
========== =========== ====== ========= ========= =========
(1) Face amount represents notional amount of swap agreements and
the (dates) represent the effective date and the termination date of the swap.
(2) These assets were sold in March 1999. See Note 2.
(3) This swap agreement was terminated in February 1999. See Note 4.
</TABLE>
<PAGE>
From time to time, the Company may purchase or sell in the open market
interests in bonds that it has securitized depending on the Company's capital
position and needs. During the three months ended March 31, 1999, the Company
purchased and/or sold interests in three bonds which it previously securitized.
In December 1998, the Company structured a transaction whereby Merrill
Lynch purchased a $7.3 million Series A mortgage revenue bond collateralized by
Olde English Manor Apartments located in Wichita, Kansas. In conjunction with
this transaction, the Company purchased an interest in a trust holding the Olde
English Series B bond. The Series A bond has a stated annual interest rate of
7.36% and matures in November 2033. Merrill Lynch placed the bond into a trust
and P-FLOATs(sm) and RITES(sm) were sold from the trust. In January 1999, the
Company purchased $7.2 million (par-value) of Olde English P-FLOATs(sm) at par
and $76,000 (par-value) of Olde English RITES(sm) for $98,000. The investment in
Olde English P-FLOATs(sm) was sold in March 1999 to generate investment capital
to obtain investment positions in additional deals. The Company recognized a
gain of $32,000 on this transaction.
As discussed in Note 2, the Company sold to Merrill Lynch its $0.7
million par-value RITES(sm) investments in two P-FLOATs(sm) trusts containing
the Gannon Projects bond ($55.1 million) and the Whispering Palms bond ($12.7
million) for $1.0 million. The Company recognized a gain on the sale of these
RITES(sm) of $0.1 million.
<PAGE>
In February 1999, the Company terminated an interest rate swap
contract with a notional amount of $58.0 million at a cost of $1.2 million.
This swap contract was terminated as a result of the consummation of the Term
Securitization Facility; whereby the Company converted a portion of its
investment in the P-FLOATs(sm) program which provided a short-term floating
rate return into a longer term fixed interest rate securitization facility.
In conjunction with the sale of the Rillito Village loan (see Note 5),
on March 26, 1999, the Company entered into a total return swap with Merrill
Lynch which replicates the total return on the Rillito Village taxable loan
financed at a rate based on one month LIBOR (the London Interbank Offered Rate)
rate plus 1.0%. The Rillito Village taxable loan is a $6.9 million loan
collateralized by a 272-unit multifamily apartment complex located in Tucson,
Arizona. The loan has a stated interest rate of 9.0% and was made as short term
financing pending issuance, by the City of Tucson, of two tax-exempt mortgage
revenue bonds. The total return swap was terminated on April 30, 1999 upon the
issuance of the tax-exempt mortgage revenue bonds. During the term of the swap,
the Company received net taxable income of $19,000 representing the difference
between 9.0% and LIBOR plus 1.0% on the face amount of the Rillito Village loan.
On March 30, 1999, the Company assumed two total return swaps effective
January 1, 1999. The two total return swaps are both with Merrill Lynch and
replicate the total return on the Club West and Willow Key bonds financed at a
floating rate equal to the Bond Market Association Municipal Swap Index ("BMA")
and BMA plus 0.6%, respectively. The Club West bond is a $8.0 million bond
collateralized by a 194-unit to-be-built multifamily apartment community located
north of Miami, Florida. During the term of the Club West swap, the Company will
receive net taxable income of the difference between 5.88% and BMA on the face
amount of the bond. The Willow Key bond is a $17.4 million bond collateralized
by a 384-unit to-be-built multifamily apartment community located in Orlando,
Florida. During the term of the Willow Key swap, the Company will receive net
taxable income of the difference between 6.75% and BMA plus 0.6% on the face
amount of the bond. In addition to the net taxable income received, both total
return swaps include a cash settlement at termination, whereby the Company will
pay to (receive from) Merrill Lynch an amount equal to the decline (increase) in
the market value of the underlying bond. The Club West total return swap
terminates on September 28, 2000. The Willow Key total return swap terminates on
August 19, 2001. The Company received a fee of $240,000 for the assumption of
the total return swaps. The assumption fee and the income on the swaps from the
effective date of the assumption, January 1, 1999, through the assumption date,
March 30, 1999, net of broker fees, were deferred and will be recognized into
income over the estimated life of the investment.
In conjunction with the assumption of the total return swaps discussed
above, the Company also assumed two interest rate swaps effective January 1,
1999. The interest rate swaps were used to hedge the floating return on the
total return swaps. Immediately following the assumption, the Company terminated
the two interest rate swaps at a net cost of $16,500.
NOTE 5 - INVESTMENT IN PARITY WORKING CAPITAL LOANS, DEMAND
<PAGE>
NOTES AND OTHER LOANS
In August 1998, the Company originated a $6.9 million taxable mortgage
loan collateralized by a 272-unit multifamily apartment community known as
Rillito Village located in Tucson, Arizona. The mortgage loan bears interest at
a stated annual rate of 9.0%. The loan was made as short term financing pending
issuance, by the City of Tucson, of two tax-exempt mortgage revenue bonds. In
March 1999, the Company sold this loan to Merrill Lynch (see Note 4) for par.
In March 1999, the remaining Demand Notes related to eight properties
were amended and consolidated into a single note for each property (the
"Consolidated Demand Notes" or the "Notes"). The Consolidated Demand Notes bear
interest at 7.5% per annum until the first remarketing date on January 15, 2000.
On the first remarketing date and each anniversary thereafter, the interest rate
will be reset, by a remarketing agent selected by the respective borrowers, at
an interest rate which would allow the Notes to be sold at par. The respective
borrowers may decide to decline the interest rate set by the remarketing agent.
If the respective borrowers decline to accept the interest rate, the
Consolidated Demand Notes will be due and payable on the remarketing date.
Interest on the Consolidated Demand Notes is due and payable monthly. Principal
on the Notes is due at maturity on January 1, 2018.
Immediately following the consolidation of the Demand Notes, the
Company contributed the Consolidated Demand Notes to its wholly owned
subsidiary, MuniMae Servicing. MuniMae Servicing then sold the Consolidated
Demand Notes to Merrill Lynch. In order to facilitate the sale of the
Consolidated Demand Notes, the Company provided a guaranty on behalf of the
properties for the full and punctual payment of interest and principal due under
the Consolidated Demand Notes. The Notes, which were sold at par, represented a
principal amount of $8.8 million. As a result of the sale of these Notes, the
Company recognized a net gain of approximately $2.2 million. The Company's gain
on sale included $3.2 million in outstanding principal on the Notes that
represented payment for previously unaccrued (and therefore unrecorded)
interest. This gain on sale was reduced by $1.0 million for selling costs and
the fair value of the guaranty provided by the Company. As part of the guaranty,
the Company also placed $0.9 million in an account at Merrill Lynch as
collateral. The Company's obligation under the guaranty is not limited to the
cash in this account. The Company's obligation under the guaranty will expire
when the Consolidated Demand Notes are paid in full. The Company does not
believe it will have to perform under the guaranty.
NOTE 6 - SHAREHOLDERS' EQUITY
On November 19, 1998, the Company offered to purchase up to 20% of the
preferred shares for cash at approximately 80% of the September 30, 1998 book
value reduced for distributions paid to holders of the preferred shares on
November 2, 1998 ("Adjusted Book Value"). The offer to purchase was made as a
result of a tender offer made by an unaffiliated third party, Sierra Fund 3 (the
"Sierra Offer"). The Sierra Offer was for 4.5% of the outstanding
<PAGE>
shares of the Series I Preferred Shares at a price which was 60% of the
September 30, 1998 Adjusted Book Value. The Company recognized that there might
be preferred shareholders who desired liquidity. Accordingly, the Company
determined to offer 80% of the September 30, 1998 Adjusted Book Value of each
class so that preferred shareholders who wish to liquidate would be able to do
so at higher prices. The offer, proration period and the withdrawal rights
expired at 12:00 noon, Eastern Standard time, on December 18, 1998. As a result,
on January 1, 1999, 657 Series I and 124 Series II Preferred Shares which had
been tendered were purchased at the per share price of $597.46 and $746.83,
respectively, and 527 Series I and 371 Series II Preferred CD Shares which had
been tendered were purchased at the per share price of $455.02 and $544.02,
respectively.
NOTE 7 - EARNINGS PER SHARE
The following tables reconcile the numerators and denominators in the
basic and diluted EPS calculations for Common Shares for the three months ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 For the three months ended March 31, 1998
(in thousands, except share and per share data) (in thousands, except share and per share data)
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------- -------------- ------------ --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income allocable to common shares $ 8,056 16,809,142 $ 0.48 $ 5,530 13,336,903 $ 0.41
============ ===============
Effect of Dilutive Securities
Options and restricted shares - 222,185 - 218,553
Convertible preferred shares
(including term growth shares) - - 218 542,705
--------------- ------------- --------------- ----------------
Dilutive EPS
Income allocable to common shares
plus assumed conversions $ 8,056 17,031,327 $ 0.47 $ 5,748 14,098,161 $ 0.41
================ ============== ============ =============== ================ ===============
</TABLE>
<PAGE>
NOTE 8 - DISTRIBUTIONS
On April 7, 1999, distributions for the three months ended March 31,
1999 were declared for shareholders of record on April 19, 1999 and paid on May
3, 1999. The per share distributions are shown in the following table:
<TABLE>
<CAPTION>
Preferred Capital
Common Preferred Shares Distribution Shares
------------------------- ------------------------
Shares Series I Series II Series I Series II
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Distributions to be paid on May 3, 1999
to holders of record on April 19, 1999:
For the three months ended
March 31, 1999 (1) $ 0.3950 $ 29.98 $ 42.19 $ 30.51 $ 54.49
(1) The distributions for the Series I and Series II Preferred and Preferred Capital Distribution Shares
include a special distribution as follows: Preferred Series I, $16.24; Preferred Series II, $25.59;
Preferred Capital Distribution Series I, $19.96 and Preferred Capital Distribution Series II, $41.89.
The special distribution for Series I and Series II represents their proportionate share of the Company's net proceeds from
the sale of eight Consolidated Demand Notes in March 1999. (Note 5)
</TABLE>
<PAGE>
NOTE 9 - SUBSEQUENT EVENTS
Preferred Shareholders' Equity in a Subsidiary
On May 6, 1999, the Company and TE Bond Sub entered into a purchase
agreement, with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith
Incorporated and Legg Mason wood Walker, Incorporated (together, the "Initial
Purchasers") pursuant to which the Initial Purchasers agreed to purchase, and
the Company and TE Bond Sub agreed to sell, 42 shares of TE Bond Sub's 6 7/8%
Series A Cumulative Preferred Shares (the "Series A Preferred Shares"). The
purchase agreement is subject to the customary conditions to closing and
settlement of the Series A Preferred Shares is expected to occur on or about
May 27, 1999. The Series A Preferred Shares bear interest at 6.875% per annum
or, if lower, the aggregate net income of the issuing company, TE Bond Sub.
Cash distributions on the Series A Preferred Shares will be paid quarterly on
each January 31, April 30, July 31 and October 31. The Series A Preferred Shares
are subject to remarketing on June 30, 2009. On the remarketing date, the
remarketing agent will seek to remarket the shares at the lowest distribution
rate that would result in a resale of the Series A Preferred Shares at a price
equal to par plus all accrued but unpaid distributions. The Series A Preferred
Shares will be subject to mandatory tender on June 30, 2009 and on all
subsequent remarketing dates at a price equal to par plus all accrued but unpaid
distributions. The Series A Preferred Shares must be redeemed no later than
June 30, 2049.
<PAGE>
In connection with the Preferred Share offering, the Company and TEI
Holdings will contribute certain assets to TE Bond Sub. In contemplation of this
transaction, on March 24, 1999, the Company contributed all of its interest in
MuniMae Investments to TEI Holdings, who, in turn, contributed its investment in
MuniMae Investments to TE Bond Sub. The Series A Preferred Shares have a senior
claim to the income derived from the investments owned by TE Bond Sub, which are
expected to aggregate approximately $315 million in fair value at the time of
contribution. Any income from TE Bond Sub after payment of the cumulative
distributions of the Series A Preferred Shares is available for distribution to
the Common Shares of the Company.
New Acquisitions
In April 1999, the Company originated a $19.9 million taxable mortgage
loan collateralized by a 656-unit multifamily apartment community known as Honey
Creek located in Dallas, Texas. This short term financing was made pending the
issuance of a tax-exempt mortgage revenue bond. The loan has an interest rate of
8.0%.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General Business
Municipal Mortgage & Equity, LLC (the "Company") is in the business of
originating, investing in and servicing tax-exempt mortgage revenue bonds issued
by state and local government authorities to finance multifamily housing
developments. The Company is a limited liability company that, as a result of a
merger effective August 1, 1996 (the "Merger"), is the successor to the business
of SCA Tax Exempt Fund Limited Partnership (the "Partnership").
The Company is required to distribute to the holders of Preferred
Shares and Preferred Capital Distribution Shares ("Preferred CD Shares") cash
flow attributable to such shares (as defined in the Company's Amended and
Restated Certificate of Formation and Operating Agreement). The Company is
required to distribute 2.0% of the net cash flow to the holders of Term Growth
Shares. The balance of the Company's net cash flow is available for distribution
to the Common Shares and the Company's current policy is to distribute to Common
Shareholders at least 80% of the annual cash available for distributions ("CAD")
to Common Shares. This payout ratio approximated 85.6% and 95.9% of CAD for the
three months ended March 31, 1999 and 1998, respectively.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest in addition to base interest at a
fixed rate. Additionally, the mortgage loans underlying all of the bonds and
certain bond related investments held by the Company are nonrecourse. As a
result of these two factors, all debt service on the bonds, and therefore, cash
flow available for distribution to all shareholders, is dependent upon the
performance of the underlying properties.
Results of Operations
Quarterly Results Analysis
Total income for the three months ended March 31, 1999 increased by
approximately $2.8 million over the same period last year due primarily to an
increase in interest income on investments of approximately $1.6 million and an
increase in gain on sale of investments of $1.1 million.
Operating expenses for the three months ended March 31, 1999 decreased
by approximately $68,000 from the same period last year due primarily to an
increase in salary and benefits expense as a result of an increase in the number
of employees offset by valuation recovery allowances of $0.4 million.
The Company incurred interest expense of $46,000 for the three months
ended March 31, 999 as a result of the Term Securitization Facility in March
1999 (see Note 2). Interest expense is expected to be $830,000 per quarter
subsequent to March 31, 1999.
<PAGE>
New Accounting Pronouncement
During July 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This standard requires the
Company to recognize all derivatives as either assets or liabilities in its
financial statements and measure such instruments at their fair values. Hedging
activities must be redesignated and documented pursuant to the provisions of the
statement. This statement becomes effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. At this time, the Company is still
assessing the impact of SFAS No. 133 on its financial condition and results of
operations.
Liquidity and Capital Resources
The Company's primary objective is to maximize shareholder value
through increases in CAD per Common Share and appreciation in the value of its
Common Shares. The Company seeks to achieve its growth objectives by acquiring,
servicing and managing diversified portfolios of mortgage bonds and other bond
related investments. In order to facilitate this growth strategy, the Company
will require additional capital in order to pursue acquisition opportunities.
The Company expects to finance its acquisitions through a financing strategy
that (1) takes advantage of attractive financing available in the tax-exempt
securities markets; (2) minimizes exposure to fluctuations of interest rates;
and (3) maintains maximum flexibility to manage the Company's short-term cash
needs. To date, the Company has primarily used two sources, securitizations and
Common Share or Preferred Share equity offerings, to finance its acquisitions.
As discussed below, in March 1999, the Company converted a portion of
its investment in the Merrill Lynch P-FLOATs(sm) program into a longer term
securitization facility. Going forward, the Company intends to use a combination
of this longer term securitization facility and the Merrill Lynch P-FLOATs(sm)
securitization program. The P-FLOATs(sm) program allows the Company to
securitize bonds relatively quickly and allows the Company to re-purchase bonds
it has previously securtized. A longer term securitization facility allows the
Company to reduce its exposure to credit and annual renewal risks associated
with the liquidity and credit enhancement features of the P-FLOATs(sm) trusts
and allows the Company to reduce its exposure to interest rate swaps. The
combination of these two vehicles allows the Company the flexibility it needs to
finance acquisitions.
In the first quarter, the Company participated in $27.4 million of
investment transactions. Of this amount, $2.0 million of these transactions were
bond or loan originations retained by the Company. The remaining investment
transactions involve the securitizations discussed below.
<PAGE>
Preferred Share Equity Offering
On May 6, 1999, the Company and TE Bond Sub entered into a purchase
agreement, with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith
Incorporated and Legg Mason wood Walker, Incorporated (together, the "Initial
Purchasers") pursuant to which the Initial Purchasers agreed to purchase, and
the Company and TE Bond Sub agreed to sell, 42 shares of TE Bond Sub's 6 7/8%
Series A Cumulative Preferred Shares (the "Series A Preferred Shares"). The
purchase agreement is subject to the customary conditions to closing and
settlement of the Series A Preferred Shares is expected to occur on or about
May 27, 1999. The Series A Preferred Shares bear interest at 6.875% per
annum or, if lower, the aggregate net income of the issuing company, TE Bond
Sub. Cash distributions on the Series A Preferred Shares will be paid quarterly
on each January 31, April 30, July 31 and October 31. The Series A Preferred
Shares are subject to remarketing on June 30, 2009. On the remarketing date,
the remarketing agent will seek to remarket the shares at the lowest
distribution rate that would result in a resale of the Series A Preferred
Shares at a price equal to par plus all accrued but unpaid distributions.
The Series A Preferred Shares will be subject to mandatory tender on June 30,
2009 and on all subsequent remarketing dates at a price equal to par plus all
accrued but unpaid distributions. The Series A Preferred Shares must be redeemed
no later than June 30, 2049.
In connection with the Preferred Share offering, the Company and TEI
Holdings will contribute certain assets to TE Bond Sub. In contemplation of this
transaction, on March 24, 1999, the Company contributed all of its interest in
MuniMae Investments to TEI Holdings, who, in turn, contributed its investment in
MuniMae Investments to TE Bond Sub. The Series A Preferred Shares have a senior
claim to the income derived from the investments owned by TE Bond Sub, which are
expected to aggregate approximately $315 million in fair value at the time of
contribution. Any income from TE Bond Sub after payment of the cumulative
distributions of the Series A Preferred Shares is available for distribution to
the Common Shares of the Company.
Securitizations
Through securitizations, the Company seeks to enhance its overall
return on its investments and to generate proceeds which, along with equity
offering proceeds, facilitate the acquisition of additional investments. The
Company securitizes bonds through the sale of bonds to an investment bank, which
has to date been Merrill Lynch, which, in turn, deposits the bonds into a trust.
Short term floating rate interests in the trust (the "senior interests" or the
"P- FLOATS(sm)"), which have first priority on the cash flow from the bonds, are
sold to accredited qualified third party investors. The Company purchases the
residual interests (or the "RITES(sm)") in the trust and receives the proceeds
from the sale of the senior interests less certain transaction costs. The
Company may also purchase, for investment purposes, RITES(sm) in bonds that it
did not own, in which case no proceeds are received. The RITES(sm) are the
subordinate security and receive the residual income after the payment of all
fees and the floating rate obligation on the P-FLOATS(sm). The company
recognizes taxable capital gains (or losses) upon the sale of its bonds.
<PAGE>
Merrill Lynch provides liquidity to the trust and credit enhancement
to the bonds which enables the senior interests to be sold to certain
accredited third party investors seeking investments rated "AA" or better.
The liquidity and credit enhancement facilities are generally for one year
terms and are renewable annually by Merrill Lynch. To the extent that Merril
Lynch is downgraded below "AA", either an alternative credit enhancement
provider would be substituted to reinstate the desired investment rating or
the senior interests would be marketed to other accredited investors. In
either case, it is anticipated that the return on the RITES(sm) would decrease,
which would negatively impact CAD. If the credit enhancer did not renew the
liquidity or credit enhancement facilities, the Company would be forced to
find alternative liquidity or credit enhancement facilities, repurchase the
underlying bonds or liquidate the underlying bond and its investment in the
RITES(sm). If the Company is forced to liquidate its investment in the
RITES(sm) and potentially, the related swaps, the Company would recognize
gains or losses on the liquidation for net income, tax reporting and CAD, which
may be significant depending on market conditions. As of March 31, 1999,
$100.5 million of the senior interests were subject to annual "rollover"
renewal for liquidity and credit enhancement. The Company has already
extended, in advance, the liquidity and credit enhancement of $67.8 million of
senior interests through July 1, 1999. The Company continues to review
alternatives which would reduce and diversify credit risks.
Since the bonds securitized generally bear fixed rates of interest, the
RITES(sm) in the trust created by the securitization may create interest rate
risks. To reduce the Company's exposure to interest rate risks on RITES(sm)
retained, the Company enters into interest rate swaps, which are contracts
exchanging an obligation to receive a floating rate approximating the rate on
the senior interests for an obligation to pay a fixed rate. Net swap payments
received, if any, will be taxable income, even though the RITES(sm) investment
being hedged pays tax-exempt interest. The Company recognizes taxable capital
gains (or losses) upon the termination of an interest rate swap contract. The
interest rate swaps are for limited time periods which generally approximate the
term of the securitization trusts and are for notional amounts that generally
approximate the outstanding senior interests in the trusts. Also, the interest
rate swap agreements are subject to risk of early termination on the annual
optional termination date by the counterparty, possibly at times unfavorable to
the Company. There can be no assurance that the Company will be able to acquire
interest rate swaps at favorable prices, or at all, when the existing
arrangements expire or are terminated, in which case the Company would be fully
exposed to interest rate risk to the extent the swaps are terminated by the
counterparty while the securitization trusts remain in existence. In addition,
there is no guarantee that the securitization trusts will be in existence for
the duration of the swaps, as these securitization trusts are collapsed if the
credit enhancement or liquidity facilities are not renewed, as discussed above.
If the securitization trusts are no longer in existence, the Company would
recognize gains and losses from changes in market values of the swap instruments
or from the termination of the swap agreements. Depending on market conditions,
these gains and losses on the interest rate swaps could be significant.
The term of the securitization trusts is based on the anticipated
prepayment of the underlying bond in the trust. If the bond prepayment occurs as
anticipated, the Company will receive its pro rata share of proceeds from the
prepayment. However, there is no certainty that bond prepayment will occur at
the end of the term of the securitization trust. If the bond does not
<PAGE>
prepay before the securitization trust terminates, the Company would be forced
to liquidate its subordinate investment or, if the Company would wish to retain
this investment, it would be forced to purchase the remaining interests in the
bond.
From time to time, depending on the Company's capital position and
needs, the Company may purchase or sell on the open market interests in bonds
that it has securitized or bonds that the Company did not originally own, but in
which it now holds a residual interest. During the first quarter of 1999, the
Company purchased and/or sold interests in three bonds which it previously
securitized.
Through the use of securitizations, the Company expects to employ
leverage and maintain overall leverage ratios in the 40% to 55% range, with
certain assets at significantly higher ratios, approximately 99%, while not
leveraging other assets at all. The Company calculates leverage by dividing the
total amount of on-balance sheet financing classified as long term debt and
senior interests to its investments, which it considers to be off-balance sheet
financing, by the sum of total assets owned by the Company plus senior interests
to its investments. Under this method, the Company's leverage ratio at March 31,
1999 was approximately 43%.
In order to facilitate the securitization of certain assets at higher
leverage ratios, the Company has pledged additional bonds to the pool that acts
as collateral for the senior interests in the trust.
Term Securitization Facility
In March 1999, the Company consummated a transaction with Merrill
Lynch to convert a portion of its investment in the P-FLOATs(sm) program into a
longer term securitization facility. As a result, this transaction enabled the
Company to (a) reduce its exposure to credit and annual renewal risks associated
with the liquidity and credit enhancement features of the P-FLOATs(sm) trusts
and the swap agreements, (b) reduce the annual financing costs and (c) eliminate
the risk of receiving taxable net swap payments which serve to hedge tax-exempt
investments. In order to facilitate this transaction, the Company sold to
Merrill Lynch its $0.7 million par-value RITES(sm) investments in two
P-FLOATs(sm) trusts containing the Gannon-Dade bond ($55.1 million) and the
Whispering Palms bond ($12.7 million) for $1.0 million. The Company recognized a
gain on the sale of these RITES(sm) of $0.1 million. Merrill Lynch then
collapsed the Gannon - Dade and Whispering Palms P-FLOATs(sm) trusts and
deposited the bonds ($67.8 million) into a new securitization trust (the "Term
Securitization Facility").
