SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1999
Date of Report (Date of earliest event reported)
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact Name of Registrant as Specified in its Charter)
Delaware 001-11981 52-1449733
(State or Other (Commission File Number) (IRS Employer Identification No.)
Jurisdiction of
Incorporation)
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(Address of Principal Executive Office) (Zip Code)
(410) 962-8044
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
(a) On September 30, 1999, Municipal Mortgage & Equity, LLC ("MuniMae")
agreed to acquire 100% of the capital stock of Midland Financial
Holdings, Inc. ("Midland"), a Florida corporation, from Messrs.
Robert Banks, Keith Gloekl and Ray Mathis, for up to $45 million. Of
this amount, $23 million in cash and $12 million in MuniMae common
shares will be paid at the closing of the transaction,
respectively, subject to certain post-closing adjustments, and $3.33
million in MuniMae common shares is payable annually over a three year
period if Midland meets certain performance targets, including an
annual contribution to CAD of at least $6.0 million in year one, $6.25
million in year two and $6.5 million in year three. MuniMae expects to
close this transaction by the end of October 1999, subject to
regulatory approvals, the expiration of notice periods and certain
other conditions. MuniMae expects to fund the $23 million up-front
payment from its working capital.
Midland is a fully integrated real estate investment firm specializing
in providing debt and equity capital to the multifamily housing
industry, particularly in the area of affordable housing. Since 1977,
Midland has originated $2.6 billion in financing for multifamily
housing. Midland currently has approximately $225 million of assets, of
which 98% represents construction loans, and $217 million of
liabilities of which 98% represents Notes Payable. Midland operates
primarily in the following related areas:
o Commercial Mortgage Banking. Midland provides construction and
permanent debt financing, mortgage servicing and asset management
services to the multifamily housing industry. Midland is a Fannie
Mae DUS lender and a FHA approved mortgagee.
<TABLE>
<CAPTION>
Midland's Portfolio (in 000's)
<S> <C>
Construction Loans Outstanding:
Construction loans for own account $ 85,212
Construction loans for which risk is indemnified
by a third party* $ 136,060
---------
Total Construction Loans Outstanding $ 221,272
=========
Permanent Loan Servicing Portfolio:
Permanent loans serviced for FNMA with
risk sharing $ 92,409
Permanent loans serviced for FNMA where risk is
indemnified by a third party* $ 168,000
Permanent loans serviced which do not have risk $ 246,305
---------
Total Permanent Loans Serviced $ 506,714
=========
* The Midland Affordable Housing Group Trust indemnifies Midland for
risks associated with approximately $136 million of construction
loans and approximately $168 million of permanent loans serviced.
</TABLE>
o Equity Syndication and Asset Management. Midland syndicates equity
for investment in low income housing tax credits. Midland also
syndicates equity and originates debt for investment in
student/conventional housing, a unique and growing segment of the
multifamily housing industry. Midland currently manages $295
million of such equity.
o Pension Fund Advisory. Midland Advisory Services, Inc., a
registered investment advisor with the Securities and Exchange
Commission and a wholly-owned special purpose subsidiary of
Midland, provides advisory services to pension funds. Midland
currently manages $259 million of such equity.
o Ancillary Businesses - Real Estate Brokerage/Management and
Securities Dealer. Midland Realty Investment Corporation, a
wholly-owned special purpose subsidiary of Midland, acts as a
licensed real estate broker in the states of Florida, Michigan and
California. Midland Securities Corporation, a registered broker
dealer with the National Association of Securities Dealers and a
wholly-owned special purpose subsidiary of Midland, markets
syndications of equity for real estate investments and provides
securities broker dealer services.
Midland has over 100 employees. It is headquartered in Clearwater,
Florida, and has branch offices in Dallas, Texas, San Francisco,
California, Portland, Oregon and Detroit, Michigan.
Upon closing of the acquisition, the combined companies will have
approximately $1.7 billion of investments in real estate debt and
equity under asset management:
o $429 million of tax-exempt bonds for its own account
o $222 million of participating bonds
o $207 million of fixed rate bonds
o $113 million of taxable mortgages for its own account
o $1.15 billion under management for others
o $722 million of permanent loans
o $136 million of construction loans
o $295 million of equity
The combined company's property portfolio will have:
o 557 properties
o 51,926 units
o 94% occupancy (as of 6/30/99)
o Geographic diversity - properties located in 45 states, the
District of Columbia and the U.S. Virgin Islands
The combined property portfolio will be broken out as:
Own account
o 101 properties
o 20,835 units
o 94% occupancy (as of 6/30/99)
o Properties located in 22 states, the District of Columbia and the
U.S. Virgin Islands
Managed for others
o 456 properties
o 31,091 properties
o 94% occupancy (as of 6/30/99)
o Properties located in 44 states
A copy of MuniMae's press release announcing the transaction is
attached hereto as Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
2.1 Stock Purchase and Contribution Agreement dated as of
September 30, 1999, by and among Municipal Mortgage & Equity,
LLC, and Robert J. Banks, Keith J. Gloekl and Ray F. Mathis.
99.1 Press Release of Municipal Mortgage & Equity, LLC, dated
October 4, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, LLC
By: /s/ Michael L. Falcone
Michael L. Falcone
President and Chief Operating Officer
Date: October 7, 1999
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
2.1 Stock Purchase and Contribution Agreement dated
as of September 30, 1999, by and among Municipal
Mortgage & Equity, LLC, and Robert J. Banks,
Keith J. Gloekl and Ray F. Mathis.
99.1 Press Release of Municipal Mortgage & Equity, LLC,
dated October 4, 1999.
<PAGE>
STOCK PURCHASE AND CONTRIBUTION AGREEMENT
dated as of September 30, 1999
by and between
MUNICIPAL MORTGAGE & EQUITY, LLC
and
ROBERT J. BANKS
KEITH J. GLOECKL
and
RAY F. MATHIS
with respect to all
outstanding capital stock of
MIDLAND FINANCIAL HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS......................................................1
1.01 Definitions.............................................1
ARTICLE II - SALE AND CONTRIBUTION OF SHARES AND CLOSING.....................10
2.01 Contribution, Purchase and Sale........................10
2.02 Consideration..........................................10
2.03 Closing................................................11
2.04 Deferred Purchase Price................................12
2.05 Adjustment to Deferred Purchase Price..................13
2.06 Balance Sheet Adjustment...............................13
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLERS......................14
3.01 Sellers................................................14
3.02 Authority..............................................14
3.03 Organization of the Company............................14
3.04. Capital Stock..........................................14
3.05. Subsidiaries...........................................14
3.06. No Conflicts...........................................15
3.07. Governmental Approvals and Filings.....................15
3.08. Financial Statements...................................15
3.09. Absence of Changes.....................................16
3.10. Taxes..................................................18
3.11. Legal Proceedings......................................19
3.12. Compliance With Laws and Orders........................20
3.13. Benefit Plans; ERISA...................................20
3.14. Real Property..........................................22
3.15. Tangible Personal Property.............................22
3.16. Intellectual Property Rights...........................23
3.17. Contracts..............................................23
3.18. Licenses...............................................25
3.19. Insurance..............................................25
3.20. Employees; Labor Relations.............................25
3.21. Substantial Business Relationships.....................26
3.22. No Powers of Attorney..................................27
3.23 Assets.................................................27
3.24. Brokers................................................27
3.25. Year 2000 Compliance...................................27
3.26. Status of Outstanding Loans............................27
3.27. Status of Tax Credit Transactions......................28
3.28. No Undisclosed Liabilities.............................29
3.29. Affiliate Transactions.................................29
3.30. Books and Records......................................29
3.31. Qualification to do Business...........................29
3.32. Environmental Matters..................................29
3.33. Watch List.............................................30
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................30
4.01. Organization...........................................30
4.02. Authority..............................................30
4.03. Issuance of Common Shares..............................30
4.04. No Conflicts...........................................31
4.05. Governmental Approvals and Filings.....................31
4.06. Legal Proceedings......................................31
4.07. Purchase for Investment................................31
4.08. Brokers................................................31
4.09 Disclosure.............................................32
4.10 Financial Statements...................................32
4.11 Organizational Documents...............................32
4.12 SEC Filings............................................32
4.13 Tax Matters............................................32
4.14 Knowledge..............................................33
4.15 Purchaser's Expertise and Investigation................33
4.16 MESC Notice............................................34
ARTICLE V - COVENANTS OF SELLERS.............................................34
5.01. Regulatory and Other Approvals.........................34
5.02. Books and Records......................................35
5.03. Notice and Cure........................................35
5.04. Continued Access.......................................35
5.05. Operation of the Business Prior to Closing.............35
5.06. Disclosure; Shopping...................................35
5.07 Tax Credit Entities; Ownership and Control.............35
5.08 Updating of Schedules..................................36
5.09 Affiliate Transactions.................................36
5.10 Closing Share Restrictions.............................36
ARTICLE VI - COVENANTS OF PURCHASER..........................................37
6.01. Regulatory and Other Approvals.........................37
6.02. Notice and Cure........................................37
6.03 Limitation of Sellers'Liabilities......................37
6.04 Employees..............................................38
6.05 Post-Closing Operations of the Company and the
Subsidiaries...........................................38
6.06 704(c) Gain............................................38
ARTICLE VII - TAX MATTERS AND POST-CLOSING TAXES.............................38
7.01. Pre-Closing Tax Returns................................38
7.02. Transfer Taxes.........................................39
7.03. Post-Closing Taxes and Sellers'Post-Closing Taxes......39
7.04. Notification of Audits.................................40
7.05. Maintenance of Records.................................40
7.06. Purchase Price Adjustment..............................40
7.07. Tax Sharing Agreements.................................40
ARTICLE VIII - CONDITIONS TO CLOSING.........................................40
8.01 Conditions to Purchaser's Performance..................40
8.02 Conditions to Sellers' Performance.....................42
ARTICLE IX - SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS....................................................43
9.01 Survival of Representations, Warranties, Covenants
and Agreements.........................................43
article x - INDEMNIFICATION..................................................44
10.01. Tax Indemnifications...................................44
10.02. Other Indemnification..................................44
10.03. Method of Asserting Claims.............................45
ARTICLE XI - MISCELLANEOUS...................................................48
11.01. Notices................................................48
11.02. Entire Agreement.......................................49
11.03. Expenses...............................................49
11.04. Public Announcements...................................50
11.05. Confidentiality........................................50
11.06. Further Assurances; Post-Closing Cooperation...........50
11.07. Waiver.................................................51
11.08. Amendment..............................................51
11.09. No Third Party Beneficiary.............................52
11.10. No Assignment; Binding Effect..........................52
11.11. Headings; Exhibits.....................................52
11.12. Breach, Abandonment, Termination.......................52
11.13. Consent to Jurisdiction and Service of Process.........52
11.14. Invalid Provisions.....................................52
11.15. Governing Law..........................................53
11.16. Counterparts...........................................53
Exhibits
A -- Earn-Out Examples
B -- Employment Agreements
C -- Registration Rights Agreement
<PAGE>
This STOCK PURCHASE AND CONTRIBUTION AGREEMENT dated as of September
30, 1999 is made and entered into by and between MUNICIPAL MORTGAGE & EQUITY,
LLC, a Delaware limited liability company ("Purchaser"), and Robert J. Banks,
Keith J. Gloeckl and RAY F. Mathis (together "Sellers"). Capitalized terms not
otherwise defined herein have the meanings set forth in Section 1.01.
WHEREAS, Sellers own in the aggregate 1,000 shares of common stock, par
value $0.10 per share, of Midland Financial Holdings, Inc., a Florida
corporation (the "Company"), constituting all issued and outstanding shares of
capital stock of the Company (such shares being referred to herein as the
"Midland Shares"); and
WHEREAS, Sellers desire to contribute and sell, and Purchaser desires
to acquire and purchase, the Midland Shares on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions.