Two classes of certificates were sold out of the Term Securitization
Facility: Class A and Class B trust certificates. The $67.0 million par-value
Class A certificates, which are senior to the Class B certificates, were sold to
qualified third party investors and bear interest at a fixed rate of 4.95% per
annum through the remarketing date, August 15, 2005. The interest rate will be
reset on the remarketing date to the lowest rate that would result in the sale
<PAGE>
of the Class A certificates at par plus any appreciation in the value of the
underlying bonds attributable to the Class A certificates. The $0.8 million
par-value Class B certificates were purchased by TE Bond Sub. The Class B
certificates receive the residual interest from the Term Securitization
Facility after payment of (1) trustee fees and expenses, (2) all interest and
any principal due on the Class A certificates in accordance with the terms of
the documents and (3) servicing fees. The Term Securitization Facility is
subject to optional liquidation in whole, but not in part, on each February
15, May 15, August 15 or November 15, commencing February 15, 2000, at the
direction of a majority of the Class B certificate holders. The Class A
certificates are subject to mandatory tender on the remarketing date. The Term
Securitization Facility terminates on August 1, 2008. The Company receives a
fee of 0.15% of the weighted average balance of the trust certificates
outstanding per annum for acting as the servicer of the Term Securitization
Facility.
In conjunction with this transaction, the Company purchased the
outstanding P- FLOATs(sm) in the Cedar Run P-FLOATs(sm) trust. The Company then
collapsed the Cedar Run P- FLOATs(sm) trust and became the holder of the Cedar
Run bond. The Company contributed the Cedar Run bond, along with three other
investments to TEI Holdings. TEI Holdings, in turn, contributed these assets to
TE Bond Sub. TE Bond Sub then contributed these four investments having a total
principal amount of $59.6 million (the "credit enhancement assets") to MMACE I,
LLC. MMACE I, LLC provides credit enhancement for the bonds and liquidity
support for the Class A certificates in the Term Securitization Facility. In
fulfillment of this obligation, MMACE I, LLC pledged the credit enhancement
assets to the Term Securitization Facility.
This transaction was accounted for using the concepts outlined in
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". As a
result of certain call provisions available to the B certificate holders, the
Company has accounted for this transaction as a borrowing. Accordingly, the
Class A certificates were recorded as long-term debt and the Gannon Dade and
Whispering Palm bonds are included in investments in mortgage revenue bonds.
Prior to this transaction, these assets and liabilities had received sale
treatment and therefore were off-balance sheet financing.
Cash Flow
At March 31, 1999, the Company had cash and cash equivalents of
approximately $38.9 million.
Cash flow from operating activities was $6.8 million and $6.4 million
for the three months ended March 31, 1999 and 1998, respectively. The increase
in cash flow for 1999 versus 1998 is due primarily to an increase in income from
new investments.
The Company uses Cash Available for Distribution ("CAD") as the primary
measure of its dividend paying ability. CAD differs from net income because of
slight variations between generally accepted accounting principles ("GAAP")
<PAGE>
income and actual cash received. There are two primary differences between CAD
and GAAP income. The first is the treatment of loan origination fees, which
for CAD purposes are recognized as income when received but for GAAP purposes
are amortized into income over the life of the associated investment. The
second difference is the noncash gain and loss recognized for GAAP
associated with valuations and sales of investments, which are not included in
the calculation of CAD.
For the three months ended March 31, 1999 and 1998, cash available for
distribution to Common Shares was $7.8 million and $5.6 million, respectively.
Regular cash distributions to common shareholders attributable to the three
months ended March 31, 1999 and 1998 were $6.7 million and $5.4 million,
respectively. The Company's Common Share dividend for the three months ended
March 31, 1999 of $0.395 represents a payout ratio of 85.6% of CAD. The
Company's Common Share dividend for the three months ended March 31, 1998 of
$0.375 represents a payout ratio of 95.9% of CAD.
The Company expects to meet its cash needs in the short term, which
consist primarily of funding new investments, operating expenses and dividends
on the Common Shares and other equity, from cash on hand, operating cash flow,
securitization proceeds and equity offering proceeds raised in May 1999. The
Company's business plan includes making additional investments during the
remainder of 1999 which will be funded through securitizations and the May 1999
Preferred Share equity offering discussed above. Cash not used as set forth
above may be used to reduce the total amount of senior interests in the
Company's securitized facilities.
Income Tax Considerations
The Company has elected under Section 754 of the Internal Revenue Code
to adjust the basis of the Company's property on the transfer of shares to
reflect the price each shareholder paid for their shares. While the bulk of the
Company's recurring income is tax-exempt, from time to time, the Company may
sell or securitize various assets which may result in capital gains and losses
for tax purposes. Since the Company is taxed as a partnership, these capital
gains and losses are passed through to shareholders and are reported on each
shareholder's Schedule K-1. The capital gain and loss allocated from the Company
may be different to each shareholder due to the Company's 754 election and is a
function of, among other things, the timing of the shareholder's purchase of
shares and the timing of transactions which generate gains or losses for the
Company. This means that for assets purchased by the Company prior to a
shareholder's purchase of shares, the shareholder's basis in the assets may be
significantly different than the Company's basis in those same assets. Although
the procedure for allocating the basis adjustment is complex, the result of the
election is that each share is homogeneous, while each shareholder's basis in
the assets of the Company may be different. Consequently, the capital gains and
losses allocated to shareholders may be significant and different than the
capital gains and losses recorded by the Company.
<PAGE>
A portion of the Company's interest income is derived from
private activity bonds which for income tax purposes, are considered tax
preference items for purposes of alternative minimum tax ("AMT"). AMT is a
mechanism within the Internal Revenue Code to ensure that all taxpayers pay at
least a minimum amount of taxes. All taxpayers are subject to the AMT
calculation requirements although the vast majority of taxpayers will not
actually pay AMT. As a result of AMT, the percentage of the Company's income
that is exempt from federal income tax may be different for each shareholder
depending on that shareholder's individual tax situation.
Year 2000 Compliance
The Company is evaluating Year 2000 compliance issues, including
exposure related to vendors, borrowers, software and other systems to determine
whether internal and external concerns have been addressed. The Company has
established a Year 2000 Project Committee to oversee this evaluation and
implementation. The Company's internal goal is to be 100% compliant by June 30,
1999. As of the date of this writing, all equipment and software has been tested
and identified as to whether it is Year 2000 compliant. Anything identified as
not being Year 2000 compliant is expected to be upgraded or replaced no later
than June 30, 1999.
As disclosed in Note 10 - Related Party Transactions, to the Company's
1998 Form 10-K, the Company directly reimburses an affiliate for certain
administrative services which include shared information systems. The file
server hardware and software used by the affiliate and the Company have already
been upgraded to Year 2000 compliant systems. All desktop hardware and operating
systems owned by the Company have been inventoried and evaluated; the Company
will upgrade or replace any non-compliant equipment by June 30, 1999. The
accounting software shared by the Company and the affiliate already contains
four-digit year data fields and should present no Year 2000 problems. Also, the
payroll hardware and software shared by the Company and the affiliate has been
converted to Year 2000 compliant systems.
The Company is currently evaluating all external business relationships
that could negatively impact its business if they failed to become Year 2000
compliant. Key business relationships have been identified and questionnaires
will be forwarded to those businesses to request a written update of their
progress towards becoming Year 2000 compliant.
The Company believes that sufficient resources are being devoted to the
Year 2000 compliance issues through the formation of the Year 2000 Project
Committee. At this time, there are no plans to include the use of outside
consultants, or to have the Company's plan reviewed by its outside auditors.
Preliminary Year 2000 compliance issues have been discussed with the Company's
attorneys. At this time, the Company is unaware of any potential legal issues
that would adversely affect its business. Based on information currently
available, the Company does not expect to incur significant operating expenses
or material costs to become Year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Since December 31, 1998 there has been no material change to the
information included in Item 7A of the Company's Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the Company's shareholders held on May 5,
1999, the shareholders voted on several proposals in addition to the election of
the Company's directors. The shareholders voted to amend the Company's Amended
and Restated Certificate of Formation and Operating Agreement (the "Operating
Agreement") in order to change the name of the Company to "Municipal Mortgage &
Equity, LLC". The votes cast on this proposal were as follows: 14,711,181 in
favor; 67,442 opposed; and 116,617 abstaining. The shareholders also voted to
amend the Company's Operating Agreement to change the name of the Company's
Growth Shares to "Common Shares". The votes cast on this proposal were as
follows: 14,671,703 in favor; 80,830 opposed; and 142,707 abstaining. The
shareholders voted to re-elect Mr. Mark K. Joseph as a director of the Company.
The votes cast on this proposal were as follows: 14,816,064 in favor and 79,176
abstaining. The shareholders also voted to re-elect Mr. Charles C. Baum as a
director of the Company. The votes cast on this proposal were as follows:
14,816,124 in favor and 79,116 abstaining.
Item 5. Other Information
Tender Offer
On November 19, 1998, the Company offered to purchase up to 20% of the
preferred shares for cash at approximately 80% of the September 30, 1998 book
value reduced for distributions paid to holders of the preferred shares on
November 2, 1998 ("Adjusted Book Value"). The offer to purchase was made as a
result of a tender offer made by an unaffiliated third party, Sierra Fund 3 (the
"Sierra Offer"). The Sierra Offer was for 4.5% of the outstanding shares of the
Series I Preferred Shares at a price which was 60% of the September 30, 1998
Adjusted Book Value. The Company recognized there might be preferred
shareholders who desire liquidity. Accordingly, the Company determined to offer
80% of the September 30, 1998 Adjusted Book Value of each class so that
preferred shareholders who wish to liquidate would be able to do so at higher
prices. The offer, proration period and the withdrawal rights expired at 12:00
noon, Eastern Standard time, on December 18, 1998. As a result, on January 1,
1999, 657 Series I and 124 Series II Preferred Shares which had been tendered
were purchased at the per share price of $597.46 and $746.83, respectively, and
527 Series I and 371 Series II Preferred CD Shares which had been tendered were
purchased at the per share price of $455.02 and $544.02, respectively.
Securities Sale
<PAGE>
On May 6, 1999, the Company and TE Bond Sub entered into a purchase
agreement, with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith
Incorporated and Legg Mason wood Walker, Incorporated (together, the "Initial
Purchasers") pursuant to which the Initial Purchasers agreed to purchase, and
the Company and TE Bond Sub agreed to sell, 42 shares of TE Bond Sub's 6 7/8%
Series A Cumulative Preferred Shares (the "Series A Preferred Shares"). The
Series A Preferred Shares are to be offered and sold through the Initial
Purchasers without being registered under the Securities Act to "qualified
institutional buyers," pursuant to the exemption afforded by Rule 144A under the
Securities Act. The purchase agreement is subject to the customary conditions
to closing and settlement of the Series A Preferred Shares is expected to occur
on or about May 27, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amendment No. 1 to the Amended and Restated
Certificate of Formation and Operating Agreement of
the Company
3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2
to the Company's Registration Statement on Form S-3/A
- Amendment #1, File No. 333- 56049, filed with the
Commission on June 29, 1998 and incorporated by
reference herein).
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, LLC
(Registrant)
By: /s/ Mark K. Joseph
Mark K. Joseph
Chairman of the Board, Chief Executive Officer (Principal Executive
Officer), and Director
By: /s/ Gary Mentesana
Gary Mentesana
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
DATED: May 14, 1999
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
3.1 Amendment No. 1 to the Amended and Restated Certificate
of Formation and Operating Agreement of the Company
27 Financial Data Schedule
<PAGE>
Exhibit 3.1
AMENDMENT NO. 1
TO THE
AMENDED AND RESTATED
CERTIFICATE OF FORMATION AND OPERATING AGREEMENT
OF
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(a Delaware limited liability company)
THIS AMENDMENT NO. 1 (this "Amendment") to the Amended and Restated
Certificate of Formation and Operating Agreement of Municipal Mortgage and
Equity, L.L.C., a Delaware limited liability company (the "Company"), which was
entered into as of August 1, 1996 (together with this Amendment, the "Operating
Agreement"), is entered into and shall be effective as of May 13, 1999, by and
among those persons who have executed this Amendment or a counterpart hereof, or
who become parties hereto pursuant to the terms of the Operating Agreement. All
capitalized terms used but not defined herein have the meanings ascribed to such
terms in the Operating Agreement.
WHEREAS, the Board of Directors of the Company desire to change the
name of the Company to Municipal Mortgage & Equity, LLC, by amending the
Operating Agreement, and, pursuant to Section 14.4 of the Operating Agreement,
the shareholders of the Company approved this proposed amendment at the annual
meeting of the Company's shareholders held on May 5, 1999; and
WHEREAS, the Board of Directors of the Company desire to change the
name of the Company's Growth Shares to Common Shares by amending the Operating
Agreement, and, pursuant to Section 14.4 of the Operating Agreement, the
shareholders of the Company approved this proposed amendment at the annual
meeting of the Company's shareholders held on May 5, 1999.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Members agree as follows:
The bold italicized text below will replace the current name of the Company in
the Operating Agreement as defined by Section 2.2.
"2.2 Company Name. The name of the Company is "Municipal Mortgage &
Equity, LLC". The business of the Company shall be conducted under such
name or such other names as the Board of Directors or the Shareholders
may from time to time determine on and pursuant to the terms of this
Agreement."
The bold italicized text below will replace the current name of the Company's
Growth Shares in the Operating Agreement as defined in Section 3.1(a)(i).
"3.1 Classes of Shares
(a) The Company shall have the authority to issue the following
classes and series of Shares:
(i) shares which are designated "Common Shares";"
As a result, all references to Growth Shares in the Operating Agreement will be
changed to read "Common Shares."
<PAGE>
IN WITNESS WHEREOF, the parties hereto, being the sole current Members
of the Company, have executed and delivered this Amendment to the Amended and
Restated Certificate of Formation and Operating Agreement as of the day and year
first-above written.
MME I CORPORATION, (a Delaware corporation)
By: /s/ MARK K. JOSEPH
Name: Mark K. Joseph,
Title: President
MME II CORPORATION, (a Delaware corporation)
By: /s/ MARK K. JOSEPH
Name: Mark K. Joseph,
Title: President
AMENDED AND RESTATED
CERTIFICATE OF FORMATION AND OPERATING AGREEMENT
OF
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(a Delaware limited liability company)
THIS AMENDED AND RESTATED CERTIFICATE OF FORMATION AND OPERATING AGREEMENT
(the "Agreement") of Municipal Mortgage and Equity, L.L.C., a Delaware
limited liability company (the "Company"), dated as of August 1, 1996, is
entered into by and among those persons who have executed this Agreement or
a counterpart hereof, or who become parties hereto pursuant to the terms of
this Agreement.
The Company's Certificate of Formation filed with the Delaware Secretary of
State on July 6, 1995, is hereby amended to amend and restate all of the
provisions thereof so that said Certificate, as amended and restated
hereby, reads in its entirety as follows; and the Company's Operating
Agreement is hereby amended so that said Operating Agreement reads in its
entirety as follows:
FIRST: The name of the limited liability company is Municipal Mortgage and
Equity, L.L.C.
SECOND: The address of the limited liability company's registered office in
the State of Delaware is Corporation Service Company, 1013 Centre
Road, in the City of Wilmington, County of New Castle, 19805. The
name of its registered agent at such address is Corporation Service
Company.
THIRD: The remainder of the Certificate of Formation and Operating
Agreement is as follows:
W I T N E S S E T H :
WHEREAS, MME I Corporation, a Delaware corporation, and MME II Corporation,
a Delaware corporation (collectively, the "Original Shareholders" or the
"Original Members") have formed the Company and contributed to the Company,
in consideration for their respective membership interests in the Company,
the consideration specified herein;
WHEREAS, SCA Tax Exempt Fund Limited Partnership, a Delaware limited
partnership ("SCATEF"), will be merged with and into the Company and
thereafter will cease to exist as a separate legal entity (such merger and
related steps to be referred to herein as the "Transaction"); and
WHEREAS, this Agreement shall constitute the Certificate (as defined
herein) of the Company and shall also constitute the Operating Agreement
(as defined herein) of the Company, and shall be binding upon all Persons
(as defined herein) now or at any time hereafter who are Shareholders (as
defined herein) of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, and of other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
ARTICLE 1
Definitions
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Section of this Agreement referred to below, except as
otherwise expressly indicated or limited by the context in which they
appear in this Agreement. All terms defined in this Article 1 or in the
preamble to this Agreement in the singular have the same meanings when used
in the plural and vice versa.
1.1. "Acquiring Person" shall have the meaning set forth in Section 13.1 of
this Agreement.
1.2. "Act" means the Delaware Limited Liability Company Act, Del. Code Ann.
ss.ss.18-101 et seq., as amended from time to time.
1.3. "Affiliate" means, with respect to any Person, any Relative of such
Person, any trust for the benefit of such Person or such Person's Relative,
any beneficiary of such a trust and any other Person that directly, or
indirectly through one or more intermediaries, controls (including without
limitation all officers and directors of such Person), is controlled by, or
is under common control with, such Person or a Relative of such Person. The
term "control" (or any form thereof), as used in the preceding sentence,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
1.4. "Agreement" means this Agreement, as may be amended, restated,
supplemented or otherwise modified from time to time as herein provided.
1.5. "Announcement Date" shall have the meaning set forth in Section 12.3
of this Agreement.
1.6. "Associate" shall have the meaning set forth in Sections 12.1 and 13.1
of this Agreement.
1.7. "BAC" means a beneficial assignee certificate of STEF I Assignor
Corporation.
1.8. "BAC Conversion Price" means the price assigned to a particular BAC
upon such BAC's conversion into Shares, as provided in the Transaction
Agreement.
1.9. "BAC Holder" means a Person who is or was (as the context requires)
the record holder of a BAC.
1.10. "Base Interest" means the base interest applicable under the original
loan terms of a particular SCATEF Asset (without taking into account the
effects of the Refunding and any future refundings).
1.11. "Beneficial Owner" shall have the meaning set forth in Section 12.3
of this Agreement.
1.12. "Board of Directors" or "Board of Managers" means the board on which
all of the Company's Managers sit, in their capacities as Managers.
1.13. "Bond" means a mortgage revenue bond owned at a particular time by
the Company as part of the Property; and the term "Bond" shall include
working capital loans associated with such mortgage revenue bond.
1.14. "Book Gain" or "Book Loss" means the gain or loss recognized by the
Company for book purposes in any Fiscal Year by reason of any sale or
disposition with respect to any of the assets of the Company. Such Book
Gain or Book Loss shall be computed by reference to the Book Value of such
property or assets as of the date of such sale or disposition (determined
in accordance with Section 1.15 of this Agreement), rather than by
reference to the tax basis of such property or assets as of such date, and
each and every reference herein to "gain" or "loss" shall be deemed to
refer to Book Gain or Book Loss, rather than to tax gain or tax loss,
unless the context manifestly otherwise requires.
1.15. "Book Value" of an asset means, as of any particular date, the value
at which the asset is properly reflected on the books and records of the
Company as of such date in accordance with Section 1.704-1(b)(2)(iv) of the
Treasury Regulations. The initial Book Value of each asset shall be its
cost, unless such asset was contributed to the Company by a Shareholder, in
which case the initial Book Value shall be the fair market value for such
asset as reasonably determined by the Board of Directors, and, in each
case, such Book Value shall thereafter be adjusted for cost recovery
deductions to which the Company is entitled for federal income tax purposes
with respect thereto, in the amount that bears the same relationship to the
Book Value of such asset as the cost recovery deduction computed for tax
purposes bears to the adjusted tax basis of such assets. The Book Values of
all Company assets shall be adjusted to equal their respective fair market
values, as reasonably determined by the Board of Directors under
appropriate circumstances, which circumstances may include but are not
limited to the following: (a) the acquisition, by any new or existing
Shareholder, of any interest issued after the Transaction Consummation Date
by the Company; (b) the distribution by the Company to a Shareholder of
more than a de minimis amount of Company assets, including money, if, as a
result of such distribution, such Shareholder's interest in the Company is
reduced; and (c) the termination of the Company for federal income tax
purposes pursuant to Section 708(b)(1)(B) of the Code.
1.16. "Business Combination" shall have the meaning set forth in Section
12.1 of this Agreement.
1.17. "By-laws" means the by-laws of the Company, as amended from time to
time, governing various aspects of the operation of the Company and the
rights and obligations of its Shareholders, Board of Directors, officers
and agents. All provisions of the By-laws not inconsistent with law or this
Agreement shall be valid and binding.
1.18. "Capital Account" shall have the meaning ascribed thereto in Section
3.5 of this Agreement.
1.19. "Capital Contributions" means the total amount of cash and other
property contributed to the Company by the Shareholders.
1.20. "Capital Transactions" means (a) any Repayment, Sale, or other sale,
exchange, taking by eminent domain, damage, destruction or other
disposition of all or any part of the assets of the Company, other than
tangible personal property disposed of in the ordinary course of business;
or (b) any financing or refinancing of any Company indebtedness; provided,
that the receipt by the Company of Capital Contributions shall not
constitute Capital Transactions.
1.21. "Certificate" means this Agreement, in its function as a "certificate
of formation" as provided for pursuant to the Act, as originally filed with
the office of the Secretary of State of the State of Delaware, as amended,
restated, supplemented or otherwise modified from time to time as herein
provided.
1.22. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any subsequent federal law of similar import, and, to the
extent applicable, any Treasury Regulations promulgated thereunder.
1.23. "Company" means the limited liability company hereby established in
accordance with this Agreement by the parties hereto, as such limited
liability company may from time to time be constituted.
1.24. "Company Interest" means an equity interest in the Company, and, if
the context so allows, the percentage of equity ownership interest in the
Company represented by the Capital Account attributable to such equity
interest as compared to all of the aggregate Capital Accounts of all
Shareholders of the Company (as such percentage may be changed from time to
time to reflect adjustments as provided for in this Agreement); it being
understood and agreed that this term shall not be deemed to apply to any
debt incurred by the Company (directly or indirectly), including but not
limited to through custodial, trust or similar or other arrangements.
1.25. "Consent" means either the consent given by vote at a duly called and
held meeting or the prior written consent, as the case may be, of a Person
to do the act or thing for which the consent is solicited, or the act of
granting such consent, as the context may require.
1.26. "Control Company Interest" shall have the meaning set forth in
Section 13.1 of this Agreement.
1.27. "Conversion" means a conversion of Preferred Shares or Preferred
Capital Distribution Shares into Growth Shares or cash under the terms of
Section 5.2(b) hereof.
1.28. "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period; provided, that if the
Book Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of any such year or other period,
Depreciation shall be an amount that bears the same relationship to the
Book Value of such asset as the depreciation, amortization, or other cost
recovery deduction computed for tax purposes with respect to such asset for
the applicable period bears to the adjusted tax basis of such asset at the
beginning of such period, or if such asset has a zero adjusted tax basis,
Depreciation shall be an amount determined under any reasonable method
selected by the Board of Directors.
1.29. "Determination Date" shall have the meaning set forth in Section 12.3
of this Agreement.
1.30. "Director" shall have the same meaning as "Manager."
1.31. "Dissolution Shareholder" means Shelter Development Holdings, Inc.,
for so long as such Person remains a Dissolution Shareholder under Section
6.4 of this Agreement, and shall also mean any other Person who agrees
under Section 6.4 to be a Dissolution Shareholder.
1.32. "Dividend Payment Date" means each February 15 and August 15.
1.33. "Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, limited liability company, limited
liability partnership, business trust, cooperative, or association. An
Entity may or may not be an Affiliate of the Company or of a Company
Affiliate.
1.34. "Financing" means the financing transaction which SCATEF consummated
on February 14, 1995 in which proceeds were raised through the offering of
$67,700,000 in aggregate principal amount of Multifamily Mortgage Revenue
Bond Receipts. The term Future Financing means a financing, refinancing or
other leveraging of the SCATEF Assets after the Transaction Consummation
Date as described in Section 5.1(a)(ii) of this Agreement.
1.35. "Fiscal Year" means the fiscal year of the Company and shall be the
same as its taxable year, which shall be the calendar year unless otherwise
determined by the Board of Directors in accordance with the Code. Each
Fiscal Year shall commence on the day immediately following the last day of
the immediately preceding Fiscal Year.
1.36. "Five Year Tolling Period" shall have the meaning set forth in
Section 12.2 of this Agreement.
1.37. "Future Shares" shall have the meaning set forth in Section 3.1 of
this Agreement.
1.38. "Future Special Distributions" means distributions to be made to
holders of Preferred Capital Distribution Shares if the SCATEF Assets are
financed, refinanced or otherwise leveraged after the Transaction
Consummation Date, as described in Section 5.1(a)(ii) of this Agreement.
1.39. "General Partners" means the general partners of SCATEF immediately
prior to the Transaction Consummation Date.
1.40. "Growth Shareholders" means the holders of Growth Shares.
1.41. "Growth Shares" shall have the meaning set forth in Section 3.1 of
this Agreement.
1.42. "Initial Capital Contribution" means any Capital Contribution made in
accordance with Section 3.2 hereof. 1.43. "Interested Company Interests"
shall have the meaning set forth in Section 13.1 of this Agreement.
1.44. "Interested Party" shall have the meaning set forth in Section 12.1
of this Agreement.
1.45. "Managers" means those individuals serving on the Board of Directors
of the Company, including successor or additional Managers duly elected in
accordance with the terms of this Agreement.
1.46. "Market Value" shall have the meaning set forth in Section 12.1 of
this Agreement.
1.47. "Members" means the Original Shareholders, together with all Persons
who become Members as herein provided and who are listed as Members of the
Company in the books and records of the Company, in such Persons' capacity
as Members of the Company.
1.48. "Mortgage Loans" means the mortgage loans which have been assigned to
the Company to secure the repayment of a Bond.
1.49. "New Shares" means Growth Shares and Term Growth Shares,
collectively; provided, however, that, after all Term Growth Shares have
been fully redeemed by the Company, this term shall refer only to Growth
Shares.
1.50. "New Shares Working Capital Reserve" means a reserve, to be
separately accounted for by the Company, which consists of that portion of
the Working Capital Reserves which is attributable to funds placed in the
Working Capital Reserves which are not Preferred Shares Series I Working
Capital Reserve funds, Preferred Shares Series II Working Capital Reserve
funds, Preferred Capital Distribution Shares Series I Working Capital
Reserve funds, or Preferred Capital Distribution Shares Series II Working
Capital Reserve funds.
1.51. "Operating Agreement" means this Agreement, in its function as an
"operating agreement" as provided for pursuant to the Act, as amended,
restated, supplemented or otherwise modified from time to time as herein
provided.
1.52. "Original Member" or "Original Shareholder" has the meaning therefor
set forth in the recitals to this Agreement.
1.53. "Par Value Appraisal" means an independent third-party appraisal
(which appraisals shall be conducted at least approximately every other
year beginning in the year 2000) indicating that the fair market value of
the real property securing a Bond which is a SCATEF Asset held by the
Company (taking into account the Bond in place at that time, if any,
relating to such asset), adjusted for Permitted Selling Expenses, is at
least equal to the sum of (a) the original face value of the Bond which
originally related to such asset, plus (b) the accrued but unpaid Base
Interest under the original loan terms relating to the Bond which
originally related to such Property, plus (c) the accrued but unpaid
interest under the then-current loan terms relating to such Bond (if any).
1.54. "Payments Director" shall have the meaning set forth in Section
5.2(a)(iii)(A) of this Agreement.
1.55. "Per Share Conversion Value" shall have the meaning set forth in
Section 5.2(b) of this Agreement.
1.56. "Permitted Selling Expenses" means the out-of-pocket expenses
actually incurred directly by the Company in the course of selling a
particular SCATEF Asset, or by securing such SCATEF Asset; or, if no such
actual sale has occurred in the case in question, the out-of-pocket
expenses which would have been incurred directly by (a) the Company (based
on local conditions and practices existing at the time) had the Company
sold a particular SCATEF Asset or (b) the owner of the property securing a
SCATEF Asset if such property were sold, as appropriate depending on the
context in which this defined term is used.
1.57. "Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such
Person where the context so admits.
1.58. "Preferred Capital Distribution Shareholders" means the holders of
Preferred Capital Distribution Shares.
1.59. "Preferred Capital Distribution Shares" means the Series I Preferred
Capital Distribution Shares and the Series II Preferred Capital
Distribution Shares, collectively.
1.60. "Preferred Capital Distribution Shares Allocable Portfolio Cash Flow"
means, for any fiscal period, the product of:
(a) all Preferred Capital Distribution Shares Revenues relating to the
applicable Series, plus any amounts which the Board of Directors releases
from the Preferred Capital Distribution Shares Series I Working Capital
Reserve or the Preferred Capital Distribution Shares Series II Working
Capital Reserve, as the case may be, as being no longer necessary to hold
as part of the applicable Working Capital Reserve, less all amounts from
Preferred Capital Distribution Shares Revenues added to the Preferred
Capital Distribution Shares Series I Working Capital Reserve or the
Preferred Capital Distribution Shares Series II Working Capital Reserve, as
the case may be, during such period, multiplied by (b) the relevant
Preferred Capital Distribution Shares Allocation Factor.
"Preferred Capital Distribution Shares Allocable Series I Portfolio Cash
Flow" means Preferred Capital Distribution Shares Allocable Portfolio Cash
Flow relating only to SCATEF Series I Assets. "Preferred Capital
Distribution Shares Allocable Series II Portfolio Cash Flow" means
Preferred Capital Distribution Shares Allocable Portfolio Cash Flow
relating only to SCATEF Series II Assets. It is understood that Preferred
Capital Distribution Shares Allocable Series I Portfolio Cash Flow plus
Preferred Capital Distribution Shares Allocable Series II Portfolio Cash
Flow equals Preferred Capital Distribution Shares Allocable Portfolio Cash
Flow.
1.61. "Preferred Capital Distribution Shares Allocation Factor" with
respect to a Series of Preferred Capital Distribution Shares, calculated as
of a particular date (the "Calculation Date"), means the product of (i) a
fraction, the numerator of which is the number of BACs of such Series which
are exchanged in the Transaction by BAC Holders for Preferred Capital
Distribution Shares (less the aggregate number of such Preferred Capital
Distribution Shares which, through such Calculation Date, have been
redeemed or repurchased by the Company, converted into cash or other
Shares, or otherwise are no longer then outstanding), and the denominator
of which is the total number of BACs of such Series which are outstanding
immediately prior to the consummation of the Transaction, multiplied by
(ii) 98%.
1.62. "Preferred Capital Distribution Shares Net Proceeds," as it relates
to SCATEF Assets, means
(a) with respect to a Sale of real estate included within the Property, the
amount under the Bond then held by the Company relating to such real estate
which is paid upon such Sale, less Permitted Selling Expenses, and less the
amount of debt which then remains unamortized with respect to such Bond, if
any, incurred in any Future Financing,
(b) with respect to a sale of an entire Bond, the gross sale proceeds
actually received in consideration for the Sale of such Bond (and the fair
value of any non-cash proceeds actually received in consideration for the
Sale of such Bond), computed without regard to any indebtedness or other
obligation encumbering such Bond, less Permitted Selling Expenses, and less
the amount of debt which then remains unamortized with respect to such
Bond, if any, incurred in any Future Financing, and
(c) upon receipt of a Par Value Appraisal relating to a particular Bond,
the value ascribed to such Bond pursuant to such Par Value Appraisal
(including without limitation the unpaid principal amount of, and unpaid
Base Interest and any interest and contingent interest then-due with
respect to, such Bond), less the amount of debt which then remains
unamortized with respect to such Bond, if any, incurred in any Future
Financing.
1.63. "Preferred Capital Distribution Shares Revenues" for any period means
the net cash flows generated from the Company's operating activities
(defined below), (a) decreased for any cash flows generated from the
investment of any net Financing (or Future Financing) proceeds, (b)
decreased for any gross cash flows generated from the contributed
activities engaged in (as of the Transaction Consummation Date) or to be
engaged in the future by the General Partners or their affiliates of
acquiring and servicing mortgages, (c) increased for any cash flows used to
pay for expenses related to the investment of the net Financing (and Future
Financings) proceeds, (d) increased for any cash flows used to pay for
expenses related to the Transaction, and (e) increased for any cash flows
used to pay for growth-oriented general and administrative expenses
(defined below). All of those adjustments to revenues and expenses of the
Company noted above (which will be disclosed within the Company's quarterly
and annual reports) can and will be specifically identified and will be
subject to the review of the Company's independent auditor on an annual
basis.
"Net cash flows generated from the Company's operating activities" means
all sources of cash generated by Company operating activities less all uses
of cash for Company operating activities. This includes, but may not be
limited to, (i) all debt service received on un-refunded Bonds, plus (ii)
all debt service received on Series B Bonds and the retained portions (but
not the portions financed, refinanced or otherwise leveraged in any Future
Financing) of any Bond refunded after the Effective Time, plus (iii) all
debt service received on New Mortgage Investments, plus (iv) all operating
cash flows generated by the activities engaged in (as of the Transaction
Consummation Date) or to be engaged in the future by the General Partners
or their affiliates of acquiring and servicing mortgages, plus (v) all cash
flows generated from the interest income on short term investments, less
(vi) cash flows used for general and administrative purposes (including
those expenses incurred for growth-oriented activities), less (vii) cash
flows used for expenses incurred with respect to the investment of net
Financing (and Future Financing) proceeds, less (viii) cash flows used for
expenses incurred with respect to the Transaction (which include, among
other things, legal costs, cost of the fairness opinion and stock exchange
listing fees).
"Growth-oriented general and administrative expenses" means cash flows used
to pay expenses incurred for the expansion of the Company which would not
have been incurred had the Transaction not been consummated. This includes,
but may not be limited to, the costs of raising new capital and the
additional costs necessary to administer a larger asset portfolio. The
Company shall not incur any growth-oriented general and administrative
expenses which will exceed the net cash flows of the activities engaged in
(as of the Transaction Consummation Date) or to be engaged in the future by
the General Partners or their affiliates of acquiring and servicing
mortgages, without an advance determination by a majority of the
independent members of the Board of Directors that adequate cash flow is
reasonably expected to exist to pay the otherwise required distributions to
the holders of the Preferred Shares and the Preferred Capital Distribution
Shares.
1.64. "Preferred Capital Distribution Shares Series I Allocation Factor",
calculated as of a particular date (the "Calculation Date"), means the
product of (i) a fraction, the numerator of which is the number of Series I
BACs which are exchanged in the Transaction by BAC Holders for Series I
Preferred Capital Distribution Shares (less the aggregate number of such
Series I Preferred Capital Distribution Shares which, through such
Calculation Date, have been redeemed or repurchased by the Company, have
been converted into cash or other Shares, or otherwise are no longer then
outstanding), and the denominator of which is the total number of Series I
BACs which are outstanding immediately prior to the consummation of the
Transaction, multiplied by (ii) 98%.
1.65. "Preferred Capital Distribution Shares Series I Working Capital
Reserve" means a reserve, to be separately accounted for by the Company,
which consists of that portion of the Working Capital Reserves which is
attributable to funds placed in the Working Capital Reserves which are
derived from SCATEF Series I Assets solely for the benefit of Series I
Preferred Capital Distribution Shareholders.
1.66. "Preferred Capital Distribution Shares Series II Allocation Factor",
calculated as of a particular date (the "Calculation Date"), means the
product of (i) a fraction, the numerator of which is the number of Series
II BACs which are exchanged in the Transaction by BAC Holders for Series II
Preferred Capital Distribution Shares (less the aggregate number of such
Series II Preferred Capital Distribution Shares which, through such
Calculation Date, have been redeemed or repurchased by the Company, have
been converted into cash or other Shares, or otherwise are no longer then
outstanding), and the denominator of which is the total number of Series II
BACs which are outstanding immediately prior to the consummation of the
Transaction, multiplied by (ii) 98%.
1.67. "Preferred Capital Distribution Shares Series II Working Capital
Reserve" means a reserve, to be separately accounted for by the Company,
which consists of that portion of the Working Capital Reserves which is
attributable to funds placed in the Working Capital Reserves which are
derived from SCATEF Series II Assets solely for the benefit of Series II
Preferred Capital Distribution Shareholders.
1.68. "Preferred Shareholders" means the holders of Preferred Shares.
1.69. "Preferred Shares" means the Series I Preferred Shares and the Series
II Preferred Shares, collectively.
1.70. "Preferred Shares Allocable Portfolio Cash Flow" means, for any
fiscal period, the product of:
(a) all Preferred Shares Revenues relating to the applicable Series, plus
any amounts which the Board of Directors releases from the Preferred Shares
Series I Working Capital Reserve or the Preferred Shares Series II Working
Capital Reserve, as the case may be, as being no longer necessary to hold
as part of the applicable Working Capital Reserve, less all amounts from
Preferred Shares Revenues added to the Preferred Shares Series I Working
Capital Reserve or the Preferred Shares Series II Working Capital Reserve
during such period, multiplied by (b) the relevant Preferred Shares
Allocation Factor.
"Preferred Shares Allocable Series I Portfolio Cash Flow" means Preferred
Shares Allocable Portfolio Cash Flow relating only to SCATEF Series I
Assets. "Preferred Shares Allocable Series II Portfolio Cash Flow" means
Preferred Shares Allocable Portfolio Cash Flow relating only to SCATEF
Series II Assets. It is understood that Preferred Shares Allocable Series I
Portfolio Cash Flow plus Preferred Shares Allocable Series II Portfolio
Cash Flow equals Preferred Shares Allocable Portfolio Cash Flow.
1.71. "Preferred Shares Allocation Factor" with respect to a Series of
Preferred Shares, calculated as of a particular date (the "Calculation
Date"), means the product of (i) a fraction, the numerator of which is the
number of BACs of such Series which are exchanged in the Transaction by BAC
Holders for Preferred Shares (less the aggregate number of such Preferred
Shares which, through such Calculation Date, have been redeemed or
repurchased by the Company, converted into cash or other Shares, or
otherwise are no longer then outstanding), and the denominator of which is
the total number of BACs of such Series which are outstanding immediately
prior to the consummation of the Transaction, multiplied by (ii) 98%.
1.72. "Preferred Shares Net Proceeds", as it relates to SCATEF Assets,
means (a) with respect to a Sale of real estate included within the
Property, the gross sale proceeds actually received in connection with such
a Sale, less Permitted Selling Expenses, (b) with respect to a sale of an
entire Bond, the gross sale proceeds which would have been received in
consideration for the sale of the SCATEF Assets relating to such Bond,
computed without regard to any indebtedness or other obligation encumbering
such Bond, less Permitted Selling Expenses, and (c) upon receipt of a Par
Value Appraisal relating to a particular SCATEF Asset, the value ascribed
to such SCATEF Asset pursuant to such Par Value Appraisal (including
without limitation the unpaid principal amount of, and unpaid Base Interest
and any interest and contingent interest then-due with respect to, the Bond
relating to such SCATEF Asset).
1.73. "Preferred Shares Revenues" for any period means the net cash flows
generated from the Company's operating activities (defined below), (a)
increased for the cash flows lost as a result of the sale of the Receipts
(Series A Bond interest and related items) (defined below) or as a result
of any Future Financings, (b) decreased for any cash flows generated from
the investment of any net Financing (or Future Financings) proceeds, (c)
decreased for any gross cash flows generated from the contributed
activities engaged in (as of the Transaction Consummation Date) or to be
engaged in the future by the General Partners or their affiliates of
acquiring and servicing mortgages, (d) increased for any cash flows used to
pay for expenses related to the investment of the net Financing (and Future
Financings) proceeds, (e) increased for any cash flows used to pay for
expenses related to the Transaction, and (f) increased for any cash flows
used to pay for growth-oriented general and administrative expenses
(defined below). All of those adjustments to revenues and expenses of the
Company noted above (which will be disclosed within the Company's quarterly
and annual reports) can and will be specifically identified and will be
subject to the review of the Company's independent auditor on an annual
basis.
"Net cash flows generated from the Company's operating activities" means
all sources of cash generated by Company operating activities less all uses
of cash for Company operating activities. This includes, but may not be
limited to, (i) all debt service received on un-refunded Bonds, plus (ii)
all debt service received on Series B Bonds and the retained portions (but
not the portions financed, refinanced or otherwise leveraged in any Future
Financing) of any Bond refunded after the Effective Time, plus (iii) all
debt service received on New Mortgage Investments, plus (iv) all operating
cash flows generated by the activities engaged in (as of the Transaction
Consummation Date) or to be engaged in the future by the General Partners
or their affiliates of acquiring and servicing mortgages, plus (v) all cash
flows generated from the interest income on short term investments, less
(vi) cash flows used for general and administrative purposes (including
those expenses incurred for growth-oriented activities), less (vii) cash
flows used for expenses incurred with respect to the investment of net
Financing (and Future Financing) proceeds, less (viii) cash flows used for
expenses incurred with respect to the Transaction (which include, among
other things, legal costs, cost of the fairness opinion and stock exchange
listing fees).
"Cash flows lost as a result of the sale of the Receipts" means cash flows
that would have been collected by the Company had the sale of the Receipts
in the Series A Bonds not occurred. This includes, but may not be limited
to, an amount equal to (i) as a starting amount, the cash flows paid by the
operating partnerships on the Series A Bonds, plus (ii) cash flows paid by
the operating partnerships for credit enhancement fees, plus (iii) cash
flows paid by the operating partnerships for miscellaneous bond trustee and
collateral agent fees, less (iv) cash flows received by the operating
partnership from the swap arrangements.
"Growth-oriented general and administrative expenses" means cash flows used
to pay expenses incurred for the expansion of the Company which would not
have been incurred had the Transaction not been consummated. This includes,
but may not be limited to, the costs of raising new capital and the
additional costs necessary to administer a larger asset portfolio. The
Company shall not incur any growth-oriented general and administrative
expenses which will exceed the net cash flows of the activities engaged in
(as of the Transaction Consummation Date) or to be engaged in the future by
the General Partners or their affiliates of acquiring and servicing
mortgages, without an advance determination by a majority of the
independent members of the Board of Directors that adequate cash flow is
reasonably expected to exist to pay the otherwise required distributions to
the holders of the Preferred Shares and the Preferred Capital Distribution
Shares.
The distributions attributable to the Preferred Shares (by series) will be
determined in accordance with a monthly analysis of the Properties which
collateralize the Financing (and Future Financings). This monthly analysis
will be dependent upon a review of the monthly Property operating
statements which, pursuant to their loan agreements, the owners of the
Property will be required to supply to the Company (and, on an annual
basis, audited financial statements of the operating partnerships), and a
calculation of the net effects of the cash flow adjustments described
above.
1.74. "Preferred Shares Series I Allocation Factor", calculated as of a
particular date (the "Calculation Date"), means the product of (i) a
fraction, the numerator of which is the number of Series I BACs which are
exchanged in the Transaction by BAC Holders for Series I Preferred Shares
(less the aggregate number of such Series I Preferred Shares which, through
such Calculation Date, have been redeemed or repurchased by the Company,
have been converted into cash or other Shares, or otherwise are no longer
then outstanding), and the denominator of which is the total number of
Series I BACs which are outstanding immediately prior to the consummation
of the Transaction, multiplied by (ii) 98%.
1.75. "Preferred Shares Series I Working Capital Reserve" means a reserve,
to be separately accounted for by the Company, which consists of that
portion of the Working Capital Reserves which is attributable to funds
placed in the Working Capital Reserves which are derived from SCATEF Series
I Assets solely for the benefit of Series I Preferred Shareholders.
1.76. "Preferred Shares Series II Allocation Factor", calculated as of a
particular date (the "Calculation Date"), means the product of (i) a
fraction, the numerator of which is the number of Series II BACs which are
exchanged in the Transaction by BAC Holders for Series II Preferred Shares
(less the aggregate number of such Series II Preferred Shares which,
through such Calculation Date, have been redeemed or repurchased by the
Company, have been converted into cash or other Shares, or otherwise are no
longer then outstanding), and the denominator of which is the total number
of Series II BACs which are outstanding immediately prior to the
consummation of the Transaction, multiplied by (ii) 98%.
1.77. "Preferred Shares Series II Working Capital Reserve" means a reserve,
to be separately accounted for by the Company, which consists of that
portion of the Working Capital Reserves which is attributable to funds
placed in the Working Capital Reserves which are derived from SCATEF Series
II Assets solely for the benefit of Series II Preferred Shareholders.
1.78. "Profit" and "Loss" means, for each Fiscal Year or other period for
which allocations to Shareholders are made, an amount equal to the
Company's taxable income or loss for such year or period, determined in
accordance with Section 703(a) of the Code (provided, that for this
purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code shall be
included in taxable income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profit or Loss pursuant to
this provision shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Section 705(a)(2)(B) of
the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, and not otherwise
taken into account in computing Profit or Loss pursuant to this provision,
shall be subtracted from such taxable income or loss;
(c) Book Gain or Book Loss from a Capital Transaction shall be taken into
account in lieu of any tax gain or tax loss recognized by the Company by
reason of such Capital Transaction; and
(d) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year,
computed as provided in this Agreement.
If the Company's taxable income or loss for such Fiscal Year or other
period, as adjusted in the manner provided above, is a positive amount,
such amount shall be the Company's Profit for such Fiscal Year or other
period; and if a negative amount, such amount shall be the Company's Loss
for such Fiscal Year or other period.
1.79. "Property" means the land and the buildings thereon upon which the
Company holds a mortgage or other similar encumbrance at a particular time,
and the Bonds held by the Company at a particular time.
1.80. "Redemption Event" means (a) the Sale or Repayment of a SCATEF Asset,
or (b) the receipt by the Company of a Par Value Appraisal.
1.81. "Refunded Bonds" means those SCATEF Assets which were refunded by
SCATEF in the SCATEF Restructuring, which Bonds are generally referred to
as the following: Montclair, Newport Village, Nicollet Ridge, Steeplechase
Falls, Barkley Place, Mallard Cove I, Mallard Cove II, Whispering Lake,
Gilman Meadows, Hamilton Chase, and Meadows. "Refunded Bonds (Series A)"
means the Series A Bonds issued in the Refunding, and "Refunded Bonds
(Series B)" means the Series B Bonds issued in the Refunding.
1.82. "Refunding" means the refunding by the issuers of the Refunded Bonds,
in the aggregate principal amount of $126,590,000, which resulted in the
exchange of the Refunded Bonds for a Series A Bond and a Series B Bond
(whose aggregate principal amount equals that of the Refunded Bonds).
1.83. "Relative" means, with respect to any Person, any parent, spouse,
brother, sister, or natural or adopted lineal descendant or spouse of such
descendant of such Person.
1.84. "Repayment" shall have the meaning set forth in Section 1.85 below.
1.85. "Sale" or "Repayment" means the sale or other disposition of a
Property (a "Sale") or, in the absence of a Sale, the repayment of the
principal and interest, if any, payable upon the redemption or remarketing
of a Bond which was included within the Property (a "Repayment"); provided,
however, that these terms shall not include the pledge of a Property in
connection with the financing, refinancing or other leveraging of such
Property or otherwise. The term "Sale" shall include (a) a foreclosure by a
third party which is unaffiliated with the current operating partnership
(or respective general partner) owning a Property, (b) a deed-in-lieu of
foreclosure to a third party which is unaffiliated with the current
operating partnership (or respective general partner) owning a Property, or
(c) a sale or transfer of a Property to a third party which is unaffiliated
with the current operating partnership (or respective general partner)
owning a Property; and a "Sale" shall not be deemed to occur if the Company
forecloses on a Property or if the Company directs a deed-in-lieu of
foreclosure on a Property.
1.86. "SCATEF" has the meaning set forth in the recitals to this Agreement.
1.87. "SCATEF Assets" means collectively the 23 Bonds as originally held by
SCATEF, taking into account the Refunding and any future refundings but
ignoring the Financing and any Future Financing. "SCATEF Series I Assets"
means those SCATEF Assets with respect to which SCATEF's Series I BAC
Holders hold an economic interest, and "SCATEF Series II Assets" means
those SCATEF Assets with respect to which SCATEF's Series II BAC Holders
hold an economic interest.