(a) As used in this Agreement, the following defined terms,
when used with initial capital letters, shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority audit.
"Affiliate" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent or more of the voting securities of a second Person shall be deemed to
control that second Person.
"Agreement" means this Stock Purchase and Contribution Agreement and
the Exhibits, together with the Disclosure Schedule and the Schedules attached
thereto, as the same shall be amended from time to time.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including, without
limitation, cash, cash equivalents, Investment Assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent or more of any class of
equity securities, any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as a trustee or in a
similar capacity and any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person.
"Audited Financial Statement Date" means December 31, 1998.
"Audited Financial Statements" means the Financial Statements for the
fiscal year of the Company ended December 31, 1998.
"Benefit Plan" means any Plan existing prior to or on the date hereof,
which the Company, any Subsidiary or any ERISA Affiliate has at any time
sponsored, established, maintained or contributed to, or under which any
employee, former employee or director of the Company or any Subsidiary or any
beneficiary thereof is covered, is eligible for coverage or has benefit rights.
"Board of Arbitration" shall have the meaning set forth in Section
10.03(d).
"Books and Records" means all material files, documents, instruments,
papers, books and records relating to the Business or Condition of the Company,
including, without limitation, financial statements, Tax Returns and related
work papers and letters from accountants, budgets, pricing guidelines, ledgers,
journals, deeds, title policies, minute books, stock certificates and books,
stock transfer ledgers, Contracts, Licenses, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental studies
and plans.
"Borrower" means the borrower on any loan which the Company or any
Subsidiary originated, holds, or services, or which the Company or any
Subsidiary has sold under any arrangement wherein the Company or any Subsidiary
retains any risk of loss.
"Business Combination" means with respect to any Person any merger,
consolidation or combination to which such Person is a party, any sale, or other
disposition of all or substantially all of the capital stock or other equity
interests of such Person or any sale, dividend or other disposition of all or
substantially all of the Assets and Properties of such Person.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in any of the States of Florida, Maryland and New York are
authorized or obligated to close.
"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, Assets and Properties of the
Company and the Subsidiaries taken as a whole.
"Cash Closing Payment" shall have the meaning set forth in Section
2.03.
"Claim Notice" means written notification pursuant to Section 10.03(a)
of a Third Party Claim as to which indemnity under Section 10.02 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under Section 10.02, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim.
"Closing" means the closing of the transactions contemplated by
Section 2.03.
"Closing Agreement" means a written and legally binding agreement with
a Governmental or Regulatory Authority relating to Taxes.
"Closing Audit" shall have the meaning set forth in Section 2.05.
"Closing Date" shall have the meaning set forth in Section 2.03(a).
"Closing Payment" shall have the meaning set forth in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company" shall have the meaning set forth in the forepart of this
Agreement.
"Contract" means any agreement, lease, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract (whether oral or in
writing).
"Deferred Purchase Price" shall have the meaning set forth in Section
2.04.
"Defined Benefit Plan" means each Plan which is subject to Part 3 of
Title 1 of ERISA, Section 412 of the Code or Title IV of ERISA.
"Disclosure Schedule" means the schedules delivered to Purchaser and
Sellers simultaneously herewith and dated as of the date hereof pursuant to the
terms of this Agreement, containing all lists, descriptions, exceptions and
other information and materials as are required to be included therein from
Sellers or Purchaser pursuant to this Agreement, except that, with respect to
Schedules 4.04 and 4.05, "Disclosure Schedule" means the schedules delivered to
Sellers by Purchaser herewith and dated as of the date hereof, containing all
lists, descriptions, exceptions and other information and materials as are
required to be included therein from Purchaser pursuant to this Agreement.
"Dispute Period" means the period ending 90 calendar days following
receipt by an Indemnifying Party of either a Claim Notice or an Indemnity
Notice.
"DUS" means the Delegated Underwriting and Servicing relationships,
status and guidelines as defined by Fannie Mae in its agreements and guidelines.
"Earn-out Period" means the period from Closing until September 30,
2002.
"Earn-out Shares" shall have the meaning set forth in Section 2.04.
"Employment Agreements" shall have the meaning set forth in Section
8.01.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is in the same controlled group
of corporations or who is under common control, or is otherwise deemed to be a
single employer, with Sellers or, before the Closing, the Company or any
Subsidiary, pursuant to Section 414 of the Code.
"Environmental Law" means any Law relating to protection of the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants or Hazardous Materials in the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), or otherwise relating to the treatment, storage or disposal
of any Hazardous Material.
"Fannie Mae" or "FNMA" means the Federal National Mortgage Association.
"FHLA" means the Farmers Home Loan Association.
"Financial Statements" means the consolidated financial statements of
the Company and its consolidated Subsidiaries delivered to Purchaser pursuant to
Section 3.08.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"GNMA" means the Government National Mortgage Association.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Material" means (i) any chemicals, materials, substances or
wastes which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import, under any Environmental Law,
including, without limitation, any petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls (PCBs); and (ii)
any other chemical, material, substance or waste, exposure to which is now or
hereafter prohibited, limited or regulated by any Governmental or Regulatory
Authority.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules
and regulations promulgated thereunder.
"HUD" means the United States Department of Housing and Urban
Development.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under any
provision of Article X, including, without limitation, a Person asserting a
claim pursuant to paragraph (c) of Section 10.03.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article X, including,
without limitation, a Person against whom a claim is asserted pursuant to
paragraph (c) of Section 10.03.
"Indemnity Notice" means written notification pursuant to Section
10.03(b) of a claim for indemnity under Article X by an Indemnified Party,
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim.
"Intellectual Property" means all patents and patent rights, trademarks
and trademark rights, trade names and trade name rights, service marks and
service mark rights, service names and service name rights, brand names,
inventions, processes, formulae, copyrights and copyright rights, trade dress,
business and product names, logos, slogans, trade secrets, industrial models,
processes, designs, methodologies, computer programs (including all source
codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any Subsidiary (other than securities issued by any Subsidiary).
"IRS" means the United States Internal Revenue Service.
"Knowledge" with respect to Sellers, the Company or any Subsidiary,
Affiliates or Associates means the actual knowledge of Sellers only, without
inquiry or investigation by the Sellers (unless otherwise stated in the text).
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities
of a Person (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due).
"Licenses" means all material licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties, deficiencies,
losses and expenses (including, without limitation, interest, court costs,
reasonable fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment).
"MAHGT" means the Midland Affordable Housing Group Trust.
"Material Adverse Effect" means a material adverse effect on the
business, financial condition or results of operations of the Company and the
Subsidiaries taken as a whole with a potential exposure of more than $100,000.
"Material Contracts" shall have the meaning set forth in Section 3.17.
"Midland Shares" shall have the meaning set forth in the forepart of
this Agreement.
"MMI" means Midland Mortgage Investment Corporation.
"MMI Interest Strip" means any interest strip, interest payable,
interest reservation or similar right, payment or benefit created in connection
with the sale of any loan by, and reserved unto, MMI and/or MAHGT, including
without limitation, rights described in Paragraph 6 of that certain Lending and
Warehousing Agreement dated as of September 1, 1997 between MMI and MAHGT,
regardless of how characterized on the books and records of MMI and/or MAHGT.
"Net Income" means the Company's net income before income taxes,
amortization and depreciation expense determined using the Company's "as
purchased" cost structure and accounting principles consistent with the
Company's historical practice. For purposes of determining payment of the
Deferred Purchase Price under Section 2.04: Net Income shall be calculated as if
the Company and its Subsidiaries continued to operate independently of Purchaser
and on a stand-alone basis, without including any income, loss or expense
attributable to any of Purchaser's, or its Subsidiaries', Affiliates' and
Associates', other operations or business, even if certain of such operations or
business are allocated to or conducted in conjunction with the Company or any of
its Subsidiaries; notwithstanding the preceding clause, for any transaction
between Purchaser (or its Subsidiaries) and existing customers (as of the
Closing Date) of the Company and its Subsidiaries, or for which the Company, its
Subsidiaries, or the Sellers are responsible, Purchaser and Sellers will use
good faith efforts to agree to a fair allocation of income and expense at or
prior to the closing of such transaction. Net Income shall exclude MMI Interest
Strip income and all one-time out-of-pocket costs and expenses of the Company
incurred in connection with the negotiation, execution and closing of this
Agreement and the transactions contemplated hereby and any cost or expense which
is subject to indemnification under this Agreement or covered by insurance; and
Net Income shall include any sales proceeds (net of direct expense not otherwise
deductible in determining Net Income) received by the Company or its
Subsidiaries in connection with the sale of the Company's (or any Subsidiary's)
right to low income housing tax credits arising from the Company's tax credit
syndication business or the sale of any general partner interest owned by the
Company (or any Subsidiary) in any Tax Credit Partnership or Operating
Partnership. The Company's historical practice shall be based on the practices
certified to by PricewaterhouseCoopers in preparing the Company's Audited
Financial Statements for 1998 and prior years. In the event of any dispute
between Sellers and Purchaser as to the proper allocation of an item of income
or expense for purposes of calculating Net Income, the dispute shall be referred
to an independent public accounting firm mutually agreeable to Sellers and
Purchaser, whose decision shall be final and conclusive absent manifest error.
"Operating Partnership" means a partnership or other entity in which a
Tax Credit Partnership or other entity syndicated or arranged by the Company or
a Subsidiary has invested for the purpose of obtaining low income housing tax
credits.
"Operative Agreements" means the Employment Agreements, the
Registration Rights Agreement, and any other agreements to be entered into in
connection with the transactions contemplated herein.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of such Person, including any rights to
participate in the equity, income or election of directors or officers of such
Person.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Pension Benefit Plan" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA, whether or not subject
to ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or delinquent
or which is being contested in good faith by appropriate proceedings or which
has been bonded off and for which adequate reserves have been established in
accordance with GAAP or defense has been accepted by any insurance company, (ii)
any statutory Lien arising in the ordinary course of business by operation of
Law with respect to a Liability that is not yet due or delinquent or which is
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP or which have been bonded
off or defense has been accepted by any insurance or bonding company and (iii)
any other Lien which individually or in the aggregate with other such Liens
would not reasonably be expected to have a Material Adverse Effect.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability or other insurance, severance, separation or other employee
benefit plan, practice, policy or arrangement of any kind, whether written or
oral, and whether or not subject to ERISA including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Post-Closing Tax Returns" shall have the meaning set forth in Section
7.03(a).
"Post-Closing Taxes" shall have the meaning set forth in Section
7.03(a).
"Pre-Closing Taxes" shall have the meaning set forth in Section 7.01.
"Pre-Closing Tax Returns" shall have the meaning set forth in Section
7.01.
"Purchase Price" shall have the meaning set forth in Section 2.02.
"Purchaser" shall have the meaning set forth in the forepart of this
Agreement.
"Purchaser Common Shares" means the common shares, no par value, of
Purchaser.
"Purchaser Closing Shares" shall have the meaning set forth in Section
2.03(b).
"Qualified Plan" means each benefit plan which is intended to qualify
under Section 401 of the Code.
"Registration Rights Agreement" shall have the meaning set forth in
Section 8.02(e).
"Representatives" means the officers, directors, employees, agents,
counsel, accountants, financial advisors, consultants, and other representatives
of a Person.
"Resolution Period" means the period ending thirty (30) calendar days
following receipt by an Indemnified Party of an Indemnity Notice or a Claim
Notice.
"SEC" shall have the meaning set forth in Section 4.09.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" shall have the meaning set forth in the forepart of this
Agreement.
"Sellers' Post-Closing Taxes" shall have the meaning set forth in
Section 7.03(b).
"Sellers' Tax Costs" shall have the meaning set forth in Section 10.01.
"Share Closing Payment" shall have the meaning set forth in Section
2.03.
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than 50% of
either the equity interests in, or the voting control of, such Person.
"Surplus" shall have the meaning set forth in Section 2.04(b).
"Tax or Taxes" means any federal, state, county, local or foreign
taxes, charges, fees, levies, or other assessments, including all net income,
gross income, sales and use, ad valorem, transfer, gains, profits, excise,
franchise, real and personal property, gross receipt, capital stock, production,
business and occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes.
"Tax Credit Partnership" means a partnership or other entity syndicated
or arranged by the Company or a Subsidiary to invest in one or more Operating
Partnerships.
"Tax Ruling" means a written ruling of a Governmental or Regulatory
Authority relating to Taxes.
"Tax Return" means a report, return or other information required to be
supplied to a governmental entity with respect to Taxes including, if
applicable, combined or consolidated returns for any group of entities that
includes the Company.
"Third Party Claim" shall have the meaning set forth in Section
10.03(a).
"Transaction" means the acquisition by Purchaser from Sellers of the
Midland Shares as contemplated by this Agreement.
"Trust" means MAHGT.
"Trust Agreement" means the Midland Affordable Housing Group Trust
Amended and Restated Agreement and Declaration of Trust dated January 1, 1992,
as the same has been amended, supplemented or modified from time to time.
"Unaudited Financial Statements" means the Financial Statements for the
most recent fiscal quarter of the Company ended June 30, 1999, and for the
periods ended July 31, 1999, and August 31, 1999.
"Unaudited Financial Statement Date" means June 30, 1999.
(b) Unless the context of this Agreement otherwise
requires, (i) words of any gender include each other gender; (ii) words using
the singular or plural number also include the plural or singular number,
respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (iv) the terms "Article" or
"Section" refer to the specified Article or Section of this Agreement; and (v)
the phrases "ordinary course of business" and "ordinary course of business
consistent with past practice" refer to the business and practice of the Company
or a Subsidiary. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them under GAAP.
(c) All references herein to Schedules regardless of the
Section reference shall mean and refer to all the Schedules attached to or
forming part of the Disclosure Schedule. Seller will use good faith efforts to
cross-reference items which are properly discloseable on more than one Schedule.
ARTICLE II
SALE AND CONTRIBUTION OF SHARES AND CLOSING
2.01 Contribution, Purchase and Sale. Sellers agree to contribute and
sell to Purchaser, and Purchaser agrees to acquire and purchase from Sellers,
all of the Midland Shares at Closing on the terms and subject to the conditions
set forth in this Agreement.
2.02 Consideration. The aggregate consideration for the Midland Shares
and for the non-compete provisions set forth in the Employment Agreements is
U.S. $35,000,000 plus the right to receive, in the future, a U.S. $10,000,000
earn-out described in Section 2.04 below, (the "Purchase Price"), payable in the
manner provided in Sections 2.03 and 2.04, $90,000 of which is allocable pro
rata to, and deemed to be in consideration of, the non-compete provisions set
forth in the Employment Agreements and the remainder of which is allocable to,
and deemed to be in consideration of, the Midland Shares. A portion of the
Purchase Price is subject to deferral and adjustment as provided in Sections
2.04 and 2.05.
2.03 Closing.
(a) The Closing will take place at 10:00 a.m. eastern
time on the third Business Day following the date on which all conditions to
Closing set forth in Article VIII have been satisfied or waived, but not later
than October 15, 1999 (the "Closing Date") at the offices of Gallagher, Evelius
& Jones, LLP, 218 N. Charles Street, Suite 400, Baltimore, Maryland 21201 or at
such other time and place as Purchaser and Sellers mutually agree.
(b) At the Closing, Purchaser will pay a portion of the
Purchase Price in the following manner: (i) by wire transfer of $23,000,000 (the
"Cash Closing Payment") in immediately available funds to such accounts as
Sellers may reasonably direct by written notice delivered to Purchaser; and (ii)
by issuance to Sellers of good and valid title in and to the number of whole
Purchaser Common Shares the value of which equals or most nearly exceeds
$12,000,000 (the "Purchaser Closing Shares"), free and clear of all Liens, by
delivering to Sellers a certificate or certificates representing the Purchaser
Closing Shares, in genuine and unaltered form, duly endorsed in blank or
accompanied by duly executed stock powers endorsed in blank, with requisite
stock transfer tax stamps, if any, attached; such Purchaser Closing Shares to
represent payment of $12,000,000 of the Purchase Price (the "Share Closing
Payment," together with the Cash Closing Payment, the "Closing Payment").
(c) For purposes of this Agreement, the value of the
Purchaser Closing Shares shall equal the average of the closing prices per share
of Purchaser Common Shares on the New York Stock Exchange for the 30 trading
days prior to the date preceding Closing.
(d) Simultaneously, Sellers will assign and transfer to
Purchaser good and valid title in and to the Midland Shares, free and clear of
all Liens, by delivering to Purchaser a certificate or certificates representing
the Midland Shares, in genuine and unaltered form, duly endorsed in blank or
accompanied by duly executed stock powers endorsed in blank, with requisite
stock transfer tax stamps, if any, attached.
(e) All payments and transfers of Purchaser Closing
Shares and Earn-out Shares to Sellers shall be made 60% to Robert J. Banks, 20%
to Keith J. Gloeckl and 20% to Ray F. Mathis. Sellers shall provide Purchaser
with their respective wiring instructions at least one Business Day prior to
Closing.
(f) The partnership interests identified on Schedule
2.03(f) shall not be deemed to be Assets or Properties of the Company or its
Subsidiaries, Associates or Affiliates.
2.04 Deferred Purchase Price.
(a) Ten Million Dollars ($10,000,000) of the Purchase
Price, as the same may be adjusted in accordance with Section 2.04(b) and
Section 2.05 (as adjusted, the "Deferred Purchase Price") shall be payable by
the assignment and transfer to Sellers of Purchaser Common Shares ("Earn-out
Shares") having a value equal to or most nearly exceeding the Deferred Purchase
Price, as follows: (A) 1/3 of the Deferred Purchase Price shall be paid by the
transfer of Earn-out Shares to Sellers on December 1, 2000 if Net Income for the
period October 1, 1999 through September 30, 2000 exceeds $6,000,000; (B) 1/3 of
the Deferred Purchase Price shall be paid by the transfer of Earn-out Shares to
Sellers on December 1, 2001 if Net Income during the period October 1, 2000
through September 30, 2001 (as increased by any Surplus) exceeds $6,250,000; and
(C) 1/3 of the Deferred Purchase Price shall be paid by the transfer Earn-out
Shares to Sellers on December 1, 2002 if Net Income during the period October 1,
2001 through September 30, 2002 (as increased by any Surplus) exceeds
$6,500,000.
(b) In the event that Net Income for any period described
in Section 2.04(a) above, as increased by any Surplus (hereinafter defined), is
less than the relevant target amount for such period, the number of Earn-out
Shares that are transferred to Sellers shall be reduced such that the value of
the Earn-out Shares transferred to Sellers for such period is reduced by $.50
for each $1.00 by which Net Income (as increased by any Surplus) for such period
is less than the target amount for such period.
If Net Income for any period exceeds the target amount for such period
(a "Surplus"), as verified by Sellers or their representatives, the Surplus
shall be applied first to offset the effect of any prior shortfall (thereby
resulting in the issuance of additional Earn-out Shares to make up for any
reduction in Earn-Out Shares under the preceding paragraph), with the balance
carried forward and applied to offset a shortfall in any future period; thus, to
the extent that Net Income for a period ("given period"), as increased by the
unapplied Surplus from any prior period, exceeds the target amount for the given
period, the Earn-out Shares for the period shall be increased by $.50 for each
$1.00 by which Net Income for the given period, when increased by any unapplied
Surplus from any prior period, exceeds the target amount for the given period;
provided, however, that such increase shall not exceed the aggregate amount of
any prior reductions in Earn-out Shares.
The effect of the adjustments provided for in this Section 2.04(b) is
illustrated in Exhibit A incorporated herein.
(c) For purposes of the Deferred Purchase Price, Net
Income shall be based upon unaudited, internally prepared consolidated financial
statements of the Company and its wholly-owned Subsidiaries for the twelve (12)
month period ending September 30 in 2000, 2001 and 2002, which financial
statements shall be delivered by Purchaser to Sellers not later than October 31
in each of 2000, 2001 and 2002, together with Purchaser's good faith calculation
of Net Income for such period, and any proposed adjustments to the Deferred
Purchase Price based thereon. If Sellers dispute any determination of Net Income
and the parties are unable to resolve the dispute, Net Income for the relevant
period shall be determined by PricewaterhouseCoopers LLP initiated through the
Tampa Bay, Florida office, or by any other independent certified public
accountant jointly selected by Sellers and Purchaser, whose determination shall
be conclusive and binding on all parties for such purpose, absent clear error.
Purchaser shall bear any costs incurred or charged by PricewaterhouseCoopers LLP
or any independent certified public accountant jointly selected by Sellers and
Purchaser in making such determination.
(d) For purposes of this Section 2.04, the value of the
Earn-out Shares delivered on each of the dates described in Section 2.04(a)
shall be the average of the closing prices per share of Purchaser Common Shares
on the New York Stock Exchange for the 30 trading days prior to such date.
(e) Notwithstanding any other provision of this Section
2.04 to the contrary, if the value of the Earn-out Shares to be delivered on any
of the dates set forth in Section 2.04(a) is determined in accordance with
Section 2.04(d) to be less than Fifteen Dollars ($15.00) per share, Purchaser
may, in its sole discretion, pay the amount of the Deferred Purchase Price which
is due and payable on such date in cash rather than by delivery of Earn-out
Shares to Sellers.
(f) Sellers shall not assign, convey, pledge or otherwise
transfer or encumber their right to Earn-Out Shares except among each other and,
for estate planning purposes, to their immediate families or trusts the sole
beneficiaries of which are their immediate families; and, in the case of Keith
Gloeckl, as necessary in connection with any property settlement related to his
divorce.
2.05 Adjustment to Deferred Purchase Price. The maximum Deferred
Purchase Price of $10,000,000 shall be reduced dollar for dollar by the amount,
if any, by which the stockholders' equity in the Company is less than $7.5
million as of the Closing Date. The amount of stockholders' equity as of the
Closing Date shall be determined by an audit of the Company's financial
condition as of the Closing Date (the "Closing Audit"). Such audit shall be
conducted at the Purchaser's expense by PricewaterhouseCoopers LLP in accordance
with GAAP; provided however, that for purposes of determining stockholders'
equity under this Section 2.05 and under Section 2.06, any loan loss reserves
shall be ignored. Purchaser shall initiate such audit immediately after Closing
and shall use diligent efforts to have the audit completed as soon as possible
but in any event not later than sixty (60) days after the Closing Date. The MMI
Interest Strip shall not be considered an asset of the Company or its
Subsidiaries for purposes of the Closing Audit.
2.06 Balance Sheet Adjustment. In the event the amount of stockholders'
equity as determined in the Closing Audit is greater than $7.5 million,
Purchaser shall pay to Sellers cash in the amount by which stockholders' equity
in the Company as of the Closing Date exceeds $7.5 million. Such payment shall
be made within five days after completion of the Closing Audit. As noted in
Section 2.05, the MMI Interest Strip shall not be considered an asset of the
Company or its Subsidiaries for purposes of the Closing Audit.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, represent and warrant to Purchaser as
follows:
3.01 Sellers. Sellers are individuals residing in the State of Florida.
3.02 Authority. This Agreement has been duly and validly executed and
delivered by the Sellers and constitutes the legal, valid and binding obligation
of Sellers enforceable against Sellers in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization,
recharacterization or other similar laws affecting creditor's rights generally
and by general equitable principles (regardless of whether considered in a
proceeding in equity or at law).