1.88. "SCATEF Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of SCATEF dated June 3, 1986, as amended
through the close of business on February 13, 1995 but not including any
amendments effective on or after February 14, 1995 (provided, however, that
to the extent that the context of a reference to such agreement of limited
partnership indicates that a different effective date of such agreement of
limited partnership should apply, then such indicated effective date shall
apply to such reference). The SCATEF Partnership Agreement is hereby
incorporated herein to the extent specified in this Agreement.
1.89. "SCATEF Post-Financing Assets" means collectively the 23 Bonds as
originally held by SCATEF; provided, however, that (a) with respect to the
Refunded Bonds, this term shall refer only to the Series B Bond portions of
such Refunded Bonds (and not to the Series A Bond portions thereof), and
(b) such term shall also refer to the retained portions (but not the
portions financed, refinanced or otherwise leveraged in a Future Financing)
of any Bond refunded after the Transaction Consummation Date. "SCATEF
Series I Post-Financing Assets" means those SCATEF Post-Financing Assets
with respect to which SCATEF's Series I BAC Holders hold an economic
interest, and "SCATEF Series II Post-Financing Assets" means those SCATEF
Post-Financing Assets with respect to which SCATEF's Series II BAC Holders
hold an economic interest.
1.90. "SCATEF Restructuring" means the Financing and the Refunding,
collectively, and related transactions.
1.91. "SCATEF Series I Assets Profit or Loss" means, for each Fiscal Year
or other period for which allocations to Shareholders are made, an amount
of the Company's items of income, gain, loss and deduction, generated by
the SCATEF Series I Assets.
1.92. "SCATEF Series I Post-Financing Assets Profit or Loss" means, for
each Fiscal Year or other period for which allocations to Shareholders are
made, an amount of the Company's items of income, gain, loss and deduction,
generated by the SCATEF Series I Post-Financing Assets.
1.93. "SCATEF Series II Assets Profit or Loss" means, for each Fiscal Year
or other period for which allocations to Shareholders are made, an amount
of the Company's items of income, gain, loss and deduction, generated by
the SCATEF Series II Assets.
1.94. "SCATEF Series II Post-Financing Assets Profit or Loss" means, for
each Fiscal Year or other period for which allocations to Shareholders are
made, an amount of the Company's items of income, gain, loss and deduction,
generated by the SCATEF Series II Post-Financing Assets.
1.95. "Series" refers to the two-series structure of the SCATEF Assets,
and, in general, refers in the singular to either Series I or Series II as
such references are used in this Agreement.
1.96. "Series I BAC Holders" means BAC Holders in their capacities as
holders of BACs which were designated by SCATEF as Series I BACs ("Series I
BACs").
1.97. "Series I Preferred Capital Distribution Shareholder" means a
Shareholder in its capacity as a holder of Series I Preferred Capital
Distribution Shares.
1.98. "Series I Preferred Capital Distribution Shares" shall have the
meaning set forth in Section 3.1 of this Agreement.
1.99. "Series I Preferred Shareholder" means a Shareholder in its capacity
as a holder of Series I Preferred Shares.
1.100. "Series I Preferred Shares" shall have the meaning set forth in
Section 3.1 of this Agreement.
1.101. "Series II BAC Holders" means BAC Holders in their capacities as
holders of BACs which were designated by SCATEF as Series II BACs ("Series
II BACs").
1.102. "Series II Preferred Capital Distribution Shareholder" means a
Shareholder in its capacity as a holder of Series II Preferred Capital
Distribution Shares.
1.103. "Series II Preferred Capital Distribution Shares" shall have the
meaning set forth in Section 3.1 of this Agreement.
1.104. "Series II Preferred Shareholder" means a Shareholder in its
capacity as a holder of Series II Preferred Shares.
1.105. "Series II Preferred Shares" shall have the meaning set forth in
Section 3.1 of this Agreement.
1.106. "Shareholders" means all persons who hold Shares, and shall have the
same meaning as the word "Members."
1.107. "Shares" means Company Interests.
1.108. "Special Distributions" means distributions to the holders of BACs
who convert those BACs to Preferred Capital Distribution Shares in the
Transaction, payable in accordance with Section 5.1(a)(i) of this
Agreement.
1.109. "Special Shareholder" means Shelter Development Holdings, Inc., for
so long as such Person is subject to certain liabilities as set forth in
Section 6.1(b) of this Agreement, and shall also mean any other Person who
agrees under Article 6 to be a Special Shareholder.
1.110. "Specially Appointed Director(s)" shall have the meaning ascribed
thereto in Section 6.1(d) of this Agreement.
1.111. "Subsidiary" shall have the meaning set forth in Section 12.1 of
this Agreement.
1.112. "Tax Matters Partner" shall have the meaning ascribed thereto in
Section 3.7 of this Agreement.
1.113. "Term Growth Shareholders" means the holders of Term Growth Shares.
1.114. "Term Growth Shares" shall have the meaning set forth in Section 3.1
of this Agreement.
1.115. "Transaction" shall have the meaning set forth in the recitals to
this Agreement.
1.116. "Transaction Agreement" means that certain agreement dated as of
August 1, 1996, to which the Company and SCATEF are parties, governing the
terms of the Transaction.
1.117. "Transaction Consummation Date" means the date on which the
Transaction is consummated.
1.118. "Transfer" (or "Transferred") means to give, sell, assign, encumber,
pledge, hypothecate, devise, bequeath, or otherwise dispose of, encumber,
transfer, or permit to be transferred, during life or at death. The word
"Transfer," when used as a noun, shall mean any Transfer transaction.
1.119. "Transferee" means any Person to whom Shares are Transferred for any
reason or by any means.
1.120. "Treasury Regulations" means the federal income tax regulations,
including any temporary or proposed regulations, promulgated under the
Code, as such Treasury Regulations may be amended from time to time (it
being understood that all references herein to specific sections of the
Treasury Regulations shall be deemed also to refer to any corresponding
provisions of succeeding Treasury Regulations).
1.121. "Valuation Date" shall have the meaning set forth in Section 12.3 of
this Agreement.
1.122. "Working Capital Reserves" means funds held in reserves which are
maintained as working capital for the Company and available for any
contingencies relating to the ownership of the Property and the operation
of the Company. The Working Capital Reserves funds shall be segregated
between (a) Preferred Shares (segregated between Series I and Series II),
(b) Preferred Capital Distribution Shares (segregated between Series I and
Series II), and (c) New Shares. Amounts held in the Working Capital
Reserves may at any time, in the discretion of the Board of Directors, be
added to the respective Allocable Portfolio Cash Flows or to liquidation
proceeds allocable to the respective Shares (depending upon the
characterization of such amounts when received by the Company), but may not
be otherwise removed from the respective Working Capital Reserve.
ARTICLE 2
Continuation, Purpose and Term
2.1. Continuation. The parties hereto hereby agree to continue the limited
liability company known as Municipal Mortgage and Equity, L.L.C., as a
limited liability company under the provisions of the Act.
2.2. Company Name. The name of the Company is "Municipal Mortgage and
Equity, L.L.C.". The business of the Company shall be conducted under such
name or such other names as the Board of Directors or the Shareholders may
from time to time determine on and pursuant to the terms of this Agreement.
2.3. The Certificate. The Shareholders hereby agree to execute, file and
record all such certificates and documents, including amendments to the
Certificate, and to do such other acts as may be appropriate to comply with
all requirements for the formation, continuation, and operation of a
limited liability company, the ownership of property, and the conduct of
business under the laws of the State of Delaware and any other jurisdiction
in which the Company may own property or conduct business.
2.4. Principal Business Office. The principal business office of the
Company shall be located at 218 North Charles Street, Suite 500, Baltimore,
Maryland 21201, or at such other location as may hereafter be determined by
the Board of Directors. The principal business office, as well as the
registered office and the registered agent, of the Company may be changed
by the Board of Directors from time to time in accordance with the then
applicable provisions of the Act and any other applicable laws, as well as
the terms and conditions of this Agreement.
2.5. Term of Company. The term of the Company shall continue until it is
wound up and dissolved pursuant to the provisions of Article 10 hereof.
2.6. Purposes. The purposes of the Company are (a) to invest in or engage
in activities related to investment in Bonds and in real estate, including
but not limited to loan servicing and loan origination (whether in
connection with loans to the Company or to others), and to generate returns
from such investments; this may include investing in entities which invest
in bonds and in real estate assets; provided, however, that the investment
criteria shall be established by the Board of Directors from time to time
in its sole discretion subject to the requirement that such criteria be
consistent with the purposes of the Company; (b) to engage in any other
activities relating to, and compatible with, the purposes set forth above;
(c) to acquire, own and dispose of general and limited partnership
interests, membership interests, and stock or other equity interests in
Entities, and to exercise all rights and powers granted to the owner of any
such interests; (d) to take such other actions, or do such other things, as
are necessary or appropriate (in the sole discretion of the Board of
Directors) to carry out the provisions of this Agreement; and (e) to invest
in any type of investment and to engage in any other lawful act or activity
for which limited liability companies may be organized under the Act, and
by such statement all lawful acts and activities shall be within the
purposes of the Company, except for express limitations, if any.
2.7. Powers. In furtherance of its purposes, but subject to all of the
provisions of this Agreement, the Company shall have the power and is
hereby authorized to (a) invest (at any time during the term of the
Company) in (i) mortgage revenue bonds or portions of or interests in
(including junior positions) mortgage revenue bonds financing multifamily
properties, senior living facilities, manufactured housing communities, or
congregate care facilities, beneficial ownership certificates or any other
securities of other funds or investments with similar underlying investment
objectives, (ii) multifamily real estate, including senior living
facilities, manufactured housing communities, and congregate care
facilities, and (iii) entities which engage in any activities described in
clauses (i) or (ii) of this sentence; invest (at any time during the term
of the Company) in other assets which are designed to accomplish any of the
foregoing investment purposes or in any manner consistent with the
Company's then-existing investment criteria and objectives; and to reinvest
the proceeds of any sales by the Company of Company assets, in any
permitted investments; (b) act as a general or limited partner, member,
joint venturer, manager or shareholder of any Entity (including but not
limited to an operating partnership), and to exercise all of the powers,
duties, rights and responsibilities associated therewith; (c) take any and
all actions necessary, convenient or appropriate as the holder of any such
interests or positions; (d) operate, purchase, maintain, finance, improve,
own, sell, convey, assign, mortgage, lease, demolish or otherwise dispose
of any real or personal property that may be necessary, convenient or
incidental to the accomplishment of the purposes of the Company; (e) borrow
money and issue evidences of indebtedness in furtherance of any or all of
the purposes of the Company, and secure the same by mortgage, pledge or
other lien on any assets of the Company; (f) invest any funds of the
Company pending distribution or payment of the same pursuant to the
provisions of this Agreement; (g) prepay in whole or in part, refinance,
recast, increase, modify or extend any indebtedness of the Company and, in
connection therewith, execute any extensions, renewals or modifications of
any mortgage or security agreement securing such indebtedness; (h) enter
into, perform and carry out contracts of any kind, including, without
limitation, contracts with any Person affiliated with any of the
Shareholders, necessary to, in connection with or incidental to the
accomplishment of the purposes of the Company; (i) establish reserves for
capital expenditures, working capital, debt service, taxes, assessments,
insurance premiums, repairs, improvements, depreciation, depletion,
obsolescence and general maintenance of buildings and other property out of
the rents, profits or other income received; (j) employ or otherwise engage
employees, managers, contractors, advisors and consultants, and pay
reasonable compensation for such services, and enter into employee benefit
plans of any type; (k) enter into partnerships or other ventures with other
Persons in furtherance of the purposes of the Company; (l) purchase or
repurchase Shares from any Person for such consideration as the Board of
Directors may determine in its reasonable discretion (whether more or less
than the original issuance price of such Share or the then trading price of
such Share); (m) enter into rights plans or other plans relating to Shares,
options or bonuses, and to issue Shares, options or warrants thereunder (or
other derivatives relating thereto) for any consideration (even if such
consideration is less than the market value of such Shares); and (n) do
such other things and engage in such other activities as may be necessary,
convenient or advisable with respect to the conduct of the business of the
Company, and have and exercise all of the powers and rights conferred upon
limited liability companies formed pursuant to the Act.
2.8. Effectiveness of this Agreement. This Agreement shall govern the
operations of the Company and the rights and restrictions applicable to the
Shareholders, to the extent permitted by law. Pursuant to Section
18-101(7)(a)(2) of the Act, all Persons who become holders of Shares in the
Company shall be bound by the provisions of this Agreement and shall be
deemed to be parties hereto, whether or not such Persons execute a
counterpart of this Agreement. The payment for any Shares acquired by any
Person (which payment, in the case of the conversion of BACs into Shares
pursuant to the Transaction, shall be deemed to be made by BAC Holders as
such conversion occurs), or the action of becoming an assignee or
Transferee of such Shares, shall be deemed to constitute a request that the
records of the Company reflect such admission, assignment or Transfer, and
shall be deemed to be sufficient acts to comply with the requirements of
Section 18-101(7)(a)(2) of the Act and to so cause that Person to become a
Shareholder and to bind that Person to the terms and conditions of this
Agreement (and to entitle that Person to the rights of a Shareholder
hereunder), without the requirement for execution of this Agreement by such
Person.
ARTICLE 3
Classes of Shares; Admission of Shareholders; Capitalization
3.1. Classes of Shares.
(a) The Company shall have the authority to issue the following classes and
series of Shares:
(i) shares which are designated "Growth Shares";
(ii)shares which are designated "Term Growth Shares," which shares shall be
identical to Growth Shares in all respects except that (a) at such time as
the last then-outstanding Preferred Share and Preferred Capital
Distribution Share are fully redeemed by the Company, all of the Term
Growth Shares shall be redeemed in full and shall be cancelled (and, in
connection with such redemption and cancellation, the Company shall make no
further distribution, whether of cash flow, return of capital, or
otherwise, to the holders of Term Growth Shares; provided, however, that
the Company shall distribute to the holders of Term Growth Shares, upon
such redemption and cancellation, an amount equal in the aggregate to (1)
$2,963 per each of the 1,000 Term Growth Shares (less any prior
distributions of residual proceeds) issued on the Transaction Consummation
Date to an affiliate of Merrill Lynch & Co. (the "Subordinated BAC
Holder"), to the extent that, under the applicable terms of the SCATEF
Partnership Agreement, residual Bond proceeds permit such distribution, and
(2) the pro-rata operating cash distributions (that is, the operating cash
distributions attributable on a pro-rata basis to the Term Growth Shares in
the aggregate) generated through the date of such redemption and
cancellation since the then most recent Dividend Payment Date), (b) each
Term Growth Share shall give its holder a 0.001% interest in the cash
distributions from the Company, on a pari passu basis (with respect to
other Term Growth Shares), in each such case payable after required cash
distributions are paid to the Preferred Shareholders and the Preferred
Capital Distribution Shareholders under the terms of this Agreement, and
cumulative to the extent not previously paid, (c) Term Growth Shares are
transferrable only to (i) holders of Term Growth Shares and their
Affiliates or (ii) other Persons approved by the Board of Directors, and
(d) the Term Growth Shares have certain voting rights on certain matters
which would affect their distribution or other rights, preferences or
privileges, as and to the extent set forth in this Agreement;
(iii) shares which are designated "Series I Preferred Shares";
(iv) shares which are designated "Series II Preferred Shares";
(v) shares which are designated "Series I Preferred Capital Distribution
Shares";
(vi)shares which are designated "Series II Preferred Capital Distribution
Shares"; and
(vii) one or more other classes or series of Shares, as to which the Board
of Directors shall have the exclusive authority, by resolution or
resolutions providing for the issuance of Shares or of a particular class
or series thereof, to fix and determine the voting powers, full or limited
or no voting power, and such designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations, or restrictions thereof, as may be desired by the Board of
Directors from time to time, to the fullest extent now or hereafter
permitted by the laws of the State of Delaware (collectively, all such
other classes and series to be referred to as the "Future Shares");
provided, however, that, so long as any Preferred Shares or Preferred
Capital Distribution Shares are outstanding, such classes or series of
Future Shares cannot be senior to the outstanding Preferred Shares or
Preferred Capital Distribution Shares with respect to the SCATEF Assets or
revenues therefrom. Nothing in this Section 3.1(a)(vii) shall be deemed to
restrict the ability of the Company to incur secured or unsecured debt
(directly or indirectly), including but not limited to through custodial,
trust or similar or other arrangements.
(b) Each Term Growth Share, Growth Share, Series I Preferred Share, Series
II Preferred Share, Series I Preferred Capital Distribution Share and
Series II Preferred Capital Distribution Share shall (i) have no stated par
value per Share, and (ii) have the rights and be governed by the provisions
set forth in this Agreement; and none of such shares shall have any
preemptive rights, or give the holders thereof any rights to convert into
any other securities of the Company, or give the holders thereof any
cumulative voting rights, except as specifically set forth herein.
(c) The Board of Directors may cause the Company to issue such numbers of
Growth Shares and Future Shares from time to time as the Board of Directors
may determine in its sole discretion, and the number of such shares is not
limited.
(d) If the Board of Directors determines that it is necessary or desirable
to amend this Agreement or to make any filings under the Act or otherwise
in order to reference the existence or creation of a class or series of
Future Shares, the Board of Directors may cause such amendments and filings
to be made, which filings might take the form of amendments to the
Company's Certificate; provided, however, that, unless specifically
required by the Act or this Agreement, no approval or Consent of any
Shareholders shall be required in connection with the making of any such
filing, instrument or amendment.
(e) No Future Share shall have any preemptive rights or give the holder
thereof any rights to convert into any other securities of the Company, or
give any holders thereof any cumulative voting rights, unless such rights
are specifically provided for in the Board of Directors' resolution
creating the class of which such Future Share is a part.
(f) The Board of Directors, without any Consent of any Shareholders being
required, may effect a split or reverse split of Shares of any series or
class, by adopting a resolution therefor. If the Board of Directors
determines that it is necessary or desirable to make any filings under the
Act or otherwise in order to reference the existence of such a split or
reverse split, the Board of Directors may cause such filings to be made,
which filings might take the form of amendments to the Company's
Certificate; provided, however, that, unless specifically required by the
Act or this Agreement, no approval or Consent of any Shareholders shall be
required in connection with the making of any such filing or amendment.
(g) Notwithstanding any other provisions of this Agreement, the Board of
Directors may, without the consent of Shareholders, amend this Agreement to
the extent required to allow the Board of Directors to exercise the powers
granted to it by this Section 3.1.
3.2.Original Shareholders and their Affiliates; Initial and Subsequent
Capital Contributions.
(a) Prior to the Transaction Consummation Date, the only Shareholders shall
be the Original Shareholders.
(b) Each of the Original Shareholders has contributed or caused to have
been contributed to the Company, prior to the Transaction Consummation
Date, its Initial Capital Contribution, which amounts are as follows:
MME I Corporation: $100
MME II Corporation: $100
In exchange for such contributions, each Original Shareholder has been
issued four Growth Shares.
3.3.Admission of SCATEF BAC Holders and Other Persons as Shareholders of
the Company.
(a) On the Transaction Consummation Date, and as provided under and in
accordance with the terms of the Transaction Agreement, each and every
Person who is a BAC Holder shall automatically become a Shareholder. Such
Person shall automatically receive Growth Shares in exchange for all of
his, her or its BACs, as provided for in the Transaction Agreement, unless
such Person duly elected otherwise in the Transaction voting and approval
process conducted by SCATEF prior to the consummation of the Transaction
(whether or not such Person voted in favor of the Transaction), all
pursuant to the terms of the Transaction Agreement. The class and number of
Shares to be received by each such Person shall be calculated pursuant to
the Transaction Agreement. Each such Person shall be deemed to have
contributed capital to the Company, in the form of such Person's interest
in SCATEF being converted to an interest in the Company, as provided in
Section 3.5 of this Agreement. (b) The Persons who are the general partners
of SCATEF immediately prior to the consummation of the Transaction, certain
of their affiliates, and certain other Persons shall also be admitted as
Shareholders of the Company as of the Transaction Consummation Date, all in
accordance with the Transaction Agreement.
3.4.Additional Provisions Relating to Additional Shareholders. In the event
that the Board of Directors determines that additional funds are required
by the Company for any Company purpose, or that the Company should for any
reason seek to raise additional capital, the Board may cause the Company to
sell Future Shares for a price equal to what the Board of Directors
determines to be the fair value of such Shares, in exchange for cash, other
property, services or any other lawful consideration to be received by the
Company in consideration of such Shares (to be valued by the Board of
Directors in its discretion), or may cause the Company to obtain funds as a
loan from any third party upon such terms and conditions as the Board of
Directors deems appropriate, or any combination thereof from time to time.
The Initial Capital Contribution of any such additional Shareholders shall
be specified by the Board of Directors at the time of admission of such
additional Shareholder.
3.5.Capital Accounts. A separate capital account (a "Capital Account")
shall be established and maintained for each Shareholder, including any
Transferee or additional Shareholder who shall hereafter acquire a Company
Interest, in accordance with the following provisions:
(a) To each Shareholder's Capital Account there shall be credited the
amount of cash and fair market value of the property actually contributed
to the Company by such Shareholder pursuant to Sections 3.2, 3.3 and 3.4
hereof (which, in the case of the BAC Holders, shall initially be an amount
equal to the BAC Conversion Price for each BAC), such Shareholder's
allocable share of Profit, and the amount of any Company liabilities that
are assumed by such Shareholder or that are secured by any Company property
distributed to such Shareholder.
(b) To each Shareholder's Capital Account there shall be debited the amount
of cash and the fair market value of any Company property distributed to
such Shareholder pursuant to any provision of this Agreement, such
Shareholder's allocable share of Loss, and the amount of any liabilities of
such Shareholder that are assumed by the Company or that are secured by any
property contributed by such Shareholder to the Company.
(c) If any asset of the Company is distributed in kind, the Company shall
be deemed to have realized Profit or Loss thereon in the same manner as if
the Company had sold such asset for an amount equal to the greater of (i)
the fair market value of such asset, or (ii) the fair market value of any
debts to which such asset is then subject, in each case as determined by
the Board of Directors. If at any time after the date of this Agreement,
the Book Value of any Company asset is adjusted pursuant to the last
sentence of the definition of Book Value set forth in Section 1 hereof, the
Capital Accounts of all Shareholders shall be adjusted simultaneously to
reflect the aggregate net adjustments, as if the Company recognized Profit
or Loss equal to the respective amounts of such aggregate net adjustments.
(d) The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Section 1.704-1(b)(2)(iv) of the
Treasury Regulations, and shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
(e) A Shareholder shall not be entitled to withdraw any part of its Capital
Account or to receive any distributions from the Company, except as
provided in Article 5 hereof, nor shall a Shareholder be entitled to make
any loan or Capital Contribution to the Company other than as expressly
provided herein. No loan made to the Company by any Shareholder shall
constitute a capital contribution to the Company for any purpose.
(f) Except as required by the Act, no Shareholder shall have any liability
for the return of the Capital Contribution of any other Shareholder. A
Shareholder who has more than one interest in the Company may have a
separate Capital Account for each different class of interest owned.
3.6.Transfer of Capital Accounts. The original Capital Account established
for each Transferee shall be in the same amount as the Capital Account of
the Shareholder which such Transferee succeeds, at the time such Transferee
is admitted to the Company. The Capital Account of any Shareholder whose
Company Interest shall be increased by means of the Transfer to it of all
or part of the Company Interest of another Shareholder shall be
appropriately adjusted to reflect such Transfer. Any reference in this
Agreement to a Capital Contribution of, or distribution to, a
then-Shareholder shall include a Capital Contribution or distribution
previously made by or to any prior Shareholder on account of the Company
Interest of such then-Shareholder.
3.7. Tax Matters Partner.
(a) Shelter Development Holdings, Inc. or its assignee shall be the
Company's "tax matters partner" (as such term is defined in Section
6231(a)(7) of the Code) (the "Tax Matters Partner"), for purposes of
Section 6231 of the Code, with all of the powers that accompany such status
(except as otherwise provided in this Agreement). Promptly following the
written request of the Tax Matters Partner, the Company shall, to the
fullest extent permitted by law, reimburse and indemnify the Tax Matters
Partner for all reasonable expenses, including reasonable legal and
accounting fees, claims, liabilities, losses and damages incurred by the
Tax Matters Partner in connection with any administrative or judicial
proceeding with respect to the tax liability of the Shareholders. The
provisions of this Section 3.7 shall survive the termination of the Company
and shall remain binding on the Shareholders for as long as a period of
time as is necessary to resolve with the Internal Revenue Service any and
all matters regarding the federal income taxation of the Company or the
Shareholders.