3.03 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Florida, and has full corporate power and authority to conduct its business as
and to the extent now conducted and to own, use and lease its Assets and
Properties. The Company is duly qualified, licensed or admitted to do business
and is in good standing in those jurisdictions specified in Schedule 3.03. The
name of each director and officer of the Company on the date hereof, and the
position with the Company held by each, are listed in Schedule 3.03. Sellers
have prior to the execution of this Agreement delivered to Purchaser true and
complete copies of the articles of incorporation and by-laws of the Company as
in effect on the date hereof.
3.04. Capital Stock. The authorized capital stock of the Company
consists solely of 10,000 shares of Common Stock, of which only the Midland
Shares are issued and outstanding. The Midland Shares are duly authorized,
validly issued, outstanding, fully paid and nonassessable. Sellers own the
Midland Shares, beneficially and of record, subject only to those Liens listed
on Schedule 3.04. There are no outstanding Options with respect to the Company.
At Closing, Sellers will deliver to Purchaser a certificate or certificates
representing the Midland Shares in the manner provided in Section 2.03 and will
transfer to Purchaser good and valid title to the Midland Shares, free and clear
of all Liens.
3.05. Subsidiaries. Schedule 3.05 lists the name of each Subsidiary. To
the Seller's Knowledge each Subsidiary is a corporation duly organized, validly
existing and in good standing under the Laws of its jurisdiction of
incorporation identified in Schedule 3.05, and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its Assets and Properties. Each Subsidiary is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified Schedule 3.05. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned, beneficially and of record by the Company
or Subsidiaries wholly owned by the Company free and clear of all Liens. There
are no outstanding Options with respect to any Subsidiary. The name of each
director and officer of each Subsidiary on the date hereof, and the position
with such Subsidiary held by each, are listed in Schedule 3.05. Sellers have
prior to the execution of this Agreement delivered to Purchaser true and
complete copies of the certificate or articles of incorporation and by-laws (or
other comparable corporate charter documents) of each of the Subsidiaries as in
effect on the date hereof.
3.06. No Conflicts. The execution and delivery by Sellers of this
Agreement does not, and the execution and delivery by Sellers of the Operative
Agreements to which they are a party, the performance by Sellers of their
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the certificate or articles
of incorporation or by-laws (or other comparable corporate charter documents) of
the Company or any Subsidiary;
(b) to the Knowledge of Sellers, subject to obtaining the
consents, approvals and actions, making the filings and giving the notices
disclosed in Schedule 3.06(b), conflict with or result in a violation or breach
of any term or provision of any Law or Order applicable to Sellers, the Company
or any Subsidiary or any of their respective Assets and Properties the breach of
which would reasonably be expected to have a Material Adverse Effect; or
(c) except as disclosed in Schedule 3.06(c), or as could
not reasonably be expected to have a Material Adverse Effect, (i) conflict with
or result in a violation or breach of, (ii) constitute (with or without notice
or lapse of time or both) a default under, (iii) require Sellers, the Company or
any Subsidiary to obtain any consent, approval or action of, make any filing
with or give any notice to any Person as a result or under the terms of, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon Sellers, the Company or any Subsidiary or any of
their respective Assets and Properties under, any Material Contract or License
to which Sellers, the Company or any Subsidiary is a party or by which any of
their respective Assets and Properties is bound or any partnership agreement of
any Tax Credit Partnership or any Operating Partnership.
3.07. Governmental Approvals and Filings. Except as disclosed in
Schedule 3.07, to the Knowledge of Sellers after due inquiry: no consent,
approval or action of, filing with or notice to any Governmental or Regulatory
Authority on the part of Sellers, the Company or any Subsidiary is required in
connection with the execution, delivery and performance of this Agreement or any
of the Operative Agreements to which they are a party or the consummation of the
transactions contemplated hereby or thereby.
3.08. Financial Statements. Prior to the execution of this Agreement,
Sellers have delivered to Purchaser true and complete copies of the following
financial statements:
(a) the audited balance sheets of the Company and its
consolidated subsidiaries as of December 31, 1996, 1997 and 1998, and the
related audited consolidated statements of operations, stockholders' equity and
cash flows for each of the fiscal years then ended, together with a true and
correct copy of the report on such audited information by PricewaterhouseCoopers
LLP and all letters from such accountants with respect to the results of such
audits; and
(b) the unaudited balance sheets and statements of
operations of the Company and its consolidated subsidiaries as of the fiscal
quarters ending March 31, 1999 and June 30, 1999, and the unaudited balance
sheets and statement of operations of the Company and its consolidated
subsidiaries as of the periods ending July 31, 1999 and August 31, 1999.
Except as set forth in the notes thereto or in Schedule 3.08, to the Sellers'
Knowledge, all such financial statements were prepared in accordance with GAAP
and fairly present the consolidated financial condition and results of
operations of the Company and its consolidated Subsidiaries as of the respective
dates thereof and for the respective periods covered thereby, subject, in the
case of such Unaudited Financial Statements, to normal year-end adjustments (the
effect of which will not, individually or in the aggregate, have a Material
Adverse Effect) and the absence of notes (that, if presented, would not differ
materially from those included in the Audited Financial Statements for the
fiscal year ended December 31, 1998). Except for those Subsidiaries listed in
Schedule 3.08, the financial condition and results of operations of each
Subsidiary are, and for all periods referred to in this Section 3.08 have been,
consolidated with those of the Company.
3.09. Absence of Changes. Except for the execution and delivery of this
Agreement and the transactions to take place pursuant hereto, since the Audited
Financial Statement Date, to the Knowledge of Sellers after due inquiry of the
senior management employees of the Company listed in Schedule 3.09(a): there has
not been any material adverse change, or any event or development which,
individually or together with other such events, could reasonably be expected to
result in a Material Adverse Effect. Without limiting the foregoing, except as
disclosed in Schedule 3.09(b), there has not occurred between the Audited
Financial Statement Date and the date hereof:
(i) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company or
any Subsidiary not wholly owned by the Company other than cash dividends or
distributions to Sellers which do not reduce Shareholders' Equity below $7.5
million, or any direct or indirect redemption, purchase or other acquisition by
the Company or any Subsidiary of any such capital stock of or any Option with
respect to the Company or any Subsidiary not wholly owned by the Company;
(ii) any authorization, issuance, sale or other
disposition by the Company or any Subsidiary of any shares of capital stock of
or Option with respect to the Company or any Subsidiary, or any modification or
amendment of any right of any holder of any outstanding shares of capital stock
of or Option with respect to the Company or any Subsidiary relating to such
capital stock or Option;
(iii) (x) any increase, outside of the ordinary course of
business consistent with past practice, in the salary, wages or other
compensation of any officer or employee of the Company (other than the Sellers)
or any Subsidiary whose annual salary is, or after giving effect to such change
would be, $100,000 or more; (y) any establishment or modification, outside of
the ordinary course of business consistent with past practice, of (A) targets,
goals, pools or similar provisions in respect of any fiscal year under any
Benefit Plan, employment Contract or other employee compensation arrangement or
(B) salary ranges, increase guidelines or similar provisions in respect of any
Benefit Plan, employment Contract or other employee compensation arrangement; or
(z) any adoption, entering into, amendment, modification or termination (partial
or complete) of any Benefit Plan except to the extent required by applicable
Law; provided, however, that this paragraph shall not prohibit the Company from
awarding or paying such bonuses as Sellers may determine prior to the Closing
Date as long as such bonuses are accrued prior to Closing and reflected in the
Closing Audit.
(iv) any incurrence by the Company or any Subsidiary of
Indebtedness in an aggregate principal amount exceeding $100,000, other than
Indebtedness used to fund loans to Borrowers;
(v) any physical damage, destruction or other casualty
loss not covered by insurance affecting any of the plant, real or personal
property or equipment of the Company or any Subsidiary in an aggregate amount
exceeding $100,000;
(vi) any acquisition or disposition of, or incurrence of a
Lien (other than a Permitted Lien) on, any Assets and Properties of the Company
or any Subsidiary, other than in the ordinary course of business consistent with
past practice;
(vii) any (x) amendment of the certificate or articles of
incorporation or by-laws (or other comparable corporate charter documents) of
the Company or any Subsidiary, (y) reorganization, liquidation or dissolution of
the Company or any Subsidiary or (z) Business Combination involving the Company
or any Subsidiary and any other Person;
(viii) any commencement or termination by the Company or any
Subsidiary of any line of business;
(ix) any transaction by the Company or any Subsidiary with
Sellers, any officer, director, Affiliate or Associate of Sellers or any
Associate of any such officer, director or Affiliate (other than the Company or
any Subsidiary) (A) outside the ordinary course of business consistent with past
practice or (B) other than on an arm's-length basis, or (C) other than pursuant
to any Contract in effect on the Audited Financial Statement Date and disclosed
to Purchaser pursuant to Section 3.17 or (D) other than the payment of cash
dividends; or
(x) any lease of real property;
(xi) any notice by Fannie Mae or any beneficiary of MAHGT
of the termination of, or of an intent to terminate or discontinue, any business
relationship which would have a Material Adverse Affect.
3.10. Taxes. Except as disclosed in Schedule 3.10 (with paragraph
references corresponding to those set forth below):
(a) To Sellers' Knowledge: (i) the Company and its
Subsidiaries have timely filed or has had filed, after giving effect to any
applicable extensions, all Tax Returns required to be filed by applicable Law,
maintained all documents and records relating to Taxes as are required to be
made or provided by it and has complied in all material respects with all
legislation relating to Taxes applicable to it, and (ii) all such Tax Returns
were in all material respects true, complete and correct. The Company and its
Subsidiaries have, within the time and in the manner prescribed by law, paid all
Taxes shown to be due and payable on such Tax Returns.
(b) To Sellers' Knowledge, no claim has ever been made by
any authority of a jurisdiction where the Company or its Subsidiaries does not
file Tax Returns that the Company or its Subsidiaries is or may be subject to
taxation by the jurisdiction.
(c) There are no liens for any Taxes with respect to any
Assets and Properties of the Company or its Subsidiaries except Permitted Liens.
(d) The Company or its Subsidiaries have not requested any
extension of time within which to file any Tax Return, which Tax Return has
not since been filed.
(e) The Company or its Subsidiaries have not executed any
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns.
(f) No deficiency for any Taxes has been proposed, asserted
or assessed against the Company or its Subsidiaries that has not been resolved
and paid in full.
(g) No audits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Company or its Subsidiaries, and no Governmental Authority has notified
the Company or any Subsidiary that it intends to audit its Tax affairs.
(h) The Company and its Subsidiaries have not received a
Tax Ruling or entered into a Closing Agreement with any Governmental Authority
that would have a Material Adverse Effect upon the Company or its Subsidiaries
after the date of Closing.
(i) To Sellers' Knowledge, no event, transaction, act or
omission has occurred which could result in the Company or its Subsidiaries
becoming liable to pay or to bear any Tax as a transferee, successor or
otherwise which is primarily or directly chargeable or attributable to any other
Person.
(j) To Seller's Knowledge, the Company and its
Subsidiaries have complied (and until the date of Closing will comply) in all
material respects with the provisions of the Code relating to the payment and
withholding of Taxes, including, without limitation, the withholding and
reporting requirements under Code ss.ss.1441 through 1446, 3401 through 3606,
and 6041 and 6049, as well as similar provisions under any other applicable
Laws, and has, within the time and in the manner prescribed by Law, withheld and
paid over to the proper Governmental Authorities all amounts required in
connection with amounts paid or owing to any employee.
(k) The Company or its Subsidiaries are not parties to
any agreement, contract, or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Code ss.280G.
(l) The Company and its Subsidiaries have not filed (and
will not file prior to the Closing) a consent pursuant to Code ss.341(f) or
agreed to have Code ss.341(f)(2) apply to any disposition of a subsection (f)
asset (as that term is defined in Code ss.341(f)(4)) owned by the Company or its
Subsidiaries.
(m) The Company and its Subsidiaries are not required to
include in income any adjustment pursuant to Code ss.481(a) by reason of a
voluntary change in accounting method initiated by the Company or its
Subsidiaries, and to the knowledge of Sellers and the Company, the IRS has not
proposed any such adjustment or change in accounting method.
(n) No election under Codess.338 (or any predecessor
provisions) has been made with respect to any of the Assets and Properties of
the Company or its Subsidiaries.
(o) The Company and its Subsidiaries are not subject to
any Tax sharing or similar agreements under which the
Company, its Subsidiaries or the Purchaser may have liability for Taxes of any
other Person.
(p) Sellers have made available to Purchaser for calendar
years 1996, 1997 and 1998 complete and accurate copies of (i) all federal income
tax returns, and any amendments thereto, filed by the Company and its
Subsidiaries, (ii) all audit reports received from any Governmental Authority
relating to any federal income tax return and (iii) all Closing Agreements
entered into by the Company or its Subsidiaries with any Governmental Authority.
3.11. Legal Proceedings. Except as disclosed in Schedule 3.11 (with
paragraph references corresponding to those set forth below):
(a) there are no Actions or Proceedings pending or, to
the Knowledge of Sellers, threatened against, Sellers, the Company or any
Subsidiary or any of their respective Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or any of the Operative
Agreements or otherwise result in a material diminution of the benefits
contemplated by this Agreement or any of the Operative Agreements to Purchaser,
or (ii) if determined adversely to Sellers, the Company or a Subsidiary, could
reasonably be expected to result in (x) any injunction or other equitable relief
against the Company or any Subsidiary that would interfere in any material
respect with its business or operations or (y) Losses by the Company or any
Subsidiary, individually exceeding $100,000; and
(b) to the Knowledge of Sellers', there are no Orders
outstanding against the Company or any Subsidiary.
Prior to the execution of this Agreement, Sellers have delivered to Purchaser,
or made available to Purchaser, all responses of counsel for the Company and the
Subsidiaries to auditors' requests for information delivered in connection with
the Audited Financial Statements (together with any updates provided by such
counsel) regarding Actions or Proceedings pending or threatened against the
Company or any Subsidiary.
3.12. Compliance With Laws and Orders. Except as disclosed in Schedule
3.12, to Sellers' Knowledge neither the Company nor any Subsidiary has received
any written notice that it is in violation of or in default under, in any
material respect, any Law or Order applicable to the Company or any Subsidiary
or any of their respective Assets and Properties the violation of which could
reasonably be expected to have a Material Adverse Effect.
3.13. Benefit Plans; ERISA.
(a) Schedule 3.13(a) (i) contains a true and complete
list and description of each of the Benefit Plans, (ii) identifies each of the
Benefit Plans that is a Qualified Plan, and (iii) identifies each of the Plans
that are fully insured. To Seller's knowledge: neither the Company nor any
Subsidiary has scheduled or agreed upon future increases of benefit levels (or
creations of new benefits) with respect to any Plan, and no such increases or
creation of benefits have been proposed, made the subject of representations to
employees or requested or demanded by employees under circumstances which make
it reasonable to expect that such increases will be granted.
(b) Neither the Company nor any ERISA Affiliate, or any
predecessor thereof, has at any time during the five-year period preceding
the date of this Agreement, maintained or contributed to a Defined Benefit Plan.
(c) Neither the Company nor any Subsidiary maintains or
is obligated to provide benefits under any life, medical or health plan (other
than as an incidental benefit under a Qualified Plan) which provides benefits to
retirees or other terminated employees other than benefit continuation rights
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(d) Neither the Company, any Subsidiary, any ERISA
Affiliate nor any other corporation or organization controlled by or under
common control with any of the foregoing within the meaning of Section 414 of
the Code, has at any time contributed to any "multiemployer plan" as that term
is defined in Section 3(37) of ERISA.
(e) To Seller's Knowledge, each of the Benefit Plans is,
and its administration is and has been since inception, in all material respects
in substantial compliance with, and neither the Company nor any Subsidiary has
received any claim or notice that any such Benefit Plan is not in material
compliance with, all applicable Laws and Orders, (including all tax rules for
which favorable tax treatment is intended), without limitation, the requirements
of ERISA, the Code, the Age Discrimination in Employment Act (to the extent
applicable), the Equal Pay Act (to the extent applicable) and Title VII of the
Civil Rights Act of 1964 (to the extent applicable). To the Sellers' knowledge,
each Qualified Plan as of the Closing Date, has met the requirements for
qualification under Section 401(a) of the Code.
(f) To Seller's Knowledge, (i) neither Sellers, the
Company nor any Subsidiary is in material default in performing any of its
contractual obligations under any of the Benefit Plans or any related trust
agreement or insurance contract, (ii) all contributions and other payments
required to be made by Sellers, the Company or any Subsidiary to any Benefit
Plan with respect to any period ending on the date hereof have been made or
reserves adequate for such contributions or other payments have been or will be
set aside therefor and have been or will be reflected in Financial Statements in
accordance with GAAP, and (iii) there are no material Liabilities of or under
any Benefit Plan other than Liabilities for benefits to be paid to participants
in such Benefit Plan and their beneficiaries in accordance with the terms of
such Benefit Plan.
(g) To the Sellers' Knowledge, no event has occurred, and
there exists no condition or set of circumstances in connection with any Benefit
Plan, under which the Company, any Subsidiary or any Plan maintained by them,
directly or indirectly (through any indemnification agreement or otherwise),
could reasonably be expected to be subject to any risk of material liability
(including, without limitation, liability under Sections 406, 409 or 502(i) of
ERISA, Title IV of ERISA or Section 4975 of the Code) other than to make
contributions or to pay benefits in the ordinary course.
(h) To the Knowledge of Sellers, there are no pending or
threatened claims (other than routine claims for benefits) by or on behalf of
any Benefit Plan, by any person covered thereby, or otherwise, which allege
violations of Law which would reasonably be expected to have a Material Adverse
Effect.
(i) No employer real property or other employer property
is included in the assets of any Benefit Plan.
(k) Neither the Company nor any ERISA Affiliate maintains
any severance or parachute payment plan.
(l) MAHGT is the only entity in which the Sellers, the
Company or its Subsidiaries participate as fiduciaries which has been created to
make multifamily mortgage loans. Sellers have not received any written notice
that the Trust or any other Benefit Plan for which the Company and its
Subsidiaries have originated loans is subject to ERISA.
(m) To Seller's Knowledge, the Trust and any other
Benefit Plans for which the Company and its Subsidiaries have originated loans
and which are not subject to ERISA have, to the extent managed by Sellers, the
Company or its Subsidiaries, been managed in compliance with the applicable
requirements of any and all applicable state, local and foreign laws which
govern plan fiduciaries or which are otherwise similar to ERISA.
(n) Purchaser and its Affiliates, including on and after
the Closing, the Company and any Subsidiary, shall have no liability for, under,
with respect to or otherwise in connection with any Plan, which liability arises
under ERISA or the Code, by virtue of the Company or any Subsidiary being
aggregated, at any relevant time prior to the Closing, in a controlled group or
affiliated service group with any ERISA Affiliate that does not become an
affiliate of the Purchaser by virtue of the transactions contemplated hereby. No
Plan other than a Benefit Plan is or will be directly or indirectly binding on
Purchaser by virtue of the transactions contemplated hereby.
(o) To Seller's Knowledge, the Company and each
Subsidiary has properly classified for all purposes (including, without
limitation, for all Tax purposes and for purposes of determining eligibility to
participate in any employee benefit plan) all employees, leased employees,
consultants and independent contractors.
3.14. Real Property.
(a) Neither the Company nor any Subsidiary owns any
real property. Schedule 3.14(a) contains a true and correct list of each
parcel of real property leased by the Company or any Subsidiary (as lessee).
(b) To the Sellers' Knowledge, the Company or a
Subsidiary has a valid and subsisting leasehold estate in and the right to quiet
enjoyment of the real properties leased by it for the full term of the lease
thereof. To the Sellers' Knowledge, each lease referred to in paragraph (a)
above is a legal, valid and binding agreement, enforceable in accordance with
its terms, of the Company or a Subsidiary and, except as set forth in Schedule
3.14(b), and neither the Company nor any Subsidiary has received written notice
of any, default thereunder. Neither the Company nor any Subsidiary owes any
brokerage commissions with respect to any such leased space.
(c) Sellers have delivered to Purchaser prior to the
execution of this Agreement true and complete copies of all leases (including
any amendments and renewal letters) with respect to the real property listed in
Schedule 3.14(a).
3.15. Tangible Personal Property. The Company or a Subsidiary is in
possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in the
conduct of their business, including all tangible personal property reflected on
the balance sheet included in the Unaudited Financial Statements for the period
ended on the Unaudited Financial Statement Date and tangible personal property
acquired since the Unaudited Financial Statement Date other than property
disposed of since such date in the ordinary course of business consistent with
past practice. All such tangible personal property is free and clear of all
Liens, other than Permitted Liens and Liens disclosed in Schedule 3.15.
3.16. Intellectual Property Rights. The Company and the Subsidiaries
have interests in or use the Intellectual Property disclosed in Schedule 3.16,
to the Sellers' Knowledge, each of which the Company or a Subsidiary either has
all right, title and interest in or a valid and binding license to use. Except
as disclosed in Schedule 3.16 or in the terms of any written license previously
delivered to or reviewed by Purchaser, to the Sellers' Knowledge, (i) there are
no restrictions on the direct or indirect transfer of any license, or any
interest therein, held by the Company or any Subsidiary in respect of such
Intellectual Property, (ii) Sellers have delivered or made available to
Purchaser prior to the execution of this Agreement all material documentation in
Seller's possession with respect to any invention, process, design, computer
program or other know-how or trade secret included in such Intellectual
Property, (iii) neither the Company nor any Subsidiary has received any written
notice that it is, in default under any license to use such Intellectual
Property, and (iv) to the Sellers' Knowledge, such Intellectual Property is not
being infringed by any other Person so as to cause a Material Adverse Effect.
Neither Sellers, the Company nor any Subsidiary has received written notice that
the Company or any Subsidiary is infringing any Intellectual Property of any
other Person, no written claim is pending or, to the Knowledge of Sellers, has
been made to such effect that has not been resolved.
3.17. Contracts.
(a) Schedule 3.17(a) (with paragraph references
corresponding to those set forth below) contains a true and complete list of
each of the following Contracts ("Material Contracts") or other arrangements
(true and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to or made available to
Purchaser prior to the execution of this Agreement), to which the Company or any
Subsidiary is a party or by which any of their respective Assets and Properties
is bound:
(i) (A) all Contracts (excluding Benefit Plans and
"at will" employment agreements) providing for a commitment of employment or
consultation services for a specified or unspecified term, the name, position
and rate of compensation of each Person party to such a Contract and the
expiration date of each such Contract; and (B) any unwritten promises known to
Sellers which create an obligation of the Company or any Subsidiary to make
payments in any year, other than with respect to salary or incentive
compensation payments in the ordinary course of business.