(b) Notwithstanding Section 3.7(a) hereof, the Tax Matters Partner shall
have no fiduciary duty whatsoever to any other Shareholder, and shall be
treated in exactly the same manner as any other Shareholder other than as
specifically provided in Section 3.7(a) hereof.
ARTICLE 4
Allocations
4.1.General Rules Concerning Allocations. Within 45 days after the end of
each calendar month, the Company shall conduct an interim closing of the
books as of the end of the last day of that calendar month. On the basis of
the closing of the books for each calendar month, the Company shall
determine the amount of Profit and Loss attributable to that calendar
month. Profits and Losses shall be determined in accordance with the
accounting methods followed by the Company for federal income tax purposes.
4.2.Allocations of Profits and Losses. All allocations to the Shareholders
of items included within the Company's Profits and Losses attributable to
each calendar month shall be allocated solely among the Shareholders
recognized as Shareholders as of the last day of that calendar month, as
follows:
(a) Each holder of Preferred Shares shall be allocated pro rata items of
the Company's Profit and Loss attributable to the applicable SCATEF Assets
of the related Series equal to the allocations such Shareholders would have
received under the SCATEF Partnership Agreement if the Financing (and any
Future Financings) had not occurred; provided, however, that
(i) such allocations to the holders of Preferred Shares shall be made in a
manner consistent with the application of Article 5 of this Agreement,
including but not limited to the increase and decrease adjustments which
are made in accordance with Section 1.73's definition of Preferred Shares
Revenues (reference to which term is required in order to make the required
calculations under Article 5), and
(ii) if and to the extent that the SCATEF Assets of the related Series do
not produce sufficient amounts of Profit or Loss to make the allocations
otherwise required by this paragraph (a), then, to the extent of such
insufficiency, an additional amount of other tax-exempt Company Profit or
Loss, and then (to the extent that such other tax-exempt Company Profit or
Loss is insufficient) other Company Profit or Loss, shall be allocated to
such holder of Preferred Shares in order to make up such insufficiency;
(b) Each holder of Preferred Capital Distribution Shares shall be allocated
pro rata items of the Company's Profit and Loss attributable to the
applicable SCATEF Assets of the related Series equal to the allocations
such Shareholders would have received under the SCATEF Partnership
Agreement (as in effect immediately prior to consummation of the
Transaction) but taking into account the Financing and any Future
Financings with respect to which Special Distributions are made; provided,
however, that
(i) such allocations to the holders of Preferred Capital Distribution
Shares shall be made in a manner consistent with the application of Article
5 of this Agreement, including but not limited to the increase and decrease
adjustments which are made in accordance with Section 1.63's definition of
Preferred Capital Distribution Shares Revenues (reference to which term is
required in order to make the required calculations under Article 5), and
(ii) if and to the extent that the SCATEF Assets of the related Series do
not produce sufficient amounts of Profit or Loss to make the allocations
otherwise required by this paragraph (b), then, to the extent of such
insufficiency, an additional amount of other tax-exempt Company Profit or
Loss, and then (to the extent that such other tax-exempt Company Profit or
Loss is insufficient) other Company Profit or Loss, shall be allocated to
such holder of Preferred Capital Distribution Shares in order to make up
such insufficiency;
(c) Of the remaining items, if any, of the Company's Profit or Loss for the
applicable period, an amount equal to 0.001% of the Company's total Profit
or Loss for such applicable period shall be allocated to each Term Growth
Share.
(d) The remaining items, if any, of the Company's Profit or Loss for the
applicable period which remains after the amounts allocated in paragraphs
(a), (b) and (c) above (whether such result is a positive number (Profit)
or a negative number (Loss)) shall be allocated among the Growth
Shareholders in proportion to their relative ownership of Growth Shares.
(e) The Tax Matters Partner is authorized to make reasonable determinations
regarding the allocation of Profit and Loss under this Section 4.2,
including determinations relating to the calculation of Profit or Loss, and
such other items of the Company's income, gain, loss, deduction and credit
as may be appropriate to carry out the intent of this Section 4.2.
4.3. Special Allocations. Notwithstanding any other provision of this
Agreement, to the extent an allocation of Profit or Loss or any item
thereof to any Shareholder pursuant to Sections 4.1 or 4.2 of this
Agreement would be in violation of the requirements of the Treasury
Regulations under Section 704(b) of the Code, the Tax Matters Partner shall
comply with the requirements of such Treasury Regulations and adjust such
allocations to comply with such requirements in a manner that will, in the
reasonable judgment of the Tax Matters Partner, have the least effect on
the amounts to be allocated and distributed under this Agreement. In the
event a Shareholder unexpectedly receives any adjustment, allocation or
distribution described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) that causes or increases a negative
balance in a Shareholder's Capital Account, items of Profit shall be
specially allocated to such Shareholder so as to eliminate such negative
balance as quickly as possible. Special allocations shall also be made to
the extent required by the provisions of Section 5.2(b)(vi) or 5.2(c)(ii)
of this Agreement. The Shareholders agree that if this Section 4.3 becomes
applicable, the Tax Matters Partner is authorized to review and adjust the
allocations made pursuant to Sections 4.1 or 4.2 of this Agreement.
4.4. Additional Allocations.
(a) If there is a net decrease in "partnership minimum gain" (within the
meaning of Treasury Regulation Section 1.704-2(d)) during a taxable year, a
Shareholder shall be allocated, before any other allocation of the
Company's items for such taxable year (and if necessary, subsequent years),
items of the Company's income and gain in the amount equal to the
Shareholder's share of such net decrease in partnership minimum gain
(within the meaning of Treasury Regulations Section 1.704-2(g)).
(b) The Tax Matters Partner, in order to preserve uniformity of Shares
within a class, may, in its sole discretion, make a special allocation of
items of income, gain, loss or deduction but only if such allocations would
not have a material adverse effect on the Shareholders and if they are
consistent with the principles of Section 704 of the Code.
(c) If, and to the extent that any Shareholder is deemed to recognize
income as a result of any transaction between such Shareholder and the
Company pursuant to Sections 1272-1274, Section 7872, Section 483 or
Section 482 of the Code, or any similar provision now or hereafter in
effect, any corresponding loss or deduction of the Company shall be
allocated to the Shareholder who was charged with such income.
(d) Adjustments to the Capital Accounts of Shareholders with respect to an
adjustment to the tax basis of any asset of the Company pursuant to Section
734(b) or Section 743(b) of the Code shall be made in accordance with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(m).
4.5. Tax Allocations.
(a) For federal income tax purposes, except as otherwise provided in this
Section 4.5, each item of income, gain, loss and deduction of the Company
shall be allocated among the Shareholders in the same proportion as the
corresponding items are allocated pursuant to Sections 4.3 and Section 4.4
hereof.
(b) In the event that the Book Value of any asset contributed to and held
by the Company differs from its basis for federal income tax purposes ("Tax
Basis"), allocations of income, gain, loss or deduction with respect to
such asset shall, solely for tax purposes, be allocated among the
Shareholders so as to take account of any variation between Book Value and
Tax Basis in accordance with the provisions of Section 704(c) of the Code
and Treasury Regulations thereunder. The Tax Matters Partner may elect any
reasonable method or methods for making such allocations.
(c) If the Book Value of any asset of the Company is adjusted pursuant to
Section 1.15 hereof, subsequent allocations of income, gain, loss and
deductions with respect to such asset shall take into account any variation
between Book Value and Tax Basis in accordance with the provisions of
Section 704(c) of the Code and Treasury Regulations thereunder.
(d) The Tax Matters Partner shall have the sole discretion to make special
allocations of items of income, gain, loss and deductions that are
consistent with the principles of Section 704(c) of the Code and to amend
the provisions of this Agreement (without Shareholder action,
notwithstanding Section 14.4 of this Agreement), as appropriate, to reflect
the proposal or promulgation of Treasury Regulations under Subchapter K of
the Code. The Tax Matters Partner may adopt and employ such methods and
procedures for (A) the maintenance of capital accounts for book and tax
purposes, (B) the determination and allocation of adjustments under
Sections 704(c), 734 and 743 of the Code, (C) the determination and
allocation of taxable income, tax loss and items thereof under this
Agreement and pursuant to the Code, (D) the determination of the identities
and tax classification of Shareholders, (E) the provision of tax
information and reports to the Shareholders, (F) the adoption of reasonable
conventions and methods for the valuation of assets and the determination
of tax basis, (G) the allocation of asset values and tax basis, (H)
conventions for the determination of depreciation, cost recovery and
amortization deductions and the adoption and maintenance of accounting
methods, (I) the recognition of the transfer of Shares, (J) for compliance
and other tax-related requirements, including without limitation, the use
of computer software, to use filing and reporting procedures similar to
those employed by publicly-traded partnerships and limited liability
companies, as it determines in its sole discretion are necessary and
appropriate to execute the provisions of this Agreement and to comply with
federal and state tax law, and to achieve uniformity of Shares. The Tax
Matters Partner shall be indemnified and held harmless by the Company for
any expenses, penalties or other liabilities arising as a result of
decisions made in good faith on any of the matters referred to in the
preceding sentence. If the Tax Matters Partner determines, based on advice
of counsel, that no reasonable allowable convention or other method is
available to preserve the uniformity of Shares within a class, or the Tax
Matters Partner in its discretion so elects, Shares may be separately
identified as distinct classes to reflect differences in tax consequences.
ARTICLE 5
Distributions, Redemptions and Certain Permitted Conversions
5.1.Special Distributions; Distributions of Cash Flow from Operations or
Financings. This Section 5.1 applies only to distributions of cash flow
from operations of the Property and other operating cash flow, and to the
proceeds of financings, refinancings or other leveragings involving the
Properties, and does not relate to distributions upon the occurrence of a
Redemption Event or liquidation of the Company (such subjects being
governed by Section 5.2 of this Agreement).
(a) (i) Prior to the distributions described in paragraphs (b), (c), (d)
and (e) of this Section 5.1, and on the first Dividend Payment Date
following the consummation of the Transaction, a Special Distribution shall
be made to each BAC Holder who converts BACs to Preferred Capital
Distribution Shares, in the amount per Series I Preferred Capital
Distribution Share and Series II Preferred Capital Distribution Share so
received by such Person of $170.91 and $235.30, respectively. These Special
Distributions represent returns of capital to the Preferred Capital
Distribution Shareholders who receive Special Distributions.
(ii) Within three months after each time (after the Transaction
Consummation Date) any of the SCATEF Assets are financed, refinanced or
otherwise leveraged in a Future Financing, there shall be pro-rata a
special capital distribution (a "Future Special Distribution") to each
holder of Preferred Capital Distribution Shares in an aggregate amount
equal to the product of (A) the net proceeds of such transaction, and (B)
the applicable Preferred Capital Distribution Shares Allocation Factor.
These Future Special Distributions represent returns of capital to the
Preferred Capital Distribution Shareholders who receive Special
Distributions.
(b) Each Series I Preferred Shareholder shall be entitled to receive, to
the fullest extent permitted by law, on each Dividend Payment Date, a
pro-rata portion (with reference to the number of Series I Preferred Shares
held by such Series I Preferred Shareholder and the total number of all
then-outstanding Series I Preferred Shares) of the following:
(i) with respect to the first Dividend Payment Date which occurs after the
Transaction Consummation Date, a preferential distribution equal in
aggregate amount to the Preferred Shares Allocable Series I Portfolio Cash
Flow generated from February 14, 1995 through the June 30 or December 31
date which most immediately precedes the Transaction Consummation Date,
minus any and all amounts distributed to the Series I Preferred
Shareholders (including without limitation distributions made to such
Persons while they were BAC Holders) for the period from February 14, 1995
through the time immediately prior to the first Dividend Payment Date; and
(ii) with respect to each subsequent Dividend Payment Date, a preferential
semi-annual distribution (which in the case of a Dividend Payment Date of
February 15 shall relate to the six full calendar month period ending on
the then-most recent December 31, and in the case of a Dividend Payment
Date of August 15 shall relate to the six full calendar month period ending
on the then-most recent June 30), equal in aggregate amount to the
Preferred Shares Allocable Series I Portfolio Cash Flow generated by the
Company in the applicable six month period.
(c) Each Series II Preferred Shareholder shall be entitled to receive, to
the fullest extent permitted by law, on each Dividend Payment Date, a
pro-rata portion (with reference to the number of Series II Preferred
Shares held by such Series II Preferred Shareholder and the total number of
all then-outstanding Series II Preferred Shares) of the following:
(i) with respect to the first Dividend Payment Date which occurs after the
Transaction Consummation Date, a preferential distribution equal in
aggregate amount to the Preferred Shares Allocable Series II Portfolio Cash
Flow generated from February 14, 1995 through the June 30 or December 31
date which most immediately precedes the Transaction Consummation Date,
minus any and all amounts distributed to the Series II Preferred
Shareholders (including without limitation distributions made to such
Persons while they were BAC Holders) for the period from February 14, 1995
through the time immediately prior to the first Dividend Payment Date; and
(ii) with respect to each subsequent Dividend Payment Date, a preferential
semi-annual distribution (which in the case of a Dividend Payment Date of
February 15 shall relate to the six full calendar month period ending on
the then-most recent December 31, and in the case of a Dividend Payment
Date of August 15 shall relate to the six full calendar month period ending
on the then-most recent June 30), equal in aggregate amount to the
Preferred Shares Allocable Series II Portfolio Cash Flow generated by the
Company in the applicable six month period.
(d) Each Series I Preferred Capital Distribution Shareholder shall be
entitled to receive, to the fullest extent permitted by law, on each
Dividend Payment Date, a pro-rata portion (with reference to the number of
Series I Preferred Capital Distribution Shares held by such Series I
Preferred Capital Distribution Shareholder and the total number of all
then-outstanding Series I Preferred Capital Distribution Shares) of the
following:
(i) with respect to the first Dividend Payment Date which occurs after the
Transaction Consummation Date, a preferential distribution equal in
aggregate amount to the Preferred Capital Distribution Shares Allocable
Series I Portfolio Cash Flow generated from February 14, 1995 through the
June 30 or December 31 date which most immediately precedes the Transaction
Consummation Date, minus any and all amounts distributed to the Series I
Preferred Capital Distribution Shareholders under this paragraph (d)
(including without limitation distributions made to such Persons while they
were BAC Holders, but excluding the Special Distributions described in
Section 5.1(a)(i) of this Agreement) for the period from February 14, 1995
through the time immediately prior to the first Dividend Payment Date; and
(ii) with respect to each subsequent Dividend Payment Date, a preferential
semi-annual distribution (which in the case of a Dividend Payment Date of
February 15 shall relate to the six full calendar month period ending on
the then-most recent December 31, and in the case of a Dividend Payment
Date of August 15 shall relate to the six full calendar month period ending
on the then-most recent June 30), equal in aggregate amount to the
Preferred Capital Distribution Shares Allocable Series I Portfolio Cash
Flow generated by the Company in the applicable six month period (but
excluding Special Future Distributions described in Section 5.1(a)(ii) of
this Agreement).
(e) Each Series II Preferred Capital Distribution Shareholder shall be
entitled to receive, to the fullest extent permitted by law, on each
Dividend Payment Date, a pro-rata portion (with reference to the number of
Series II Preferred Capital Distribution Shares held by such Series II
Preferred Capital Distribution Shareholder and the total number of all
then-outstanding Series II Preferred Capital Distribution Shares) of the
following:
(i) with respect to the first Dividend Payment Date which occurs after the
Transaction Consummation Date, a preferential distribution equal in
aggregate amount to the Preferred Capital Distribution Shares Allocable
Series II Portfolio Cash Flow generated from February 14, 1995 through the
June 30 or December 31 date which most immediately precedes the Transaction
Consummation Date, minus any and all amounts distributed to the Series II
Preferred Capital Distribution Shareholders under this paragraph (e)
(including without limitation distributions made to such Persons while they
were BAC Holders, but excluding the Special Distributions described in
Section 5.1(a)(i) of this Agreement) for the period from February 14, 1995
through the time immediately prior to the first Dividend Payment Date; and
(ii) with respect to each subsequent Dividend Payment Date, a preferential
semi-annual distribution (which in the case of a Dividend Payment Date of
February 15 shall relate to the six full calendar month period ending on
the then-most recent December 31, and in the case of a Dividend Payment
Date of August 15 shall relate to the six full calendar month period ending
on the then-most recent June 30), equal in aggregate amount to the
Preferred Capital Distribution Shares Allocable Series II Portfolio Cash
Flow generated by the Company in the applicable six month period (but
excluding Future Special Distributions described in Section 5.1(a)(ii) of
this Agreement).
(f) To the extent that amounts to be distributed under paragraphs (b) and
(d) of this Section 5.1 derive from cash flow generated by Series I SCATEF
Assets, such distributions shall be made on a pari passu, pro-rata basis
with regard to each other. To the extent that amounts to be distributed
under paragraphs (c) and (e) of this Section 5.1 derive from cash flow
generated by SCATEF Series II Assets, such distributions shall be made on a
pari passu, pro-rata basis with regard to each other. To the extent that
amounts to be distributed under paragraphs (b), (c), (d) and (e) of this
Section 5.1 derive from cash flow generated by sources other than SCATEF
Assets, such distributions shall be made on a pari passu, pro-rata basis
with regard to each other.
(g) Holders of Preferred Shares or Preferred Capital Distribution Shares
shall have no right (on account of such holdings) to receive any
distributions whatsoever on account of cash flow generated by Property of
the Company other than the SCATEF Assets; provided, however, that, to the
extent that the Company has insufficient cash on hand to pay the full
amounts owing to holders of Preferred Shares and Preferred Capital
Distribution Shares under paragraphs (a), (b), (c), (d) or (e) of this
Section 5.1, then the holders of Preferred Shares and Preferred Capital
Distribution Shares shall be entitled to distributions from cash flow
generated by any and all Property of the Company (including Property other
than the SCATEF Assets) prior to the rights of other Shareholders to such
cash flow, as contemplated by Section 5.1(i) of this Agreement.
(h) Holders of Term Growth Shares shall be entitled to receive, to the
fullest extent permitted by law, on each Dividend Payment Date, their
0.001%-per-Term-Growth-Share distributions as described in Section
3.1(a)(ii) of this Agreement.
(i) Although the Board of Directors is under no obligation to cause the
Company to make distributions or dividends to holders of New Shares, and
may instead, for example, determine to cause the Company to reinvest excess
cash or to hold excess cash for reserves or otherwise, if the Board of
Directors does declare a distribution or dividend payable on a Dividend
Payment Date, then, following the distributions to holders of Preferred
Shares and Preferred Capital Distribution Shares under paragraphs (a), (b),
(c), (d) and (e) of this Section 5.1, and following the 0.001% per share
distributions to holders of Term Growth Shares (as described in Section
3.1(a)(ii) of this Agreement and paragraph (h) above), the holders of
Growth Shares shall be entitled to receive all distributions or dividends
which the Board has declared which remain available for distribution, with
each holder of Growth Shares entitled to receive a pro-rata portion (with
reference to the number of Growth Shares then-held by such holder of Growth
Shares and the total number of Growth Shares then-held by all Persons) of
such available dividends or distributions.
5.2.Redemptions; Distributions Relating to Redemption Events; Certain
Permitted Conversions of Preferred Shares and Preferred Capital
Distribution Shares.
(a) Mandatory Partial Redemptions.
(i) Part I. Within six months of the occurrence of a Redemption Event which
relates to only a SCATEF Series I Asset, Series I Preferred Shares of each
Series I Preferred Shareholder, and Series I Preferred Capital Distribution
Shares of each Series I Preferred Capital Distribution Shareholder, shall
be redeemed, pro-rata pari passu, in cash (or such other mutually agreeable
property as the Company and an affected Shareholder may agree) by the
Company, but only out of funds legally available therefor, pro-rata in part
(with reference to the number of Series I Preferred Shares then-held by
each Series I Preferred Shareholder and the total number of
then-outstanding Series I Preferred Shares and the number of Series I
Preferred Capital Distribution Shares then-held by each Series I Preferred
Capital Distribution Shareholder and the total number of then-outstanding
Series I Preferred Capital Distribution Shares), in an aggregate amount of
redemption payments (1) to holders of Series I Preferred Shares equal to
the product of (A) the Preferred Shares Net Proceeds related to SCATEF
Series I Assets in connection with such Redemption Event multiplied by (B)
the Preferred Shares Series I Allocation Factor, and (2) to holders of
Series I Preferred Capital Distribution Shares equal to the product of (A)
the Preferred Capital Distribution Shares Net Proceeds related to SCATEF
Series I Assets in connection with such Redemption Event multiplied by (B)
the Preferred Capital Distribution Shares Series I Allocation Factor; and
in such event, Series I Preferred Shares of each Series I Preferred
Shareholder, and Series I Preferred Capital Distribution Shares of each
Series I Preferred Capital Distribution Shareholder, shall be deemed
returned to and cancelled by the Company, in a pro-rata proportion which is
equivalent to the pro-rata redemption-in-part proportion.
Part II. Within six months of the occurrence of a Redemption Event which
relates to only a SCATEF Series II Asset, Series II Preferred Shares of
each Series II Preferred Shareholder, and Series II Preferred Capital
Distribution Shares of each Series II Preferred Capital Distribution
Shareholder, shall be redeemed, pro-rata pari passu, in cash (or such other
mutually agreeable property as the Company and an affected Shareholder may
agree) by the Company, but only out of funds legally available therefor,
pro-rata in part (with reference to the number of Series II Preferred
Shares then-held by each Series II Preferred Shareholder and the total
number of then-outstanding Series II Preferred Shares and the number of
Series II Preferred Capital Distribution Shares then-held by each Series II
Preferred Capital Distribution Shareholder and the total number of
then-outstanding Series II Preferred Capital Distribution Shares), in an
aggregate amount of redemption payments (1) to holders of Series II
Preferred Shares equal to the product of (A) the Preferred Shares Net
Proceeds related to SCATEF Series II Assets in connection with such
Redemption Event multiplied by (B) the Preferred Shares Series II
Allocation Factor, and (2) to holders of Series II Preferred Capital
Distribution Shares equal to the product of (A) the Preferred Capital
Distribution Shares Net Proceeds related to SCATEF Series II Assets in
connection with such Redemption Event multiplied by (B) the Preferred
Capital Distribution Shares Series II Allocation Factor; and in such event,
Series II Preferred Shares of each Series II Preferred Shareholder, and
Series II Preferred Capital Distribution Shares of each Series II Preferred
Capital Distribution Shareholder, shall be deemed returned to and cancelled
by the Company, in a pro-rata proportion which is equivalent to the
pro-rata redemption-in-part proportion.
(ii)For purposes of clause (i) above, in the case of a Redemption Event
relating to a SCATEF Asset, the number of Preferred Shares and Preferred
Capital Distribution Shares to be redeemed shall be equal to (A) the dollar
amount of the original face value of the SCATEF Asset as to which the
Redemption Event in question relates, divided by (B) the total dollar face
amount of all SCATEF Assets which were originally SCATEF Assets relating to
the Series in question, multiplied by (C) the total number of Preferred
Shares and Preferred Capital Distribution Shares (of whichever Series is
the subject of the Redemption Event in question) originally issued by the
Company upon the consummation of the Transaction.