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of the Company or
any Subsidiary to engage in any business activity or compete with any Person
or prohibiting or limiting the ability of any Person to compete with the Company
or any Subsidiary;
(iii) all partnership, joint venture, shareholders'
or other similar Contracts with any Person (other than the partnership or
similar agreement of any Operating Partnership);
(iv) all Contracts relating to Indebtedness of the
Company or any Subsidiary in excess of $100,000 (other than Indebtedness owing
by the Company or any wholly-owned Subsidiary used to fund loans to Borrowers);
(v) all collective bargaining or similar labor
Contracts;
(vi) all Contracts that (A) limit or contain
restrictions on the ability of the Company or any Subsidiary to declare or pay
dividends on, to make any other distribution in respect of or to issue or
purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness,
to incur or suffer to exist any Lien, to purchase or sell any Assets and
Properties, to change the lines of business in which it participates or engages
or to engage in any Business Combination or (B) require the Company or any
Subsidiary to maintain specified financial ratios or levels of net worth or
other indicia of financial condition;
(vii) all Contracts between or among the Company or any
Subsidiary or the Trust on the one hand and any of the Sellers on the other
hand;
(viii) all other Contracts that (A) involve the
payment or potential payment, pursuant to the terms of any such Contract, by or
to the Company or any Subsidiary of more than $1,000,000 and (B) cannot be
terminated within 30 calendar days after giving notice of termination without
resulting in any material cost or penalty to the Company or any Subsidiary; and
(ix) to the extent not otherwise covered by clauses
(i) to (viii) above, all written Contracts with Fannie Mae, HUD, GNMA, FHLA
or MAHGT and all other Contracts pursuant to which the Company or any
Subsidiary originates, sells or services mortgage loans.
(b) Each Material Contract required to be disclosed in
Schedule 3.17(a) is in full force and effect and constitutes a legal, valid and
binding agreement, enforceable against the Company or a Subsidiary to the extent
a party thereto in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, recharacterization or other
similar laws affecting creditor's rights generally and by general equitable
principles (regardless of whether considered in a proceeding in equity or at
law); and except as disclosed in Schedule 3.17(b) neither the Company nor any
Subsidiary has received written notice (i) that it is in violation or breach of
or default under any such Material Contract (or with notice or lapse of time or
both, would be in violation or breach of or default under any such Material
Contract), or (ii) that any other party to a Material Contract claims that such
Contract is not its legal, valid and binding obligation or is unenforceable
against such other party.
3.18. Licenses. Schedule 3.18 contains a true and complete list of all
Licenses used in and material to the business or operations of the Company or
any Subsidiary. Prior to the execution of this Agreement, Sellers have delivered
to or made available to Purchaser true and complete copies of all such written
Licenses. Except as disclosed in Schedule 3.18:
(i) to the Sellers' Knowledge, each License listed in
Schedule 3.18 is valid, binding and in full force and effect;
(ii) to the Seller's Knowledge, the Company and each
Subsidiary hold all Licenses the absence of which would have a Material Adverse
Effect; and
(iii) neither the Company nor any Subsidiary is, or has
received any written notice that it is, in default under any such License.
3.19. Insurance. Schedule 3.19 contains a true and complete list of all
liability, property, workers' compensation, directors' and officers' liability
and other insurance policies currently in effect that insure the business,
operations or employees of the Company or any Subsidiary. The insurance coverage
provided by the policies described in clause (i) above will not terminate or
lapse by reason of the transactions contemplated by this Agreement. Neither the
Company nor any Subsidiary has received notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
3.20. Employees; Labor Relations.
(a) Schedule 3.20 contains a list of the name of each
officer and full-time employee of the Company and the Subsidiaries at the date
hereof, together with each such person's position or function, annual base
salary or wages and any incentive or bonus arrangement with respect to such
person in effect on such date.
(b) (i) To the Sellers' Knowledge, no employee of the
Company or any Subsidiary is presently a member of a collective bargaining unit
and, to the Knowledge of Sellers, there are no threatened or contemplated
attempts to organize for collective bargaining purposes any of the employees of
the Company or any Subsidiary; and (ii) except as set forth in Schedule 3.20(b),
no unfair labor practice complaint or sex or age discrimination claim is pending
against the Company or any of the Subsidiaries before the National Labor
Relations Board or any other Governmental or Regulatory Authority. There never
has been any work stoppage or strike by employees of the Company or any
Subsidiary. Since January 1, 1997, the Company and the Subsidiaries have not
received any written notice of noncompliance with applicable Laws relating to
the employment of labor, including without limitation those relating to wages,
hours and collective bargaining.
(c) Except for employees who are parties to employment
Contracts listed on Schedule 3.17(a), all employees of the Company and its
Subsidiaries are "at-will" employees.
3.21. Substantial Business Relationships.
(a) Schedule 3.21(a) lists the largest investors in tax
credit funds and projects sponsored or arranged by the Company and its
Subsidiaries. Except as disclosed in Schedule 3.21(a), to Sellers' Knowledge: no
such investor has ceased or materially reduced its relationship or investment
with the Company and the Subsidiaries since the Audited Financial Statement
Date, or to the Knowledge of Sellers, has threatened to cease or materially
reduce its relationship, or such investment with the Company or any Subsidiary
after the date hereof.
(b) Schedule 3.21(b) lists all Persons for whose benefit
or at whose request the Company or its Subsidiaries have made loans which are
presently outstanding or have arranged tax credit investments which are
presently outstanding which in the aggregate exceed $10,000,000. Except as
disclosed in Schedule 3.21(b), to the Knowledge of Sellers, no such Person is
threatened with bankruptcy or insolvency.
(c) To the Knowledge of Sellers after due inquiry of the
senior management employees of the Company and its Subsidiaries listed on
Schedule 3.21(c), the Company and its Subsidiaries are in compliance in all
material respects with all agreements with any of Fannie Mae, GNMA, HUD or FHLA,
and neither the Sellers, the Company nor any Subsidiary has received written
notice of any material noncompliance with the handbooks, manuals and guidelines
applicable to FannieMae DUS lenders or seller/servicers, GNMA lenders or
seller/services, HUD lenders or seller/servicers or FHLA lenders or
seller/servicers.
(d) Neither Sellers, the Company, nor any Subsidiary has
received any written notice from Fannie Mae, GNMA, HUD or FHLA, respectively,
stating or indicating that the Company or any Subsidiary was or is in default in
its obligations to or agreements with Fannie Mae, GNMA, HUD or FHLA,
respectively; and Sellers have no Knowledge of any facts or events which would
entitle or give Fannie Mae, GNMA, HUD or FHLA, respectively cause to terminate
MMI as an approved DUS lender or GNMA, HUD or FHLA lender, respectively.
(e) Except as listed on Schedule 3.21(e), Fannie Mae has
not sent the Company or any Subsidiary notice of any default or deficiency in
MMI's performance as a DUS lender or Fannie Mae approved seller/servicer. Except
as listed on Schedule 3.21(e), neither GNMA, HUD nor FHLA has sent the Company
or any Subsidiary notice of any default or deficiency in MMI's performance as a
lender or seller/servicer. To Seller's knowledge, the Company and its
Subsidiaries are in full compliance with all net worth, reserve, and other
financial conditions required by FannieMae..
(f) Neither Sellers, the Company, nor any Subsidiary has
received any written notice from any beneficiary of MAHGT asserting or claiming
any of the following on the part of the Sellers, the Company or any Subsidiary:
(i) breach of any Contract with, or duty of care owed to, MAHGT, or (ii) failure
to comply in any material respect with any agreement entered into with MAHGT.
(g) Neither Sellers, the Company nor any Subsidiary has
received notice from any beneficiary of MAHGT that such beneficiary intends to
withdraw from the Trust.
3.22. No Powers of Attorney. Except as set forth in Schedule 3.22,
neither the Company nor any Subsidiary has any powers of attorney or comparable
delegations of authority outstanding.
3.23 Assets. Neither Sellers, the Company nor any Subsidiary has
received written notice that the Company or any Subsidiary or any counterparty
is in violation of or in default under, in any material respect any material
loan or credit agreement, note, bond, mortgage, indenture or any material lease,
permit, concession, franchise or license, or any material agreement to acquire
real property, or any other material Contract to which it is a party or by which
it or any of its properties or assets is bound, except for violations or
defaults that would not, individually reasonably be expected to have a Material
Adverse Effect.
3.24. Brokers. Except for FPL Associates Finance L.P., whose fees,
commissions and expenses are the sole responsibility of Sellers, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Sellers directly with Purchaser without the
intervention of any Person on behalf of Sellers in such manner as to give rise
to any valid claim by any Person against Purchaser, the Company or any
Subsidiary for a finder's fee, brokerage commission or similar payment.
3.25. Year 2000 Compliance. The Company and its Subsidiaries have
reviewed and tested all computer hardware and software applications and
date-sensitive equipment controlled by imbedded computer chips in order to
determine whether such systems are year 2000 compliant to the extent of
technological resources currently available to the Company and its Subsidiaries.
To the best of Sellers' Knowledge the systems used by the Company and its
Subsidiaries will be year 2000 compliant by December 31, 1999. For purposes of
this Section, year 2000 compliant means all hardware and software applications
and date-sensitive equipment controlled by imbedded computer chips can
accurately process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000, including correct leap year
calculations. Furthermore, year 2000 compliant systems, when used in combination
with all other information systems, shall accurately process date and time data
if the other systems properly exchange date and time data with it.
3.26. Status of Outstanding Loans.
(a) Schedule 3.26(a) is a complete list as of September
1, 1999 of all permanent loans being serviced by the Company or its
Subsidiaries, and indicates for each such loan the name of the party which owns
such loan (or a participation interest therein).
(b) Schedule 3.26(b) is a complete list as of September
1, 1999 of all outstanding construction loans which have been closed (i.e., loan
documents have been executed and a mortgage or deed of trust has been recorded)
by the Company or its Subsidiaries, and indicates in each case the party
providing the funds from which such loan was funded.
(c) Schedule 3.26(c) is a complete list of all
outstanding commitments for construction loans as of September 1, 1999 issued by
the Company or its Subsidiaries, and indicates in each case the party from whom
the funds will be obtained to fund such loan.
(d) Schedule 3.26(d) is a complete list of all
outstanding commitments for permanent loans as of September 1, 1999 issued by
the Company or its Subsidiaries, (whether in its own behalf or on behalf of
another party, such as MAHGT) and indicates in each case the proposed permanent
lender and the intended disposition of such loan (e.g., sale to Fannie Mae,
etc.).
(e) Schedule 3.26(e) is a complete list of all loans
originated or serviced by the Company or its Subsidiaries which is currently (as
of September 1, 1999) identified as a non-performing, "watch list" or other
similarly classified loan.
(f) Schedule 3.26(f) is a complete list of all permanent
loans owned or serviced by the Company or its Subsidiaries for which the
underlying borrower or project has a debt service coverage ratio of less than
1.10 to 1.0, based upon the most recent financial reporting available to the
Company or its Subsidiaries as of September 1, 1999.
(g) Schedule 3.26(g) is a complete list of all loans
owned or serviced by the Company or its Subsidiaries for which, in Sellers'
reasonable and good faith judgment, based on information currently available to
Sellers, the Company or its Subsidiaries may be required to make delinquency or
servicing advances during the next 12 months, or which may be unable to meet
scheduled debt service requirements during such period.
(h) Schedule 3.26(h) lists all construction loans owned
or serviced by the Company or its Subsidiaries for which the Sellers or the
Company has reason to believe that the remaining loan proceeds will not be
sufficient to complete the construction of the project free and clear of all
liens, claims and encumbrances.
(i) Except as disclosed in Schedule 3.26(i), the Company
or the applicable Subsidiary received a lender's policy of title insurance in
connection with all loans made by the Company and its Subsidiaries and secured
by real property and each owner of a low income housing tax credit property for
which the Company or any Subsidiary arranged the tax credit equity investment
received an owner's policy of title insurance, in an amount not less than the
loan amount or the total amount invested in the property respectively.
3.27. Status of Tax Credit Transactions.
(a) Except as disclosed on Schedule 3.27(a), the Sellers,
the Company and its Subsidiaries have received no written notices or
communications (from the IRS, any state housing finance authority, or any other
party) to the effect (i) that any Affiliate of the Sellers or the Company, is in
default under the organizational documents of any Tax Credit Partnership or any
Operating Partnership in any material respect; or (ii) that any event has
occurred which would cause any Operating Partnership or Tax Credit Partnership
not to realize its reasonably anticipated tax credits.
(b) Except as disclosed in Schedule 3.27(b), to Sellers'
Knowledge, each property with respect to which the Company or any Subsidiary has
made a loan or arranged a tax credit equity investment is in compliance with all
income requirements and rent limitations imposed on such property or the owners
thereof by any agreement, restrictive covenant or applicable Law in all material
respects.
(c) Attached as Schedule 3.27(c), is a comparison of
original projected benefits with current projected benefits for cash investors
in Midland Corporate Tax Credit Partnerships I - IV. No investor in a Tax Credit
Partnership has notified the Company or its Subsidiaries that it is dissatisfied
with its actual or projected returns.
3.28. No Undisclosed Liabilities. Except as reflected or reserved
against in the balance sheet included in the Audited Financial Statements or in
the notes thereto or as disclosed in Schedule 3.28, there are, to the Knowledge
of Sellers after due inquiry of senior management employees of the Company, no
Liabilities against, relating to or affecting the Company or any Subsidiary or
any of their respective Assets and Properties, other than Liabilities which are
incurred in the ordinary course of business consistent with past practice and
which in the aggregate would not have a Material Adverse Effect. To the
Knowledge of Sellers, all facts material to the Business or Condition of the
Company and its Subsidiaries have been disclosed to Purchaser in, or in
connection with, this Agreement and the Schedules.
3.29. Affiliate Transactions. Except as disclosed Schedule 3.29, as of
the date of this Agreement, there are no intercompany Liabilities between the
Company or any Subsidiary or the Trust, on the one hand, and any of the Sellers,
on the other, which would survive Closing.
3.30. Books and Records. The minute books, contracts, documents,
instruments and similar records of the Company and the Subsidiaries which have
been made available to Purchaser are genuine and are true, complete and accurate
copies of the Company's records.
3.31. Qualification to do Business. Except as shown on Schedule 3.31,
neither the Company nor any Subsidiary has received written notice from any
state that the Company or any Subsidiary is subject to any fine, forfeiture,
diminution of rights or similar penalty for failure to qualify to do business in
such state.
3.32. Environmental Matters. Except as shown on Schedule 3.32 or on any
Phase I environmental report received by the Company or any Subsidiary and made
available to Purchaser, neither the Sellers, the Company, nor any Subsidiary has
received written notice that any property with respect to which the Company,
MAGHT or any Subsidiary has made a loan or arranged a low-income housing tax
credit investment is in violation of any Environmental Law.
3.33. Watch List. Schedule 3.33 is a true and correct copy of the
Company's "watch" list of Operating Partnerships and Borrower loans as of
August 31, 1999.
EXCEPT AS SPECIFICALLY SET FORTH HEREIN, ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESSED OR IMPLIED, ARE HEREBY WAIVED AND DISCLAIMED.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
4.01. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Purchaser has full limited liability company power and authority to
execute and deliver this Agreement and the Operative Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. Purchaser is duly qualified,
licensed or admitted to do business and is in good standing in all jurisdictions
in which the ownership, use or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary and in which the failure to be so qualified, licensed or
admitted and in good standing could reasonably be expected to have an adverse
effect on the validity or enforceability of this Agreement or any of the
Operative Agreements to which it is a party or on the ability of Purchaser to
perform its obligations hereunder or thereunder.
4.02. Authority. The execution and delivery by Purchaser of this
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of its obligations hereunder and thereunder, have been
duly and validly authorized by the Board of Directors of Purchaser, no other
limited liability company action on the part of Purchaser or its stockholders
being necessary other than approval prior to Closing by Purchaser's Investment
Committee of any changes in this Agreement and the Operative Agreements from the
drafts presented to the Board at its September 22, 1999 meeting. This Agreement
has been duly and validly executed and delivered by Purchaser and constitutes,
and upon the execution and delivery by Purchaser of the Operative Agreements to
which it is a party, such Operative Agreements will constitute, legal, valid and
binding obligations of Purchaser enforceable against Purchaser in accordance
with their respective terms, subject only to ratification prior to Closing by
Purchaser's Investment Committee.
4.03. Issuance of Purchaser Common Shares The Purchaser Common Shares
to be issued to Sellers by Purchaser pursuant to this Agreement have been duly
authorized and will upon issuance be validly issued, fully paid and
nonassessable and will not be subject to any preemptive rights created by
statute, Purchaser's Amended and Restated Certificate of Formation and Operating
Agreement, by-laws, or other equivalent organizational documents or any other
agreement. The Purchaser Common Shares issued to Sellers pursuant to this
Agreement shall be free of any Liens or other defects in title.
4.04. No Conflicts. The execution and delivery by Purchaser of this
Agreement do not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the Amended and Restated
Certificate of Formation and Operating Agreement or by-laws of Purchaser;
(b) subject to obtaining the consents, approvals and
actions, making the filings and giving the notices disclosed in Schedule 4.05
hereto, conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Purchaser or any of its Assets and
Properties; or
(c) except as disclosed in Schedule 4.04 hereto, (i)
conflict with or result in a violation or breach of, (ii) constitute (with or
without notice or lapse of time or both) a default under, (iii) require
Purchaser to obtain any consent, approval or action of, make any filing with or
give any notice to any Person as a result or under the terms of, or (iv) result
in the creation or imposition of any Lien upon Purchaser or any of its Assets
and Properties under, any Contract or License to which Purchaser is a party or
by which any of its Assets and Properties is bound.
4.05. Governmental Approvals and Filings. Except as disclosed in
Schedule 4.05 hereto, no consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority on the part of Purchaser is required
in connection with the execution, delivery and performance of this Agreement or
the Operative Agreements to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
4.06. Legal Proceedings. There are no Actions or Proceedings pending
or, to the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Assets and Properties which could reasonably be expected
to result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
4.07. Purchase for Investment. The Shares will be acquired by Purchaser
(or, if applicable, its assignee pursuant to Section 11.10(b)) for its own
account for the purpose of investment, it being understood that the right to
dispose of such Midland Shares shall be entirely within the discretion of
Purchaser (or such assignee, as the case may be). Purchaser (or such assignee,
as the case may be) will refrain from transferring or otherwise disposing of any
of the Shares, or any interest therein, in such manner as to cause Sellers to be
in violation of the registration requirements of the Securities Act of 1933, as
amended, or applicable state securities or blue sky laws.
4.08. Brokers. Except for Robert A. Stanger & Co., Inc., whose fees,
commissions and expenses are the sole responsibility of Purchaser, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Purchaser directly with Sellers without the
intervention of any Person on behalf of Purchaser in such manner as to give rise
to any valid claim by any Person against Sellers, the Company or any Subsidiary
for a finder's fee, brokerage commission or similar payment.
4.09 Disclosure. Purchaser has kept current public information
available within the meaning of Rule 144(c) of the regulations under the
Securities Act. Purchaser has prior to the date hereof, and will file with the
Securities and Exchange Commission ("SEC") in a timely manner all reports and
other documents and information required of the Purchaser under the Securities
Exchange Act of 1934, as amended, and is eligible to register the Purchaser
Common Shares on Form S-3. All filings made by Purchaser with the SEC and all
press releases issued by the Purchaser were true, correct and complete in all
material respects when filed or released, and, except as disclosed in subsequent
filings with the SEC, since the date of each such filing or press release, there
has been no material adverse change in any of the information contained therein.
4.10 Financial Statements. Each of the consolidated financial
statements (including, in each case, any notes and schedules thereto) contained
in the Purchaser's SEC filing complies as to form with the applicable accounting
requirements and rules and regulations of the SEC and was prepared in accordance
with GAAP (except as may be indicated in the notes thereto), and each presented
the consolidated financial position, results of operations and cash flows of
Purchaser and the consolidated subsidiaries of Purchaser as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year end adjustments which were not, and are not expected to have,
a material adverse effect on the business, operations, results of operations, or
the condition (financial or otherwise) of Purchaser and its subsidiaries, taken
as a whole.)
4.11 Organizational Documents. Purchaser has heretofore made available
to the Sellers complete and correct copies of its Amended and Restated
Certificate of Formation and Operating Agreement, Bylaws or equivalent
organization documents, each as amended as of the date hereof. Each such
organizational document is in full force and effect. Purchaser is not in
violation in any material respect of any provision of its Certificate of
Formation and Operating Agreement, Bylaws, or other equivalent organizational
documents.
4.12 SEC Filings. Purchaser has heretofore made available to the
Sellers complete and correct copies of (i) all agreements, documents and other
instruments not yet filed by Purchaser with the SEC but that are currently in
effect and that Purchaser expects to file with the SEC after the date of this
Agreement, and (ii) all amendments and modifications that have not been filed by
Purchaser with the SEC to all agreements, documents and other instruments that
previously had been filed with the SEC and are currently in effect.
4.13 Tax Matters. Purchaser is and always has been classified as a
partnership for Federal income tax purposes. Accordingly, Purchaser is not and
never has been liable for Federal income tax. Purchaser has timely filed (after
giving effect to any applicable extensions) all Tax Returns required to be filed
by Purchaser under applicable law in a manner which is true, complete and
correct in all material respects and has, within the time prescribed by law,
paid all other Taxes (i.e., all Taxes other than Federal income tax) shown to be
due and payable on such Tax Returns. Historically, Purchaser has made quarterly
distributions to the holders of its common shares in an aggregate amount no less
than the taxable income of Purchaser allocable to such holders for any given
year multiplied by the highest rate of Federal income tax applicable to
individuals for such prior year, and Purchaser has no current intent to alter
its historical distribution practices. Purchaser makes no assurance whatsoever
as to its future tax status or distribution practices.
4.14 Knowledge. Purchaser does not have any actual knowledge of any
facts or circumstances that would make any of the representations or warranties
of Sellers in this Agreement untrue or misleading.
4.15 Purchaser's Expertise and Investigation.
(a) Purchaser is an informed and sophisticated purchaser,
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investment under this
Agreement and has engaged expert legal, financial, tax, business and other
advisors, experienced in the evaluation and purchase of companies such as the
Company.
(b) Purchaser has undertaken such investigation as it
deems necessary or appropriate to enable it to make an informed and intelligent
decision with regard to this Agreement and the transactions contemplated by this
Agreement.
(c) Purchaser acknowledges and agrees that, in entering
this Agreement and acquiring the Company and in consummating the other
transactions contemplated by this Agreement:
(i) Purchaser has relied and will rely solely upon
its own investigation and analysis, the representations and warranties
contained in Article III of this Agreement, and the genuineness and
completeness of all records of the Company and its Subsidiaries which
have been furnished to Purchaser for its review (and, without limiting
the generality of the foregoing, not on any information learned or
provided in connection with any presentation made by Sellers, their
investment bankers or other non-employee representatives of the Company
or the Subsidiaries.)
(ii) Neither the Sellers, the Company nor the
Subsidiaries (nor their investment bankers or any of their other
representatives) has made any representation or warranty except as
expressly set forth in Article III of this Agreement.
(iii) None of the Sellers, the Company or the
Subsidiaries (nor their investment bankers or any of their other
representatives) will have any liability to Purchaser (or any of its
other Representatives) on any basis based upon any information made
available or statements made except for those expressly contained in
Article III of this Agreement and only in accordance with this
Agreement.