(iii) If all such Preferred Shares and Preferred Capital Distribution
Shares cannot be redeemed in full as provided for in Section 5.2(a)(i),
when required because of an insufficiency of funds then legally available
therefor, then such redemptions shall occur in stages as promptly as
possible, with, at each stage, the maximum amount legally available
therefor being used to make such redemptions, and Preferred Shareholders
and Preferred Capital Distribution Shareholders being redeemed pro-rata
pari passu in part (with reference to (a) the number of Preferred Shares
then-held by each Preferred Shareholder owed redemptions, and the total
number of then-outstanding Preferred Shares, and (b) the number of
Preferred Capital Distribution Shares then-held by each Preferred Capital
Distribution Shareholder owed redemptions, and the total number of
then-outstanding Preferred Capital Distribution Shares), with Preferred
Shareholders and Preferred Capital Distribution Shareholders sharing in the
available funds pro-rata pari passu. If such staged redemptions are
necessary, then, until the Preferred Shares and Preferred Capital
Distribution Shares are redeemed in full, notwithstanding any other
provision of this Agreement,
(A) the Preferred Shareholders and Preferred Capital Distribution
Shareholders (or the affected Series if only one Series is owed
redemptions) shall, through the final such redemption, be entitled to elect
one Director (the "Payments Director") to serve on the Company's Board of
Directors; such election to be accomplished from time to time when more
than 50% in interest of the total then issued and outstanding Preferred
Shares and Preferred Capital Distribution Shares (voting as one class), or
of the affected Series if only one Series is owed redemptions, voting as
one class, votes at a duly held meeting to be called reasonably promptly by
the Board of Directors following such inability to redeem in full as
described above in this Section 5.2(a) (or acts by written consent without
such a meeting) in favor of a particular person to fill such position, and
(B) until the final redemption described in this clause (iii) is made, no
distributions shall be made by the Company to any Shareholders other than
the Preferred Shareholders and Preferred Capital Distribution Shareholders.
(iv) As to any particular Redemption Event, the amount of the Preferred
Shares Net Proceeds and Preferred Capital Distribution Shares Net Proceeds
from such Redemption Event remaining in the Company after the making of the
redemption payments described in clause (i) of this Section 5.2(a) shall be
applied, first, to distribute to the holders of Term Growth Shares an
amount equal in the aggregate to (1) the residual proceeds which they would
have received from the application of the SCATEF Partnership Agreement's
provisions related to the distributions of residual proceeds on a pro-rata
basis, if any, and (2) the pro-rata operating cash distributions (that is,
the operating cash distributions attributable on a pro-rata basis to the
Term Growth Shares in the aggregate) generated through the date of such
Redemption Event since the then most recent June 30 or December 31; and,
following such distributions, may then be utilized by the Company in any
manner deemed appropriate by the Board of Directors, including without
limitation, if the Board of Directors so determines, the making of a
distribution to holders of New Shares (in which case each holder of New
Shares shall be entitled to receive a pro-rata portion (with reference to
the number of New Shares then-held by such holder of New Shares and the
total number of New Shares held by all Persons) of such distribution).
(b) Certain Permitted Conversions of Preferred Shares and Preferred Capital
Distribution Shares. The holder of each Preferred Share and Preferred
Capital Distribution Share shall be permitted to convert such share to
either Growth Shares or cash once every two years beginning in June 2004
(with the determination of whether cash or Growth Shares is to be received
by converting Shareholders to be made each such two years by the Board of
Directors). The following provisions govern the mechanical aspects of the
conversion process; provided, however, that the Board of Directors is
empowered to make reasonable decisions and determinations concerning
appropriate details in order to facilitate the smooth operation of the
conversion process.
(i) The Company shall retain an independent third-party appraiser once
every two years, beginning in June 2003, to determine the fair market value
of the SCATEF Assets remaining in the Company, adjusted for Permitted
Selling Expenses. Once that valuation is made at such time, the Board of
Directors shall decide within a reasonable time (with the date of such
decision being referred to as the "Decision Date") which SCATEF Assets are
attributable to each Series of Preferred Shares and Preferred Capital
Distribution Shares, and, based on the results of such appraisals, what the
conversion value is for each share of each Series of Preferred Shares and
Preferred Capital Distribution Shares (the "Per Share Conversion Value").
(ii)Once the Per Share Conversion Values are determined, the Board of
Directors of the Company shall, also on the Decision Date, determine
whether, for the upcoming conversion opportunity, converting holders of
Preferred Shares and Preferred Capital Distribution Shares would receive
cash or Growth Shares if they convert. The Company shall then notify each
holder of Preferred Shares and Preferred Capital Distribution Shares of the
upcoming conversion opportunity (including the date by which a conversion
decision and notification to the Company must be made), the Per Share
Conversion Value of each Preferred Share and Preferred Capital Distribution
Share held by such Person, and whether Preferred Shares and Preferred
Capital Distribution Shares are convertible into Growth Shares (and if so,
at what ratio of Growth Shares per Preferred Share or Preferred Capital
Distribution Share) or cash.
(iii) Each holder of Preferred Shares or Preferred Capital Distribution
Shares who chooses to convert some or all of his or her Preferred Shares or
Preferred Capital Distribution Shares, and who follows the process set by
the Board of Directors for accomplishing such a conversion, shall receive
either cash (in an amount per converted Preferred Share or Preferred
Capital Distribution Share equal to the Per Share Conversion Value for such
Preferred Share or Preferred Capital Distribution Share), or a number of
Growth Shares whose determined value is equal to such Per Share Conversion
Value times the number of the converted Preferred Shares or Preferred
Capital Distribution Shares. For purposes of the foregoing sentence, the
term "determined value" means the average daily closing price of a Growth
Share, over the 25th through 5th trading days immediately preceding the
Decision Date (as that term is defined in clause (i) above), on whatever
stock exchange or other trading system (the "Exchange") the Growth Shares
are traded, and if the Growth Shares are traded on no such Exchange on the
Decision Date, then the "determined value" shall be reasonably determined
on the Decision Date by the Board of Directors.
(iv)To the extent reasonably feasible, each conversion shall be effective
on or about June 1 of the year in which such conversion opportunity occurs,
beginning with the year 2004 and thereafter at approximately two year
intervals.
(v) Once there are no Preferred Shares and Preferred Capital Distribution
Shares outstanding, the conversion opportunities shall terminate
permanently.
(vi) In the event that there is a conversion of Shares into Growth Shares
under this Section 5.2(b), the Board of Directors shall determine at the
time of such conversion whether (i) to revalue the Capital Accounts of all
of the Growth Shareholders (including persons who acquire Growth Shares in
such conversion) pursuant to Section 1.704-1(b)(2)(iv)(f) of the Treasury
Regulations, or (ii) to specially allocate items of Profit or Loss to the
persons who acquire Growth Shares in such conversion in order to ensure
that the Capital Accounts of all of the Growth Shareholders (including the
persons who acquire Growth Shares in such conversion) are identical on a
per-Growth Share basis.
(c) Liquidation. Upon the dissolution, liquidation or winding-up of the
Company, after payment of all of the Company's creditors,
(i) Each Shareholder shall receive an amount in cash or in kind equal to
the positive Capital Account balance of such Shareholder, as determined
after taking into account all Capital Account adjustments for the taxable
year of the dissolution, liquidation or winding-up of the Company other
than the distribution under this clause (i) of Section 5.2(c); and
(ii) For the taxable year in which the dissolution, liquidation or
winding-up occurs and, if necessary, for the preceding taxable year, items
of the Company's gross income and deduction shall be specially allocated to
the Shareholders so that the amount distributed to each holder of Preferred
Shares and Preferred Capital Distribution Shares under clause (i) of this
Section 5.2(c) shall equal an amount per Share equal to the most recently
calculated applicable Per Share Conversion Value (as may be equitably
adjusted by the Board of Directors to take account of intervening events
since the time of the calculation of such Per Share Conversion Value).
Following payment of the full amount of the liquidating distribution to
which they are entitled as described above in this Section 5.2(c), the
holders of Preferred Shares and Preferred Capital Distribution Shares shall
not be entitled to any further participation in any distribution of assets
of the Company, but the holders of New Shares shall participate exclusively
in any such distributions (in which case each holder of New Shares shall be
entitled to receive a pro-rata portion (with reference to the number of New
Shares then-held by such Person and the total number of New Shares held by
all holders of New Shares) of such distribution; provided, however, that
holders of Term Growth Shares shall be entitled to no more of such
distributions than they would have been entitled to had there been a
Redemption Event distribution as required under the terms of the SCATEF
Partnership Agreement).
A consolidation or merger of the Company with or into any other Entity, or
a sale, lease or exchange of any or all of the assets of the Company in
consideration for the issuance of equity securities of another Entity,
shall not be deemed to be a liquidation, dissolution or winding up of the
Company, provided that the consolidation, merger, sale, lease or exchange
does not adversely affect the Preferred Shareholders or the Preferred
Capital Distribution Shareholders as a class in a manner materially
different than how it adversely affects other classes of Shareholders.
5.3. Priority.
(a) Notwithstanding the above Sections of this Article 5, the Company shall
not declare or pay any distribution of any kind on any Shares other than
the Preferred Shares and Preferred Capital Distribution Shares, unless at
such time full cumulative distributions have been paid with respect to the
Preferred Shares and Preferred Capital Distribution Shares, as provided for
under this Agreement, through the most recent Dividend Payment Date; and,
subject to Section 13.7 hereof, no Shares other than Preferred Shares and
Preferred Capital Distribution Shares may be redeemed or repurchased by the
Company while any Preferred Shares and Preferred Capital Distribution
Shares remain outstanding.
(b) Notwithstanding any other provision of this Agreement, it is
specifically acknowledged and agreed by each Shareholder that the Company's
failure to pay any amounts to such Shareholder, whether as a dividend,
redemption payment or other distribution, even if such payment is
specifically required hereunder, shall not give such Shareholder creditor
status with regard to such unpaid amount; but rather, such Shareholder
shall be treated only as a shareholder of whatever class such person is a
Shareholder, and not as a creditor, of the Company. This Section 5.3(b) is,
as permitted by Section 18-606 of the Act, intended to override the
provisions of Section 18-606 of the Act relating to a member's status and
remedies as a creditor, to the extent that such provisions would be
applicable in the absence of this Section 5.3(b).
5.4. Payments to Shareholders for Services. Any payments by the Company to
a Shareholder for services rendered to or on behalf of the Company shall be
treated as guaranteed payments for services under Section 707(c) of the
Code.
ARTICLE 6
Shareholders
6.1. Limited Liability.
(a) Except as otherwise provided by the Act or in Section 6.1(b) hereof,
the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and the Shareholders shall not be obligated
personally for any such debt, obligation or liability of the Company solely
by reason of being a Shareholder of the Company. The Shareholders shall not
be required to lend any funds to the Company. Each of the Shareholders
shall only be liable to make payment of his, her or its respective
contributions as and when due hereunder and other payments as expressly
provided in this Agreement. If and to the extent a Shareholder's
contribution shall be fully paid, such Shareholder shall not, except as
required by the express provisions of the Act regarding repayment of sums
wrongfully distributed to Shareholders, be required to make any further
contributions.
(b) Notwithstanding Section 6.1(a) hereof, the Special Shareholder, for so
long as such Person holds Shares (unless such Person duly resigns as a
Special Shareholder in accordance with this Section 6.1 or Section 6.3 of
this Agreement), shall have personal liability to creditors of the Company
(and any such creditor may seek personal satisfaction from the Special
Shareholder), to the extent that the assets of the Company (including
without limitation the proceeds of any and all available insurance) are
insufficient to satisfy such creditor's claim (and, if there be more than
one Special Shareholder at any time, then such Special Shareholders shall
be jointly liable for all liabilities set forth in this Section 6.1(b));
provided, however, that, notwithstanding Section 6.3 of this Agreement, any
Special Shareholder may resign its status as a Special Shareholder after
(i) the consummation of a transaction in which a Person acquires more than
10% of the then-outstanding Shares of any class or series where such
acquisition is not consented to by the Special Shareholder, or (ii) any
Shareholder or group of Shareholders controls a majority of the seats on
the Board of Directors in any case where such control is not consented to
by the Special Shareholder. In the event of such a resignation, (x) the
Special Shareholder's personal liability under the first sentence of this
Section 6.1(b) shall, to the fullest extent permissible under law,
terminate immediately, automatically, and in full, although such Person may
continue to hold Shares, and (y) the Company shall pay to the Special
Shareholder, promptly after such resignation, the sum of $1,000,000 in
direct consideration for the Special Shareholder's prior service to the
Company.
(c) Notwithstanding Section 6.1(b) hereof, the Special Shareholder shall
have no fiduciary duty whatsoever to any other Shareholder, and shall be
treated in exactly the same manner as any other Shareholder other than as
specifically provided in Section 6.1(b) hereof. Without limiting the
foregoing, it is agreed that (i) the Special Shareholder has no
responsibility to treat other Shareholders, including without limitation
holders of Preferred Shares and Preferred Capital Distribution Shares, as
creditors of the Company toward which the Special Shareholder would bear
any responsibility or have any liability whatsoever (including without
limitation in the event of any Company failure to pay any amounts to such
Shareholders, whether as a dividend, redemption payment or other
distribution, even if such amounts are specifically required hereunder to
be paid), and (ii) the Special Shareholder is entitled to act solely in its
own self interests without regard to the interests of other Shareholders.
(d) Notwithstanding any other provision of this Agreement, the Dissolution
Shareholder shall have the right to serve as one (or, if there are at any
time more than ten Directors on the Board of Directors, two) of the
Company's Directors, through such representatives as are appointed by the
Dissolution Shareholder (such designated persons to be referred to as the
"Specially Appointed Director(s)") at all times and from time to time, and
shall have the sole right to remove such representative(s) as Directors;
all as provided in Section 7.2(b) of this Agreement.
6.2. Voting Rights of Shareholders; Authority of Board of Directors.
(a) The Board of Directors shall make all decisions made for and on behalf
of the Company, such decisions shall be binding upon the Company, and the
Shareholders shall have no voting rights; except, however, as expressly set
forth herein. The Board of Directors, in its sole discretion, has full,
complete and exclusive right, power and authority in the management and
control of the Company business to do any and all things necessary to
effectuate the purpose of the Company; except, however, as expressly set
forth herein. The members of the Board of Directors shall devote such time
as is necessary to the affairs of the Company, and shall receive such
compensation from the Company and such reimbursement for expenses as is
permitted by the Company's By-laws as then in effect. No Person dealing
with the Board of Directors shall be required to determine its authority to
make any undertaking on behalf of the Company or to determine any facts or
circumstances bearing upon the existence of such authority.
(b) Notwithstanding Section 6.2(a) above, but subject to Sections
10.1(a)(i) and 10.1(a)(ii), Article 12 and Article 13 hereof, in the event
of a proposed sale or other disposition of all or substantially all of the
assets of the Company at any one time, merger or consolidation of the
Company (where the Company is not the surviving Entity), dissolution of the
Company, or issuance of any restricted Share or deferred Share awards under
a Company incentive share plan, any such proposed occurrence, in order to
be approved must, (i) with respect to the merger or consolidation of the
Company (where the Company is not the surviving Entity), first receive the
approval of the Board of Directors, (ii) with respect to a sale or other
disposition of all or substantially all of the assets of the Company at any
one time, or dissolution of the Company, if no Preferred Shares or
Preferred Capital Distribution Shares are outstanding any such proposed
action must first receive the approval of the Board of Directors, and (iii)
receive the vote, at a duly held meeting, of more than 50% in interest of
the total then issued and outstanding Shares (or, in the case of a written
Consent without a meeting, more than 50% in interest of the total then
issued and outstanding Shares), voting as one class (and not as separate
classes, notwithstanding the fact that there may be members of more than
one class voting) (or such greater percentage as is then required under the
Act); provided, however, that any sales of any assets which are necessary
in order to fund redemptions of Preferred Shares or Preferred Capital
Distribution Shares under Article 5 of this Agreement shall not require the
Consent of any Shareholders, but rather shall require only Board of
Directors approval in order to be approved and effected.
(c) Notwithstanding Section 6.2(a) above, but subject to Sections 6.1(d),
7.2(a) and 7.2(b) and Articles 12 and 13 hereof, the vote, at a duly held
meeting, of more than 50% in interest of the total then issued and
outstanding Shares (or, in the case of a written Consent without a meeting,
more than 50% in interest of the total then issued and outstanding Shares),
voting as one class (and not as separate classes, notwithstanding the fact
that there may be members of more than one class voting), shall be able to
remove any Director (other than a Payments Director or a Specially
Appointed Director) and elect a replacement therefor. If the Shareholders
vote to remove a Director pursuant to this Section 6.2(c), they shall
provide the removed Director with notice thereof, which notice shall set
forth the date upon which such removal is to become effective.
(d) Notwithstanding anything to the contrary in this Agreement,
(i) the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding Preferred Shares (or, in the case of a
written Consent without a meeting, more than 50% in interest of the total
then issued and outstanding Preferred Shares), voting as one class (and not
as separate series, notwithstanding the fact that there may be members of
more than one series voting), shall be required in order for there to be
any alteration in the rights, preferences or privileges of the Preferred
Shares as a class,
(ii) the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding affected series of Preferred Shares (or,
in the case of a written Consent without a meeting, more than 50% in
interest of the total then issued and outstanding affected series of
Preferred Shares), shall be required in order for there to be any
alteration in the rights, preferences or privileges of a particular series
of Preferred Shares,
(iii) the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding Preferred Shares (or, in the case of a
written Consent without a meeting, more than 50% in interest of the total
then issued and outstanding Preferred Shares), voting as one class (and not
as separate series, notwithstanding the fact that there may be members of
more than one series voting), shall be required in order for there to be
any amendment of Article 5 of this Agreement which would result in an
alteration in the rights of the Preferred Shareholders (as a class,
vis-a-vis other classes of Shareholders) to distributions under Article 5
of this Agreement,
(iv)the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding affected series of Preferred Shares (or,
in the case of a written Consent without a meeting, more than 50% in
interest of the total then issued and outstanding affected series of
Preferred Shares), shall be required in order for there to be any amendment
of Article 5 of this Agreement which would result in an alteration in the
rights of a particular series of Preferred Shares (as a series, vis-a-vis
other series of Preferred Shareholders) to distributions under Article 5 of
this Agreement,
(v) the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding Preferred Capital Distribution Shares
(or, in the case of a written Consent without a meeting, more than 50% in
interest of the total then issued and outstanding Preferred Capital
Distribution Shares), voting as one class (and not as separate series,
notwithstanding the fact that there may be members of more than one series
voting), shall be required in order for there to be any alteration in the
rights, preferences or privileges of the Preferred Capital Distribution
Shares as a class,
(vi)the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding affected series of Preferred Capital
Distribution Shares (or, in the case of a written Consent without a
meeting, more than 50% in interest of the total then issued and outstanding
affected series of Preferred Capital Distribution Shares), shall be
required in order for there to be any alteration in the rights, preferences
or privileges of a particular series of Preferred Capital Distribution
Shares,
(vii) the vote, at a duly held meeting, of more than 50% in interest of the
total then issued and outstanding Preferred Capital Distribution Shares
(or, in the case of a written Consent without a meeting, more than 50% in
interest of the total then issued and outstanding Preferred Capital
Distribution Shares), voting as one class (and not as separate series,
notwithstanding the fact that there may be members of more than one series
voting), shall be required in order for there to be any amendment of
Article 5 of this Agreement which would result in an alteration in the
rights of the Preferred Capital Distribution Shareholders (as a class,
vis-a-vis other classes of Shareholders) to distributions under Article 5
of this Agreement, and
(viii) the vote, at a duly held meeting, of more than 50% in interest of
the total then issued and outstanding affected series of Preferred Capital
Distribution Shares (or, in the case of a written Consent without a
meeting, more than 50% in interest of the total then issued and outstanding
affected series of Preferred Capital Distribution Shares), shall be
required in order for there to be any amendment of Article 5 of this
Agreement which would result in an alteration in the rights of a particular
series of Preferred Capital Distribution Shares (as a series, vis-a-vis
other series of Preferred Capital Distribution Shareholders) to
distributions under Article 5 of this Agreement.
Notwithstanding Section 14.4 of this Agreement, this Section 6.2(d) cannot
be amended without the vote, at a duly held meeting, of more than 50% in
interest of the total then issued and outstanding Preferred Shares and
Preferred Capital Distribution Shares (or, in the case of a written Consent
without a meeting, more than 50% in interest of the total then issued and
outstanding Preferred Shares and Preferred Capital Distribution Shares),
voting as one class (and not as separate series, notwithstanding the fact
that there may be members of more than one series voting); provided,
however, that if any proposed amendment of this Section 6.2(d) would
adversely affect in any way only one Series or type of Preferred Shares or
Preferred Capital Distribution Shares and not the other Series or type,
then any such amendment must be approved in the manner provided in Section
6.2(d)(iv) or 6.2(d)(viii) above, respectively and as the case may be.
(e) Except as otherwise provided in this Agreement or in any share plan or
share incentive plan adopted by the Company, the holders of New Shares have
sole Shareholder authority
(i) to vote on such matters as may be brought before the Shareholders from
time to time (on issues other than those as to which this Agreement
specifically provides for voting rights of Shareholders in addition to or
instead of holders of New Shares), and
(ii) to elect Directors, and shall do so on an annual basis;
and in all such votes on which the holders of New Shares have sole
Shareholder voting authority, in order for the holders of New Shares to act
to approve a matter on which they are voting, such matter must receive the
vote of more than 50% in interest of the New Shares which are voted at a
meeting at which a quorum of New Shares is present (or, in the case of a
written Consent without a meeting, must receive the written Consent of more
than 50% in interest of the aggregate New Shares), voting as one class (and
not as separate classes, notwithstanding the fact that there may be members
of more than one class voting) (or such greater percentage as is then
required under the Act or under the express terms of this Agreement). For
purposes of the foregoing sentence, the term "quorum" means more than 50%
of the then issued and outstanding New Shares, except as provided in any
share plan or share incentive plan adopted by the Company.
The annual meeting of the holders of New Shares of the Company for the
election of Directors and for the transaction of such other business as
properly may come before such meeting shall be held in accordance with the
By-laws. Subject to the provisions of Article 13 relating to meetings of
Shareholders and related subjects, the By-laws shall govern matters
relating to, among other things, annual and special meetings, notice,
waiver of notice, adjournment, proxies, written consents, procedures, and
telephonic meetings, to the extent not inconsistent with this Agreement.
(f) Notwithstanding any other provision of this Agreement, Shareholders
have voting rights with respect to a particular matter (to the extent
provided herein with regard to categories of Shareholders permitted to vote
on particular matters, and otherwise) only after such matter has first been
approved by the Board of Directors, except with regard to (i) the removal
of a Director (and the election of a replacement therefor in connection
therewith) as provided in this Agreement, (ii) the amendment of this
Agreement, (iii) the sale or other disposition of all or substantially all
of the assets of the Company at any one time, (iv) the dissolution of the
Company, and (v) any matter as to which any share plan or share incentive
plan adopted by the Company provides otherwise.
(g) For purposes of this Agreement, in order for a meeting of Shareholders
to be considered duly held with regard to a particular question, a quorum
of more than 50% in interest of the Shares which are entitled to vote at
such meeting on the particular question must be present (in person or by
proxy).
(h) Notwithstanding any other provision of this Agreement, the percentage
vote in the Company, as a whole, which each Preferred Share and each
Preferred Capital Distribution Share carries with it as of the Transaction
Consummation Date will be equivalent to the percentage vote in SCATEF which
each BAC carried with it prior to the Transaction.
(i) Notwithstanding Section 6.2(a) above, the vote, at a duly held meeting,
of more than 50% in interest of the total then issued and outstanding Term
Growth Shares (or, in the case of a written Consent without a meeting, more
than 50% in interest of the total then issued and outstanding Term Growth
Shares), voting as one class, shall be required in order for there to be
any alteration in the rights, preferences or privileges of the Term Growth
Shares as a class, or any alteration in the rights of the Term Growth
Shareholders (as a class, vis-a-vis other classes of Shareholders) to
distributions under Article 5 of this Agreement. Notwithstanding Section
14.4 of this Agreement, this Section 6.2(i) cannot be amended without the
vote, at a duly held meeting, of more than 50% in interest of the total
then issued and outstanding Term Growth Shares (or, in the case of a
written Consent without a meeting, more than 50% in interest of the total
then issued and outstanding Term Growth Shares), voting as one class.
6.3. Transfers of Special Shareholder Interests. The restrictions,
limitations and other provisions of this Section 6.3 shall in no manner
limit or restrict the right of a Special Shareholder to resign its status
as a Special Shareholder to the extent permitted under Section 6.1(b) of
this Agreement; and, once such Special Shareholder properly resigns
pursuant thereto, the transfer restrictions set forth in this Section 6.3
as they relate to such Special Shareholder shall automatically and
immediately terminate. Subject to the foregoing sentence, it is agreed
that:
(a) No Special Shareholder (a "Special Transferor") may make any Transfer
of any of its Shares to a Transferee (a "Special Transferee") unless each
of the following requirements is met:
(i) At all times during the existence of the Company, including upon
consummation of such Transfer, one or more Special Shareholders must have,
in the aggregate, at least a number of Shares which will result in the
allocation to the Special Shareholder(s), in the aggregate, of the minimum
percentage interest in the Company which will permit the Company to retain
its tax status as an association taxable as a partnership rather than as a
corporation, in the opinion of counsel to the Company; and
(ii)Before any such Transfer can be made, the Company must be furnished
with an opinion of counsel (which may or may not be the same counsel as is
referenced in subparagraph (i) above) to the effect that the Transfer in
question will not adversely affect the Company's tax status as an
association taxable as a partnership rather than as a corporation.
(b) No Transfer to a Special Transferee shall be recognized by the Company
unless the Board of Directors of the Company receives documentation
satisfactory to it that the requirements of this Section 6.3 have been met.
(c) If the Special Transferor transfers all of its Shares in such Transfer,
in accordance with the restrictions and requirements of Sections 6.3(a) and
6.3(b) of this Agreement, then such Special Transferor shall thereafter no
longer be a Special Shareholder. If the Special Transferor transfers fewer
than all of its Shares in such Transfer, then:
(i) if such Special Transferor makes no provision for the termination of
its status as a Special Shareholder in accordance with clause (ii)
immediately below, such Special Transferor shall continue to be a Special
Shareholder; and
(ii) if the Special Transferee agrees in writing to be a Special
Shareholder and to be subject to the liabilities of a Special Shareholder
as provided in this Agreement, then, if all of the requirements and
limitations set forth in Section 6.3(a) of this Agreement are complied
with, the Special Transferor may terminate its status as a Special
Shareholder upon notice thereof to the Company; provided, however, that no
such resignation shall be recognized by the Company unless the Board of
Directors of the Company receives documentation satisfactory to it that the
requirements of this Section 6.3(c) have been met.
6.4. Transfers of Dissolution Shareholder Interests.
(a) No Dissolution Shareholder (a "Dissolution Transferor") may make any
Transfer of any of its Shares to a Transferee (a "Dissolution Transferee")
unless each of the following requirements is met:
(i) At all times during the existence of the Company, including upon
consummation of such Transfer, one or more Dissolution Shareholders must
have, in the aggregate, at least a number of Shares which will result in
the allocation to the Dissolution Shareholder, in the aggregate, of the
minimum percentage interest in the Company which will permit the Company to
retain its tax status as an association taxable as a partnership rather
than as a corporation, in the opinion of counsel to the Company; and
(ii)Before any such Transfer can be made, the Company must be furnished
with an opinion of counsel (which may or may not be the same counsel as is
referenced in subparagraph (i) above) to the effect that the Transfer in
question will not adversely affect the Company's tax status as an
association taxable as a partnership rather than as a corporation.
(b) No Transfer to a Dissolution Transferee shall be recognized by the
Company unless the Board of Directors of the Company receives documentation
satisfactory to it that Section 6.4(a)'s requirements have been met.
(c) If the Dissolution Transferor transfers all of its Shares in such
Transfer, in accordance with the restrictions and requirements of Sections
6.4(a) and 6.4(b) of this Agreement, then such Dissolution Transferor shall
thereafter no longer be a Dissolution Shareholder. If the Dissolution
Transferor transfers fewer than all of its Shares in such Transfer, then:
(i) if such Dissolution Transferor makes no provision for the termination
of its status as a Dissolution Shareholder in accordance with clause (ii)
immediately below, such Dissolution Transferor shall continue to be a
Dissolution Shareholder; and
(ii) if the Dissolution Transferee agrees in writing to be a Dissolution
Shareholder, then, if all of the requirements and limitations set forth in
Section 6.4(a) of this Agreement are complied with, the Dissolution
Transferor may terminate its status as a Dissolution Shareholder upon
notice thereof to the Company; provided, however, that no such resignation
shall be recognized by the Company unless the Board of Directors of the
Company receives documentation satisfactory to it that this Section
6.4(c)'s requirements have been met.
ARTICLE 7
Directors and Officers
7.1. General Powers of Directors.
(a) Except as may otherwise be provided by the Act or by this Agreement,
the property, affairs and business of the Company shall be managed by or
under the direction of the Board of Directors, the Board of Directors may
exercise all the powers of the Company (including but not limited to
deciding whether to make various tax elections), and the Shareholders shall
have no right to act on behalf of or bind the Company. The Directors shall
act only as a Board, and the individual Directors shall have no power as
such. Subject to the provisions of this Agreement and the By-laws with
regard to Board of Directors actions that can be taken without a quorum,
the approval of a matter by a majority of the Directors present at a
meeting at which a quorum is present shall constitute approval by the Board
of Directors (or, in the case of a written consent without a meeting, the
approval of a matter by all of the Directors shall constitute approval by
the Board of Directors).
(b) Unless expressly provided otherwise under this Agreement, the Board of
Directors shall have the exclusive authority to make all determinations
under this Agreement and under the By-laws (including but not limited to
what expenses are properly included within the defined terms in this
Agreement which include the words "cash flow" or "cash flows", and
including but not limited to having the exclusive authority to make such
other determinations and adjustments as are necessary to assure that (i)
cash flows to the holders of Preferred Capital Distribution Shares reflect
the amount of net cash flow which would have been received by the Preferred
Capital Distribution Shareholders as a group if the Transaction had not
occurred, and (ii) cash flows to the holders of Preferred Shares reflect
the amount of net cash flow which would have been received by the Preferred
Shareholders as a group if the Transaction, the Financing and Future
Financings had not occurred), and to interpret the provisions of this
Agreement and of the By-laws.
(c) No contract or transaction among the Company and one or more of its
Affiliates, Directors or officers, or among the Company and any other
Entity in which one or more of the Company's Affiliates, Directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the Director or
officer is present at or participates in the meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose, if:
(i) The material facts as to such Affiliate's, Director's or officer's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum;
(ii) The material facts as to such Affiliate's, Director's or officer's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Shareholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by more
than 50% in interest of the New Shares which are present and entitled to
vote at a meeting at which a quorum is present (or, in the case of a
written Consent without a meeting, more than 50% in interest of the
aggregate New Shares), voting as one class (and not as separate classes,
notwithstanding the fact that there may be members of more than one class
voting), who are not Affiliates of any of the interested Persons involved
in such transaction; or
(iii) The contract or transaction is fair as to the Company.
Common or interested Directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Notwithstanding, and instead of, the foregoing provisions of this Section
7.1(c), the Company shall enter into or renew no agreement pursuant to
which any Affiliate of any Director would provide management services for
any Property, unless such agreement is approved by a majority of the
Directors who (a) are not officers of the Company, (b) are neither related
to any Company officer nor represent concentrated or family holdings of the
Company's Shares, and (c) are, in the view of the Board of Directors, free
of any relationship that would interfere with the exercise of independent
judgment; and, if such approval is obtained in the case of a particular
contract, such approval shall be deemed to satisfy the requirements of this
Section 7.1(c).
(d) Notwithstanding the above provisions of this Section 7.1, in any
transaction which occurs after the Transaction Consummation Date, in which
the Company wishes to issue Shares to SCATEF or any Affiliate of SCATEF in
exchange for such Person giving up fees otherwise payable to it, such
transaction, including but not limited to the exchange ratio of Shares for
such fees, shall not be approved or undertaken by the Company unless and
until approved, in lieu of the requirements set forth in Section 7.1(c), by
a majority of the directors of the Company who are not Affiliates of SCATEF
or of any SCATEF Affiliate (even though the disinterested Directors may be
less than a quorum of the full Board of Directors), after the material
facts as to such transaction are disclosed or are known to such
unaffiliated Directors.
7.2.Number and Term of Office of Directors. Subject to Section 5.2(a)(iii)
of this Agreement:
(a) The number of seats constituting the entire Board of Directors shall be
at least five and no more than 15, with the exact number of seats on the
Board of Directors to be determined from time to time by resolution of the
Board of Directors. At least a majority of the Directors in office at any
point in time must be individuals who are not employed by the Company or by
any Affiliate of the Company. Each Director (whenever elected) shall hold
office until his or her successor has been duly elected and qualified, or
until his or her earlier death, resignation, or removal. A Director shall
not be required to be a Shareholder or a resident of the State of Delaware.
Effective immediately upon consummation of the Transaction, (i) the size of
the Board of Directors is set at six seats, and (ii) Mark K. Joseph is
elected to serve as a Director (with term to expire in 1999).
(b) The Specially Appointed Director(s) and the Payments Director shall
have all of the powers, rights, privileges, obligations and duties as all
other Directors, and shall for all purposes be Directors of the Company,
except that (i) the Specially Appointed Director(s) and the Payments
Director shall not be counted when determining the total size of the Board
of Directors for the sole purpose of making the determination in Section
7.2(c) below as to how many Directors are in each class, (ii) no
Shareholders other than the Dissolution Shareholder shall have any right to
elect, remove or replace the Specially Appointed Director(s), and, without
limiting the foregoing, the Specially Appointed Director(s) shall not stand
for election or reelection at any meeting of the holders of New Shares, and
(iii) no Shareholders other than the Preferred Shareholders and Preferred
Capital Distribution Shareholders (or the affected Series or type thereof,
as the case may be in accordance with Section 5.2 of this Agreement) shall
have any right to elect, remove or replace the Payments Director, and,
without limiting the foregoing, the Payments Director shall not stand for
election or reelection at any meeting of the holders of New Shares. Without
limiting the foregoing, all other Shareholders, by becoming Shareholders of
the Company, agree that (I) the Dissolution Shareholder has such rights to
serve, through its appointed representatives, as the Specially Appointed
Director(s) and that the necessary one seat or two seats on the Board of
Directors shall be reserved for such appointment(s) (and the size of the
Company's Board of Directors shall automatically be expanded at any time if
such expansion is necessary in order to permit the Dissolution Shareholder
to effect such appointment(s)), (II) the Preferred Shareholders and the
Preferred Capital Distribution Shareholders have the right to appoint the
Payments Director as provided in Section 5.2 of this Agreement, and that
the necessary seat on the Board of Directors shall be reserved for such
appointment (and the size of the Company's Board of Directors shall
automatically be expanded at any time if such expansion is necessary in
order to effect such appointment), and (III) the Company's officers and
Directors may take any and all steps deemed appropriate by them, in
connection with Shareholder meetings or otherwise, to implement this
Section 7.2(b).
(c) Subject to Section 7.2(b) above, at all times the Board of Directors
shall be divided into three classes, as nearly equal in numbers as the then
total number of directors constituting the entire Board of Directors
permits, with the term of office of one class expiring each year (with the
first such class expiration to occur at the first annual meeting of
Shareholders); and the Board of Directors shall have sole power to make
such determinations. At the first annual meeting of the holders of New
Shares, only the Directors of the first class shall be elected by the
holders of New Shares (in accordance with Section 6.2 hereof), and such
persons shall hold office thereafter for a term expiring at the third
succeeding annual meeting. At the second annual meeting of Shareholders,
only the Directors of the second class shall be elected by the holders of
New Shares (in accordance with Section 6.2 hereof), and such persons shall
hold office thereafter for a term expiring at the third succeeding annual
meeting. At the third annual meeting of Shareholders, only the Directors of
the third class shall be elected by the holders of New Shares (in
accordance with Section 6.2 hereof), and such persons shall hold office
thereafter for a term expiring at the third succeeding annual meeting. At
each subsequent annual meeting of Shareholders thereafter, the successors
to any class of directors whose term shall then expire shall be elected by
the holders of New Shares (in accordance with Section 6.2 hereof) to hold
office for a term expiring at the third succeeding annual meeting.
7.3.By-law Provisions. The By-laws shall govern matters relating to, among
other things, (a) with respect to directors, annual and special meetings,
notice, waiver of notice, quorum, voting, adjournment, written consents,
committees, procedures, telephonic meetings, resignations, removals,
vacancies, books and records, reports, and compensation and reimbursement
of expenses, to the extent not inconsistent with this Agreement, (b) with
respect to officers, all matters not governed by this Agreement, and (c)
employee benefit matters, which matters shall be subject to and managed as
provided by the discretion of the Board of Directors.
ARTICLE 8
Exculpation and Indemnification
8.1.Limitations on Liability, and Indemnification of, Directors and
Officers.
(a) No directors or officer of the Company shall be liable, responsible or
accountable in damages or otherwise to the Company or any of the
Shareholders for any act or omission performed or omitted by him or her, or
for any decision, except in the case of fraudulent or illegal conduct of
such person. For purposes of this Section 8.1, the fact that an action,
omission to act or decision is taken on the advice of counsel for the
Company shall be evidence of good faith and lack of fraudulent conduct.
(b) All Directors and officers of the Company shall be entitled to
indemnification from the Company for any loss, damage or claim (including
any reasonable attorney's fees incurred by such person in connection
therewith) due to any act or omission made by him or her, except in the
case of fraudulent or illegal conduct of such person; provided, that any
indemnity shall be paid out of, and to the extent of, the assets of the
Company only (or any insurance proceeds available therefor), and no
Shareholder shall have any personal liability on account thereof.
(c) The termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Person
acted fraudulently or illegally.
(d) The indemnification provided by this Section 8.1 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any agreement, vote of Shareholders or Directors, or otherwise, and
shall inure to the benefit of the heirs, executors and administrators of
such a person.
(e) Any repeal or modification of this Section 8.1 shall not adversely
affect any right or protection of a Director or officer of the Company
existing at the time of such repeal or modification.
(f) The Company may, if the Board of Directors of the Company deems it
appropriate in its sole discretion, obtain insurance for the benefit of the
Company's Directors and officers, relating to the liability of such
persons.
ARTICLE 9
Transfers of Interests; Admission of New Shareholders
9.1.Transfers. Subject to Section 6.3 of this Agreement (relating to
Special Shareholders) and Section 6.4 of this Agreement (relating to
Dissolution Shareholders), the Shares shall be freely transferrable
(provided, however, that Term Growth Shares are transferrable only to other
Persons who are then already holders of Term Growth Shares); and any Person
who is a Transferee of Shares shall, by having such status, (a)
automatically become a Shareholder of the Company with no further action
being required on such Persons's part, and (b) automatically be bound to
the terms and conditions of this Agreement (and be entitled to the rights
of a Shareholder hereunder), without the requirement for execution of this
Agreement by such Person. Certain mechanical aspects of the transfer of
Shares shall be set forth in the By-laws.
ARTICLE 10
Dissolution and Termination
10.1. Events of Dissolution.
(a) In accordance with Section 18-801 of the Act, and the provisions
therein permitting this Agreement to specify the events of the Company's
dissolution, the Company shall be dissolved and the affairs of the Company
wound up upon the occurrence of any of the following events:
(i) a unanimous written decision of all of the Original Shareholders who
are then still Shareholders to dissolve the Company;
(ii)the death, retirement, resignation, expulsion, bankruptcy (as defined
in Section 18-304 of the Act) or dissolution of a Person who is then a
Dissolution Shareholder, or the occurrence of any other event that
terminates the continued membership in the Company of a Person who is then
a Dissolution Shareholder, unless more than 50% in interest of the
then-outstanding Shares votes, at a duly held meeting (or, in the case of a
written Consent without a meeting, more than 50% in interest of the
aggregate Shares acts), within 180 days of such event to continue the
Company; or
(iii) the vote of the Shareholders pursuant to Section 6.2(b) hereof.
The death, retirement, resignation, expulsion, bankruptcy (as defined in
Section 18-304 of the Act) or dissolution of a Shareholder or the
occurrence of any other event that terminates the continued membership of a
Shareholder in the Company, shall not cause the dissolution of the Company
except to the extent specified above in this Section 10.1(a).
(b) Dissolution of the Company shall be effective on the day on which the
event occurs giving rise to the dissolution, but the Company shall not
terminate until the assets of the Company shall have been distributed as
provided herein and a certificate of cancellation of the Certificate has
been filed with the Secretary of State of the State of Delaware.
10.2. Application of Assets. In the event of dissolution, the Company shall
conduct only such activities as are necessary to wind up its affairs
(including the sale of the assets of the Company in an orderly manner), and
the assets of the Company shall be applied, first, as required by Section
18-804(a)(1) of the Act, and then in the manner, and in the order of
priority, set forth in Article 5.
10.3. Gain or Losses in Process of Liquidation. Any gain or loss or
disposition of Company property in the process of liquidation shall be
credited or charged to the Capital Accounts of Shareholders in accordance
with the provisions of Article 3. Any property distributed in kind in the
liquidation shall be valued and treated as though the property were sold at
its fair market value and the cash proceeds were distributed. The
difference between the fair market value of property distributed in kind
and its Book Value shall be treated as a gain or loss on the sale of such
property and shall be credited or charged to the Capital Account of
Shareholders in accordance with Article 3; provided, that no Shareholder
shall have the right to request or require the distribution of the assets
of the Company in kind.
10.4. Procedural and Other Matters.
(a) Upon dissolution of the Company and until the filing of a certificate
of cancellation as provided in Section 10.4(b), the Persons winding up the
affairs of the Company may, in the name of, and for and on behalf of, the
Company, prosecute and defend suits, whether civil, criminal or
administrative, gradually settle and close the business of the Company,
dispose of and convey the property of the Company, discharge or make
reasonable provision for the liabilities of the Company, and distribute to
the members any remaining assets of the Company, in accordance with this
Article 10 and all without affecting the liability of Shareholders and
Directors and without imposing liability on a liquidating trustee.
(b) The Certificate may be cancelled upon the dissolution and the
completion of winding up of the Company, by any Person authorized to cause
such cancellation in connection with such dissolution and winding up.
ARTICLE 11
Appointment of Attorney-in-Fact
11.1. Appointment and Powers.
(a) Each Shareholder hereby irrevocably constitutes and appoints the
Company's chief executive officer, with full power of substitution, as his,
her or its true and lawful attorney-in-fact, with full power and authority
in his, her or its name, place and stead to execute, acknowledge, deliver,
swear to, file and record at the appropriate public offices such documents,
instruments and conveyances as may be necessary or appropriate to carry out
the provisions or purposes of this Agreement, including, without
limitation, the following: (i) the Certificate; (ii) all other certificates
and instruments and amendments thereto that the Board of Directors deems
appropriate to qualify or continue the Company as a limited liability
company in the jurisdiction in which the Company may conduct business;
(iii) all instruments that the Board of Directors deems appropriate to
reflect a change or modification of the Company in accordance with the
terms of this Agreement; (iv) all conveyances and other instruments that
the Board of Directors deems appropriate to reflect the dissolution and
termination of the Company; (v) all fictitious or assumed name certificates
required or permitted to be filed on behalf of the Company; (vi) any and
all documents necessary to admit Shareholders to the Company, or to reflect
any change or transfer of a Shareholder's Company Interest, or relating to
the admission or increased Capital Contribution of a Shareholder; (vii) any
amendment or other document to be filed as referenced in Section 3.1(d) or
3.1(f) of this Agreement; and (viii) all other instruments that may be
required or permitted by law to be filed on behalf of or relating to the
Company and that are not inconsistent with this Agreement.
(b) The authority granted by this Section 11.1 (i) is a special power of
attorney coupled with an interest, is irrevocable, and shall not be
affected by the subsequent incapacity or disability of the Shareholder;
(ii) may be exercised by a signature for each Shareholder or by listing the
names of all of the Shareholders executing this Agreement with a single
signature of any such Person acting as attorney-in-fact for all of them;
and (iii) shall survive the Transfer by a Shareholder of the whole or any
portion of his, her or its Company Interest.
11.2. Presumption of Authority. Any Person dealing with the Company may
conclusively presume and rely upon the fact that any instrument referred to
above, executed by such Person acting as attorney-in-fact, is authorized,
regular and binding, without further inquiry.
ARTICLE 12
Certain Provisions Relating to
Changes in Control and Business Combinations
12.1. Definitions. For purposes of this Article 12, the following
definitions shall apply:
"Associate" when used to indicate a relationship with any Person, means:
(a) Any Entity (other than the Company or a Subsidiary of the Company) of
which such Person is an officer, director or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of
equity securities of such Entity;
(b) Any trust or other estate in which such Person has a substantial
beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity; and
(c) Any Relative of such Person, or any Relative of a spouse of such
Person, who has the same home as such Person or who is a Director or
officer of the Company or a manager, director or officer of any of its
Affiliates.
"Beneficial Owner" when used with respect to Company Interests, means a
Person:
(a) That, individually or with any of its Affiliates or Associates,
beneficially owns Company Interests, directly or indirectly; or
(b) That, individually or with any of its Affiliates or Associates, has (i)
the right to acquire Company Interests (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise; or (ii) the right to
vote Company Interests pursuant to any agreement, arrangement or
understanding; or
(c) That has any agreement, arrangement, or understanding for the purpose
of acquiring, holding, voting, or disposing of Company Interests with any
other Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, such Company Interests.
"Business Combination" means:
(a) Unless the merger, consolidation or exchange of Company Interests does
not alter the contract rights of the Company Interests as expressly set
forth in this Agreement or change or convert in whole or in part the
outstanding Company Interests, any merger, consolidation or exchange of
Company Interests or any Subsidiary with (i) any Interested Party or (ii)
any other Entity (whether or not itself an Interested Party) which is, or
after the merger, consolidation or exchange of interests would be, an
Affiliate of an Interested Party that was an Interested Party prior to the
transaction;
(b) Any sale, lease, transfer or other disposition, other than in the
ordinary course of business or pursuant to a distribution or any other
method affording substantially proportionate treatment to the Shareholders,
in one transaction or a series of transactions in any 12-month period, to
any Interested Party or any Affiliate of any Interested Party (other than
the Company or any of its Subsidiaries) of any assets of the Company or any
Subsidiary having, measured at the time the transaction or transactions are
approved by the Board of Directors of the Company, an aggregate book value
as of the end of the Company's most recently ended fiscal quarter of 10
percent or more of the total market value of the outstanding Company
Interests or of its net worth as of the end of its most recently ended
fiscal quarter;
(c) The issuance or transfer by the Company or any Subsidiary, in one
transaction or a series of transactions, of any Company Interests or any
equity securities of a Subsidiary which have an aggregate market value of
five percent or more of the total market value of the outstanding Company
Interests to any Interested Party or any Affiliate of any Interested Party
(other than the Company or any of its Subsidiaries) except pursuant to the
exercise of warrants or rights to purchase securities pro-rata to all
Shareholders or any other method affording substantially proportionate
treatment to those Shareholders;
(d) The adoption of any plan or proposal for the liquidation or dissolution
of the Company in which anything other than cash will be received by an
Interested Party or any Affiliate of any Interested Party;
(e) Any reclassification of securities or recapitalization of the Company,
or any merger, consolidation or exchange of Company Interests with any of
its Subsidiaries which has the effect, directly or indirectly, in one
transaction or series of transactions, of increasing by five percent or
more of the total number of outstanding Company Interests, the
proportionate amount of the outstanding Company Interests or the
outstanding number of any class of equity securities of any Subsidiary
which is directly or indirectly owned by any Interested Party or any
Affiliate of any Interested Party; or
(f) The receipt by any Interested Party or any Affiliate of any Interested
Party (other than the Company or any of its Subsidiaries) of the benefit,
directly or indirectly (except proportionately as a holder of Company
Interests), of any loan, advance, guarantee, pledge or other financial
assistance or any tax credit or other tax advantage provided by the Company
or any of its Subsidiaries.
"Interested Party" means any Person (other than (i) the Company, (ii) any
subsidiary of the Company, (iii) the General Partners, the Special
Shareholder, the Original Shareholders, and the Dissolution Shareholder,
and (iv) any Affiliate or Associate of any Person described in clause (iii)
above) that:
(a) Is the beneficial owner, directly or indirectly, of 10 percent or more
of the outstanding Company Interests;
(b) Is an Affiliate or Associate of the Company and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10 percent or more of the then
outstanding Company Interests; or
(c) Is an Affiliate or Associate of (a) or (b).
For purposes of determining whether a Person is an Interested Party, the
number of Company Interests deemed to be outstanding shall include Company
Interests deemed beneficially owned by the Person through the definition of
Beneficial Ownership set forth above but may not include any other Company
Interests which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise.
"Market Value" means:
(a) In the case of Company Interests, the highest closing sale price during
the 30-day period immediately preceding the date in question of a Company
Interest of the same class or series on the composite tape of the New York
Stock Exchange-listed stocks, or, if such Company Interest of the same
class or series is not quoted on the composite tape, on the New York Stock
Exchange, or if such Company Interest of the same class or series is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which the Company
Interest of the same class or series is listed, or, if the Company Interest
of the same class or series is not listed on any such exchange, the highest
closing bid quotation with respect to such a Company Interest of the same
class or series during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. automated quotations
system or any system then in use, or, if no such quotations are available,
the fair market value on the date in question of such a Company Interest of
the same class or series as determined by the Board of Directors in good
faith; and
(b) In the case of property other than cash or stock, the fair market value
of such property on the date in question as determined by the Board of
Directors in good faith.
"Subsidiary" means any Person (other than an individual) in which the
Company, directly or indirectly, holds a majority of the voting securities.
12.2. Business Combinations.
(a) Unless an exemption under Section 12.3(c) applies, the Company may not
engage in any Business Combination with any Interested Party or any
Affiliate of an Interested Party for a period of five years following the
most recent date on which such Interested Party became an Interested Party
(the "Five Year Tolling Period"), unless:
(1) in addition to any vote otherwise required by law or this Agreement,
the Board of Directors of the Company, prior to the most recent date upon
which the Interested Party became an Interested Party, approved either the
Business Combination or the transaction which resulted in the Interested
Party becoming an Interested Party; or
(2) on or subsequent to the date upon which the Interested Party became an
Interested Party, the Business Combination is (A) approved by at least
two-thirds of the persons who are then members of the Board of Directors
and (B) authorized at an annual or special meeting of the Shareholders (and
not by written consent) by the affirmative vote of at least two-thirds in
interest of the Shareholders, excluding the Company Interests held by an
Interested Party who will (or whose Affiliate will be) a party to the
Business Combination or by an Affiliate or Associate of that Interested
Party, voting together as a single class.
(b) Unless an exemption under Section 12.3 applies, in addition to any vote
otherwise required by law or this Agreement, a Business Combination
proposed by an Interested Party or an Affiliate of the Interested Party
after the Five Year Tolling Period shall be permitted only if recommended
by the Board of Directors who are present at a duly-called meeting at which
a quorum is present and approved by the affirmative vote of at least:
(i) 80% in interest of all Shareholders, voting together as a single voting
group; and
(ii) Two-thirds in interest of the Shareholders, excluding Company
Interests held by an Interested Party who will (or whose Affiliate will) be
a party to the Business Combination or by an Affiliate or Associate of the
Interested Party, voting together as a single voting group.
12.3. Exemptions.
(a) For purposes of this Section 12.3.:
"Announcement Date" means the first general public announcement of the
proposal or intention to make a proposal of the Business Combination or its
first communication generally to the Shareholders, whichever is earlier;
"Determination Date" means the most recent date on which the Interested
Party became an Interested Party; and
"Valuation Date" means:
(i) For a Business Combination voted upon by the Shareholders, the latter
of the day prior to the date of the vote or the day 20
days prior to the consummation of the Business Combination; and
(ii) For Business Combination not voted upon by the Shareholders, the date
of the consummation of the Business Combination.
(b) The vote required by Section 12.2(b) does not apply to a Business
Combination if (1) the Business Combination or the transaction which
resulted in the Interested Party becoming an Interested Party shall have
been approved by the Board of Directors prior to the Determination Date or
(2) each of the conditions in items (i) through (iii) below is met:
(i) The aggregate amount of the cash and the market value as of the
Valuation Date of consideration other than cash to be received for each
Company Interest in such Business Combination (whether or not the
Interested Party has previously acquired the particular class or series of
Company Interest in question) is at least equal to the highest of the
following:
(A) The highest per Company Interest price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Party for any Company Interests of the same class or series
acquired by it within the five-year period immediately prior to the
Announcement Date of the proposal of the Business Combination, plus an
amount equal to interest compounded annually from the earliest date on
which the highest per Company Interest acquisition price was paid (for the
same class or series) through the Valuation Date at the rate for one-year
United States Treasury obligations from time to time in effect, less the
aggregate amount of any cash distributions paid and the market value of any
distributions paid in other than cash, per Company Interest (for the same
class or series) from the earliest date through the Valuation Date, up to
the amount of the interest; or
(B) The highest per Company Interest price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Party for any Company Interest of the same class or series
acquired by it on, or within the five-year period immediately before, the
Determination Date, plus an amount equal to interest compounded annually
from the earliest date on which the highest per Company Interest
acquisition price was paid for the same class or series through the
valuation Date at the rate for one-year United States Treasury obligations
from time to time in effect, less the aggregate amount of any cash
distributions paid and the market value of any distributions paid in other
than cash, per Company Interest of the same class or series from the
earliest date through the Valuation Date, up to the amount of the interest;
or
(C) The highest preferential amount per Company Interest to which the
holders of Company Interests of such class or series are entitled in the
event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company; or
(D) The Market Value per Company Interest of the same class or series on
the Announcement Date, plus an amount equal to interest compounded annually
from that date through the Valuation Date at the rate for one-year United
States Treasury obligations from time to time in effect, less the aggregate
amount of any cash distributions paid and the market value of any
distributions paid in other than cash, per Company Interest of the same
class or series from that date through the Valuation Date, up to the amount
of interest; or
(E) The Market Value per Company Interest of the same class or series on
the Determination Date, plus an amount equal to interest compounded
annually from that date through the Valuation Date at the rate for one-year
United States Treasury obligations from time to time in effect, less the
aggregate amount of any cash distributions paid and the Market Value of any
distributions paid in other than cash, per Company Interest of the same
class or series from that date through the Valuation Date, up to the amount
of the interest; or
(F) The price per Company Interest equal to the Market Value per Company
Interest of the same class or series on the Announcement Date or on the
Determination Date, whichever is higher, multiplied by the fraction of:
(1) The highest per Company Interest price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Party for any Company Interests of the same class or series
acquired by it within the five-year period immediately prior to the
Announcement Date, over
(2) The Market Value per Company Interest of the same class or series on
the first day in such five-year period on which the Interested Party
acquired the Company Interests.
(ii) The consideration to be received by the holders of any Company
Interests is to be in cash or in the same form as the Interested Party has
previously paid for Company Interests, except to the extent that the
Shareholders otherwise elect in connection with their approval of the
proposed transaction under Section 6.2 of this Agreement. If the Interested
Party has paid for Company Interests with varying forms of consideration,
the form of consideration for such Company Interests of the same class or
series shall be either cash or the form used to acquire the largest number
of Company Interests of the same class or series previously acquired by it,
except to the extent that the Shareholders otherwise elect.
(iii) After the Determination Date and prior to the consummation of such
Business Combination:
(A) There shall have been no failure to declare and pay at the regular date
therefor (if applicable) any full periodic distributions (whether or not
cumulative) on any outstanding preferred Company Interests or other
securities of the Company;
(B) There shall have been:
(1) No reduction in the annual rate of distributions made with respect to
any class or series of Company Interests that are not preferred (except as
necessary to reflect any subdivision of Company Interests); and
(2) An increase in such annual rate of distributions as necessary to
reflect any reclassification, recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of
outstanding Company Interests; and
(C) The Interested Party did not become the Beneficial Owner of any
additional Company Interests except as part of the transaction which
resulted in such Interested Party becoming an Interested Party or by virtue
of proportionate Company Interest splits or distributions.
The provisions of items (A) and (B) of this subsection (b)(iii) do not
apply if no Interested Party or an Affiliate or Associate of the Interested
Party voted as a member of the Board of Directors of the Company in a
manner inconsistent with such items (A) and (B) and the Interested Party,
within 10 days after any act or failure to act inconsistent with such
items, notifies the Board of Directors of the Company in writing that the
Interested Party disapproves thereof and requests in good faith that the
Board of Directors rectify such act or failure to act.
(c) The provisions of Section 12.2 do not apply to any Business Combination
of the Company with an Interested Party that became an Interested Party
inadvertently, if the Interested Party:
(i) As soon as practicable (but not more than 10 days after the Interested
Party knew or should have known it had become an Interested Party) divests
itself of a sufficient amount of Company Interests so that it no longer is
the beneficial owner, directly or indirectly, of 10 percent or more of the
outstanding Company Interests; and
(ii) Would not at any time with the five-year period preceding the
Announcement Date with respect to the Business Combination have been an
Interested Party except by inadvertence.
12.4. Amendment. Notwithstanding any other provisions of this Agreement,
this Article 12 may be amended or repealed only by a vote of 80% in
interest of all Shareholders, voting together as a single class, excluding
Company Interests held by any Interested Party or any Affiliate of an
Interested Party.
12.5. Certain Determinations with Respect to this Article 12. The Board of
Directors shall have the power to determine for the purposes of this
Article 12, on the basis of information known to the Directors: (i) the
number of Company Interests of which any Person is the Beneficial Owner,
(ii) whether a Person is an Affiliate or Associate of another, (iii)
whether a Person has an agreement, arrangement or understanding with
another as to the matters referred to in the definition of "Beneficial
Owner" as hereinabove defined, (iv) whether two or more transactions
constitute a "series of transactions," and (v) such other matters with
respect to which a determination is required under this Article 12.
12.6. Voting Power. For purposes of this Article 12, the Growth Shares, the
Term Growth Shares, the Preferred Shares and the Preferred Capital
Distribution Shares shall be deemed to have equal voting power, on a
share-for-share basis, with respect to the approval of matters set forth in
this Article 12.
ARTICLE 13
Voting Rights of Certain Control Company Interests
13.1. Definitions. For purposes of this Article 13, the following
definitions shall apply:
"Acquiring Person" means a person who makes or proposes to make a Control
Company Interests Acquisition, or such Person's Affiliate or Associate.
"Associate" when used to indicate a relationship with any Person means:
(a) An "Associate" as defined in Section 12.1; or
(b) A Person that:
(i) Directly or indirectly controls, or is controlled by, or is under
common control with, the Person specified; or
(ii) Is acting or intends to act jointly or in concert with the
Person specified.
"Control Company Interests" means those Company Interests that, except for
this Article 13, would, if aggregated with all other Company Interests
(including Company Interests the acquisition of which is excluded from the
definition "Control Company Interests Acquisition" below) owned by a Person
or in respect of which that Person is entitled to exercise or direct the
exercise of voting power, except solely by virtue of a revocable proxy,
entitle that Person, directly or indirectly, to exercise or direct the
exercise of the voting power of any class or series of Company Interests
within any of the following ranges of voting power:
(a) One-fifth or more, but less than one-third of all voting power;
(b) One-third or more, but less than a majority of all voting power; or
(c) A majority or more of all voting power.
"Control Company Interests" includes Company Interests only to the extent
that the Acquiring Person, following the acquisition of the Company
Interests, is entitled, directly or indirectly, to exercise or direct the
exercise of voting power within any level of voting power set forth in this
section for which approval has not been obtained previously under Section
13.2.
"Control Company Interests Acquisition" means the acquisition, directly or
indirectly, by any Person (other than (i) the Company, (ii) any subsidiary
of the Company, (iii) the General Partners, the Special Shareholder, the
Original Shareholders, and the Dissolution Shareholder, and (iv) any
Affiliate or Associate of any Person described in clause (iii) above), of
ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding Control Company Interests. Control
Company Interests Acquisition does not include the acquisition of Control
Company Interests:
(a) Under the laws of descent and distribution;
(b) Under the satisfaction of a pledge or other security interest created
in good faith and not for the purpose of circumventing this Article 13; or
(c) Under a merger, consolidation or exchange of interests if the Company
is a party to the merger, consolidation or exchange of interests.
Unless the acquisition entitles any Person, directly or indirectly, to
exercise or direct the exercise of voting power of Company Interests in
excess of the range of voting power previously authorized or attained under
an acquisition that is exempt under items (a), (b) or (c) of this
definition, "Control Company Interests Acquisition" does not include the
acquisition of Company Interests in good faith and not for the purpose of
circumventing this Article 13, by or from any Person whose voting rights
have previously been authorized by the Shareholders in compliance with this
Article 13 or any Person whose previous acquisition of Company Interests
would have constituted a Control Company Interests Acquisition but for the
exclusions in items (a) through (c) of this definition.
"Interested Company Interests" means Company Interests in respect of which
an Acquiring Person is entitled to exercise or direct the exercise of the
voting power of Company Interests in the election of Directors or
otherwise.
13.2. Voting Rights.
(a) Control Company Interests acquired in a Control Company Interests
Acquisition have no voting rights except to the extent approved by the
Shareholders at a meeting held under Section 13.4 by the affirmative vote
of two-thirds in interest of all Shareholders, excluding any votes cast
with respect to Interested Company Interests.
(b) For purposes of this Section 13.2:
(i) Company Interests acquired within 180 days or Company Interests
acquired under a plan to make a Control Company Interests Acquisition are
considered to have been acquired in the same acquisition; and
(ii) A Person may not be deemed to be entitled to exercise or direct the
exercise of voting power with respect to Company Interests held for the
benefit of others if the Person:
(A) Is acting in the ordinary course of business, in good faith and not for
the purpose of circumventing the provisions of this Section of the
Agreement; and
(B) Is not entitled to exercise or to direct the exercise of the voting
power of the Company Interests unless the Person first seeks to obtain the
instruction of another person.
13.3. Acquiring Person Statement.
Any Person who proposes to make or who has made a Control Company Interests
Acquisition may deliver an Acquiring Person statement to the Company at the
Company's principal office. The Acquiring Person statement shall set forth
all of the following:
(a) The identity of the Acquiring Person and each other member of any group
of which the Person is a part for purposes of determining Control Company
Interests;
(b) A statement that the Acquiring Person statement is given under this
Article 13;
(c) The number of Company Interests owned (directly or indirectly) by the
Acquiring Person and each other member of any group;
(d) The applicable range of voting power as set forth in the definition of
"Control Company Interests"; and
(e) If the Control Company Interests Acquisition has not occurred:
(i) A description in reasonable detail of the terms of the proposed Control
Company Interests Acquisition; and
(ii) Representations of the Acquiring Person, together with a statement in
reasonable detail of the facts on which they are based, that:
(A) The proposed Control Company Interests Acquisition, if consummated,
will not be contrary to law; and
(B) The Acquiring Person has the financial capacity, through financing to
be provided by the Acquiring Person, and any additional specified sources
of financing required under Section 13.5, to make the proposed Control
Company Interests Acquisition.
13.4. Special Meeting.
(a) Except as provided in Section 13.5, if the Acquiring Person requests,
at the time of delivery of an Acquiring Person statement, and gives a
written undertaking to pay the Company's expenses of a special meeting,
except the expenses of opposing approval of the voting rights, within ten
days after the day on which the Company receives both the request and
undertaking, the Board of Directors of the Company shall call a special
meeting of the Shareholders, to be held within 50 days after receipt of the
Acquiring Person statement and undertaking, for the purpose of considering
the voting rights to be accorded the Company Interests acquired or to be
acquired in the Control Company Interests Acquisition.
(b) The Board of Directors may require the Acquiring Person to give bond,
with sufficient surety, to reasonably assure the Company that this
undertaking will be satisfied.
(c) Unless the Acquiring Person agrees in writing to another date, the
special meeting of Shareholders shall be held within 50 days after the day
on which the Company has received both the request and the undertaking.
(d) If the Acquiring Person makes a request in writing at the time of
delivery of the Acquiring Person statement, the special meeting may not be
held sooner than 30 days after the day on which the Company receives the
Acquiring Person statement.
(e) If no request is made under subsection (a) of this Section 13.4, the
issue of the voting rights to be accorded the Company Interests acquired in
the Control Company Interests Acquisition may, at the option of the
Company, be presented for consideration at any meeting of the Shareholders.
If no request is made under subsection (a) of this Section 13.4 and the
Company proposes to present the issue of the voting rights to be accorded
the Company Interests acquired in a Control Company Interests Acquisition
for consideration at any meeting of the Shareholders, the Company shall
provide the Acquiring Person with written notice of the proposal not less
than 20 days before the date on which notice of the meeting is given.
13.5. Calls.
(a) A call of a special meeting of Shareholders is not required to be made
under Section 13.4 unless, at the time of delivery of an Acquiring Person
statement under Section 13.3, the Acquiring Person has:
(i) Entered into a definitive financing agreement or agreements with one or
more responsible financial institutions or other entities that have the
necessary financial capacity, providing for any amount of financing of the
Control Company Interests Acquisition not to be provided by the Acquiring
Person; and
(ii) Delivered a copy of the agreements to the Company.
13.6. Notice of Meeting.
(a) If a special meeting of the Shareholders is requested, notice of the
special meeting shall be given as promptly as reasonably practicable by the
Company to all Shareholders of record as of the record date set for the
meeting, whether or not the Shareholder is entitled to vote at the meeting.
(b) Notice of the special or annual meeting at which the voting rights are
to be considered shall include or be accompanied by the following:
(i) A copy of the Acquiring Person statement delivered to the Company under
Section 13.3; and
(ii) A statement by the Board of Directors setting forth its position or
recommendation, or stating that it is taking no position or making no
recommendation, with respect to the issue of voting rights to be accorded
the Control Company Interests.
13.7. Redemption Rights.
(a) If an Acquiring Person statement has been delivered on or before the
10th day after the Control Company Interests Acquisition, the Company may,
at its option, redeem any or all Control Company Interests, except Control
Company Interests for which voting rights have been previously approved
under Section 13.2, at any time during a 60-day period commencing on the
day of a meeting at which voting rights are considered under Section 13.4
and are not approved.
(b) In addition to the redemption rights authorized under subsection (a) of
this Section 13.7, if an Acquiring Person statement has not been delivered
on or before the 10th day after the Control Company Interests Acquisition,
the Company may, at its option, redeem any or all Control Company
Interests, except Control Company Interests for which voting rights have
been previously approved under Section 13.2, at any time during a period
commencing on the 11th day after the Control Company Interests Acquisition
and ending 60 days after the acquiring person statement has been delivered.
(c) Any redemption of Control Company Interests under this Section shall be
at the fair value of the Company Interests. For purposes of this section,
"fair value" shall be determined:
(i) As of the date of the last acquisition of Control Company Interests by
the Acquiring Person in a Control Company Interests Acquisition or, if a
meeting is held under Section 13.4, as of the date of the meeting; and
(ii) Without regard to the absence of voting rights for the Control Company
Interests.
13.8. Amendment. Notwithstanding any other provisions of this Agreement,
this Article 13 may only be amended or repealed by a vote of 80% in
interest of all Shareholders, voting together as a single class, excluding
any votes cast with respect to Interested Company Interests.
13.9. Voting Power. For purposes of this Article 13, the Growth Shares,
Term Growth Shares, Preferred Shares and Preferred Capital Distribution
Shares shall be deemed to have equal voting power on a share-for-share
basis with respect to approval of matters set forth in this Article 13.
ARTICLE 14
Miscellaneous Provisions
14.1. Notices.
(a) Except as otherwise provided in this Agreement or in the By-laws, any
and all notices, consents, offers, elections and other communications
required or permitted under this Agreement shall be deemed adequately given
only if in writing and the same shall be delivered either in hand, by
telecopy, or by mail or Federal Express or similar expedited commercial
carrier, addressed to the recipient of the notice, postage prepaid and
registered or certified with return receipt requested (if by mail), or with
all freight charges prepaid (if by Federal Express or similar carrier).
(b) All notices, demands, and requests to be sent hereunder shall be deemed
to have been given for all purposes of this Agreement upon the date of
receipt or refusal.
(c) All such notices, demands and requests shall be addressed as follows:
(i) if to the Company, to its principal place of business, as set forth in
Article 2 hereof and (ii) if to a Shareholder, to the address of such
Shareholder listed on the Company's Shareholder register.
(d) By giving to the other parties written notice thereof, the parties
hereto and their respective successors and assigns shall have the right
from time to time and at any time during the term of this Agreement to
change their respective addresses effective upon receipt by the other
parties of such notice and each shall have the right to specify as its
address any other address.
14.2. Word Meanings. The words such as "herein", "hereinafter", "hereof"
and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise
requires. The singular shall include the plural and the masculine gender
shall include the feminine and neuter, and vice versa, unless the context
otherwise requires.
14.3. Binding Provisions. The covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, the heirs, legal
representatives, successors and assigns of the respective parties hereto.
14.4. Amendment and Modification. Unless otherwise specifically provided in
this Agreement, this Agreement may be amended, modified or supplemented
only by the vote, at a duly held meeting, of more than 50% in interest of
the then-outstanding New Shares (or, in the case of a written Consent
without a meeting, more than 50% in interest of the aggregate
then-outstanding New Shares), voting or acting as one class (and not as
separate classes, notwithstanding the fact that there may be members of
more than one class voting); provided, however, that Section 8.1 shall not
be amended, modified or supplemented, unless such amendment, modification
or supplement receives the Consent of at least 80% in interest of the
holders of then-outstanding New Shares.
14.5. Waiver. The waiver by any party hereto of a breach of any provisions
contained herein shall be in writing, signed by the waiving party, and
shall in no way be construed as a waiver of any succeeding breach of such
provision or the waiver of the provision itself.
14.6. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to such
state's laws concerning conflicts of laws. In the event of a conflict
between any provision of this Agreement and any nonmandatory provision of
the Act, the provision of this Agreement shall control and take precedence.
14.7. Separability of Provisions. Each provision of this Agreement shall be
deemed severable, and if any part of any provision is held to be illegal,
void, voidable, invalid, nonbinding or unenforceable in its entirety or
partially or as to any party, for any reason, such provision may be
changed, consistent with the intent of the parties hereto, to the extent
reasonably necessary to make the provision, as so changed, legal, valid,
binding and enforceable. If any provision of this Agreement is held to be
illegal, void, voidable, invalid, nonbinding or unenforceable in its
entirety or partially or as to any party, for any reason, and if such
provision cannot be changed consistent with the intent of the parties
hereto to make it fully legal, valid, binding and enforceable, then such
provision shall be stricken from this Agreement, and the remaining
provisions of this Agreement shall not in any way be affected or impaired,
but shall remain in full force and effect.
14.8. Headings. The headings contained in this Agreement (including but not
limited to the titles of the Schedules and Exhibits hereto) have been
inserted for the convenience of reference only, and neither such headings
nor the placement of any term hereof under any particular heading shall in
any way restrict or modify any of the terms or provisions hereof.
14.9. Further Assurances. The Shareholders shall execute and deliver such
further instruments and do such further acts and things as may be required
to carry out the intent and purposes of this Agreement.
14.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
14.11. Entire Agreement. This Agreement, and all Schedules and Exhibits
hereto, constitutes the entire agreement between the parties hereto with
respect to the transactions contemplated herein, and supersedes all prior
understandings or agreements, oral or written, between the parties.
IN WITNESS WHEREOF, the parties hereto, being the sole current Members of
the Company, have executed and delivered this Amended and Restated
Certificate of Formation and Operating Agreement as of the day and year
first-above written.
MME I CORPORATION, (a Delaware corporation)
By: /s/ MARK K. JOSEPH
Name: Mark K. Joseph,
Title: President
MME II CORPORATION, (a Delaware corporation)
By: /s/ MARK K. JOSEPH
Name: Mark K. Joseph,
Title: President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THOSE FINANCIAL STATEMENTS AND THE FOOTNOTES PROVIDED WITHIN THIS
SCHEDULE.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 38,869
<SECURITIES> 0
<RECEIVABLES> 2,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,276
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 426,311
<CURRENT-LIABILITIES> 1,833
<BONDS> 0
0
22,011
<COMMON> 306,163
<OTHER-SE> 26,732
<TOTAL-LIABILITY-AND-EQUITY> 426,311
<SALES> 0
<TOTAL-REVENUES> 10,084
<CGS> 0
<TOTAL-COSTS> 1,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 8,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,946
<EPS-PRIMARY> .48<F1>
<EPS-DILUTED> .47<F1>
<FN>
<F1> The earnings per share reflects the earning per share of the
Growth Shares.
May 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Municipal Mortgage and Equity, LLC
File No. 001-11981
Dear Sir or Madam:
On behalf of the above referenced company, enclosed pursuant to Rule 13a-13
under Securities and Exchange Act of 1934 is the Company's Report on Form 10-Q
for the three months ended March 31, 1999.
Sincerely,
/s/ Gary A. Mentesana
Gary A. Mentesana
Chief Financial Officer
</FN>
</TABLE>