(iv) On or prior to the date of this Agreement and on
or prior to the Closing Date, Purchaser and its Representatives have
had full access to, and have been furnished with all information and
documentation regarding, the Company and the Subsidiaries, their
respective businesses, their respective prospects, the Midland Shares,
this Agreement and the transactions contemplated by this Agreement,
including all of the facilities, assets, properties, books, leases,
agreements, commitments, Contracts, records and personnel of the
Company and the Subsidiaries, including all information which Purchaser
considers necessary or advisable to enable it to make a decision
concerning its purchase of the Midland Shares and all other information
as Purchaser has requested, so that Purchaser has had a full
opportunity to review the business, financial, accounting and legal
matters relating to all of the foregoing.
4.16 MESC Notice. At least two business days prior to the date of this
Agreement, Purchaser has received a true and complete copy of MESC Form 1027
entitled "Business Transferors Notice to Transferee of Unemployment Tax
Liability and Rate" in accordance with the provisions of applicable law.
ARTICLE V
COVENANTS OF SELLERS
Sellers, jointly and severally, covenant and agree with Purchaser that,
at all times from and after the date hereof, for the period specified herein or,
if no period is specified herein, indefinitely, Sellers will comply with all
covenants and provisions of this Article V, except to the extent Purchaser may
otherwise give its prior consent in writing.
5.01. Regulatory and Other Approvals. Sellers will, and will cause the
Company and the Subsidiaries to, (a) use commercially reasonable efforts, as
promptly as practicable to obtain all consents, approvals or actions of, to make
all filings with and to give all notices to Governmental or Regulatory
Authorities or any other Person required of Sellers, the Company or any
Subsidiary to consummate the transactions contemplated hereby, including,
without limitation, those described in Schedules 3.06 or 3.07, (b) provide such
other information and communications to such Governmental or Regulatory
Authorities or other Persons as Purchaser or such Governmental or Regulatory
Authorities or other Persons may reasonably request and (c) cooperate with
Purchaser as promptly as practicable in obtaining all consents, approvals or
actions of, making all filings with and giving all notices to Governmental or
Regulatory Authorities or other Persons required of Purchaser to consummate the
transactions contemplated hereby. Sellers will provide prompt notification to
Purchaser when any such consent, approval, action, filing or notice referred to
in clause (a) above is obtained, taken, made or given, as applicable, and will
advise Purchaser of any communications (and, unless precluded by Law, provide
copies of any such communications that are in writing) with any Governmental or
Regulatory Authority or other Person regarding any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
5.02. Books and Records. At Closing, Sellers will deliver or make
available to Purchaser at the offices of the Company and the Subsidiaries all of
the Books and Records, and if at any time after the Closing Sellers discover in
their possession or under their control any other Books and Records, they will
forthwith deliver such Books and Records to Purchaser.
5.03. Notice and Cure. Sellers will notify Purchaser promptly in
writing of, and contemporaneously will provide Purchaser with true and complete
copies of any and all information or documents relating to, and will use
commercially reasonable efforts to cure, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Sellers under this Agreement to be breached or that
renders or will render untrue any representation or warranty of Sellers
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance.
5.04. Continued Access. Between the date of this Agreement and the date
of Closing, Sellers will afford Purchaser and its advisors reasonable access to
the personnel, properties, Contracts, Books and Records, and other documents and
data of the Company and its Subsidiaries. ...Any such access will be provided,
and all such inspections will be conducted, at reasonable times and in such a
manner as not to interfere with the operations of the Company or the
Subsidiaries.
5.05. Operation of the Business Prior to Closing. Between the date of
this Agreement and the date of Closing, Sellers will, and will cause the Company
and each Subsidiary to (a) conduct the business of the Company and each
Subsidiary in the ordinary course of business, (b) use reasonable efforts to
preserve intact the current business organization of the Company and its
Subsidiaries, keep available the services of the current officers and employees
of the Company and its Subsidiaries, and maintain the contractual relations and
good will of the Company and its Subsidiaries with MAHGT, Fannie Mae, GNMA, HUD,
FHLA, tax credit investors, borrowers, landlords, creditors and others having
business relationships with the Company and its Subsidiaries, and (c) not
undertake any matters outside the ordinary course of business without the prior
written consent of Purchaser which consent shall not be unreasonably withheld or
delayed and if not withheld or given within seven days of notice of such
undertaking shall be deemed given. An action shall be deemed to be in the
ordinary course of business only if it is consistent with past practice.
5.06. Disclosure; Shopping. Sellers shall not make any disclosure of
the existence or terms of this Agreement without the prior approval of
Purchaser. Sellers will not, and shall cause the Company and each Subsidiary not
to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, or discuss or negotiate with, any Person relating to any
transaction involving the sale of the business or Assets or Properties of the
Company or any Subsidiary or the capital stock of the Company or any Subsidiary.
5.07 Tax Credit Entities; Ownership and Control.
(a) Sellers agree that they will take no steps to remove,
and will vote their ownership interests (in whatever form) to prevent the
removal of, Midland Equity Corporation (or any other Subsidiary of the Company)
as general partner (or as general partner of a general partner) of any Tax
Credit Partnership or of any Operating Partnership in which it serves as general
partner, unless Midland Equity Corporation (or such other Subsidiary of the
Company) defaults in its obligations under the relevant partnership agreement
and none of the Sellers is on the Board of Directors of, or is an officer or
employee of, such defaulting entity.
(b) The provisions of this Section 5.07 shall survive
Closing for as long as any Seller is an employee, officer or director of
Purchaser or any of its Subsidiaries.
5.08 Updating of Schedules.
(a) Between the date of this Agreement and the Business
Day immediately preceding the Closing Date, Sellers will from time to time
deliver to Purchaser updated Disclosure Schedules showing any changed facts,
circumstances or information from the matters disclosed in the Disclosure
Schedules to this Agreement necessary to make the representations and warranties
set forth in Article III above true and complete (irrespective of whether any
particular section of this Agreement calls for a Schedule to such section) which
shall be deemed an amendment to this Agreement.
(b) If the information contained in any Disclosure
Schedules or updates thereto delivered between the date of this Agreement and
the Closing Date, or if the underlying documents referenced therein or related
thereto, could, in Purchaser's sole discretion, have a Material Adverse Effect,
Purchaser shall have the option, as its sole and exclusive remedy, to terminate
this Agreement by written notice to Sellers delivered within five (5) Business
Days of Purchaser's receipt of such information, and no party shall thereafter
have any liability to any other party.
5.09 Affiliate Transactions.
(a) Beginning on the date of this Agreement, Sellers
shall advise Purchaser of all material transactions between Sellers on the one
hand, and the Company, the Purchaser or any of their Subsidiaries on the other
hand. In addition, during the term of their respective employment agreements,
each Seller shall give Purchaser at least five (5) Business Days notice of any
proposed transactions involving the acquisition or disposition of Purchaser's
Common Shares and shall conduct all transactions so as to comply with all
applicable securities laws.
(b) No later than December 31, 1999, Sellers will cause
the Company and its Subsidiaries, on the one hand, and Sellers and their family
members, family trusts and related persons, on the other hand to repay in full
all debt owed by either group to the other.
5.10 Closing Share Restrictions. Banks and Gloeckl shall retain
ownership of their Purchaser Closing Shares for a period of three years from the
Closing Date. For one year thereafter, Messrs. Banks and Gloeckl shall retain
ownership of Purchaser Closing Shares having a value of at least $3 million and
$1 million respectively. Mathis shall retain ownership of his Purchaser Closing
Shares for a period of one year. Each Seller may, at any time, pledge or
encumber his Purchaser Closing Shares to secure personal borrowings.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Sellers that, at all times from and
after the date hereof, Purchaser will comply with all covenants and provisions
of this Article VI, except to the extent Sellers may otherwise consent in
writing.
6.01. Regulatory and Other Approvals. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby, including, without limitation, those described in Schedule 4.05 hereto,
(b) provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as Sellers or such Governmental or
Regulatory Authorities or other Persons may reasonably request and (c) cooperate
with Sellers, the Company and the Subsidiaries as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authorities or other Persons
required of Sellers, the Company or any Subsidiary to consummate the
transactions contemplated hereby and by the Operative Agreements. Purchaser will
provide prompt notification to Sellers when any such consent, approval, action,
filing or notice referred to in clause (a) above is obtained, taken, made or
given, as applicable, and will advise Sellers of any communications (and, unless
precluded by Law, provide copies of any such communications that are in writing)
with any Governmental or Regulatory Authority or other Person regarding any of
the transactions contemplated by this Agreement.
6.02. Notice and Cure. Purchaser will notify Sellers promptly in
writing of, and contemporaneously will provide Seller with true and complete
copies of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Purchaser under this Agreement to be breached or that
renders or will render untrue any representation or warranty of Purchaser
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein or shall in any way limit Sellers' right to
seek indemnity under Article X.
6.03 Limitation of Sellers' Liabilities. Purchaser will take all
necessary actions to insure that Sellers have no obligations or liabilities
whatsoever relating to the Company or the Subsidiaries or their respective
businesses, properties or assets, as the same may exist on or prior to the
Closing Date or arise thereafter (other than liabilities arising under or
expressly preserved under this Agreement and liabilities arising from the
Sellers' own tortuous conduct). Purchaser will cooperate with Sellers, both
before and after the Closing, by taking, and after the Closing causing the
Company and the Subsidiaries to take, all actions Sellers reasonably request to
effectuate the termination of any such obligation or liability asserted against
or imposed on Sellers, including Purchaser's using its best efforts to provide a
substitute guaranty or other arrangement to release Sellers from any such
liability or obligation.
6.04 Employees. Purchaser will cause the Company and the Subsidiaries
to continue to employ, for a period of at least one year after the Closing Date,
those employees of the Company and the Subsidiaries listed on Schedule 6.04 on
terms and conditions, including compensation and benefits, at least comparable
to those in effect at or immediately prior to the Closing; provided that the
foregoing will not preclude the Company or the Subsidiaries from terminating any
of such employees for cause during such period. Purchaser will use commercially
reasonable efforts to retain all other employees of the Company and its
Subsidiaries for a period of one year on comparable terms and conditions to
those in effect prior to the Closing Date, but all such employees will remain
"at will" employees.
6.05 Post-Closing Operations of the Company and the Subsidiaries.
Following the Closing and until September 30, 2002, Purchaser shall not take any
action the sole purpose of which is to reduce the income or increase the
expenses of the Company and its Subsidiaries (on a consolidated basis), other
than such decreases in income and increases in expenses as can be adjusted for
in calculating Net Income under Section 2.04, without the prior written consent
of the Sellers. Nothing in this Agreement shall be deemed or construed to
preclude Purchaser from operating the Company and its Subsidiaries in a manner
consistent with Purchaser's overall business plan and in compliance with all
applicable Laws, Contracts and standards imposed by third parties, such as
FannieMae.
6.06 704(c) Gain.. Purchaser has not adopted, and will not adopt, any
method for reconciling the difference between the value and tax basis of the
Midland Shares under Section 704(c) of the Code which would result in such
difference being reconciled, or Sellers otherwise being allocated a
disproportionate amount of Purchaser's income or gain, prior to Purchaser's
disposition of the Midland Shares.
article vii
TAX MATTERS AND POST-CLOSING TAXES
7.01. Pre-Closing Tax Returns. Sellers shall prepare or cause to be
prepared, and file or cause to be filed all Tax Returns or claims for refund of
the Company for all taxable periods of the Company ending on or prior to the
Closing Date ("Pre-Closing Tax Returns"). With respect to any such Pre-Closing
Tax Returns required to be filed by Sellers and not filed before the Closing
Date, Sellers shall provide Purchaser and its authorized representatives with
copies of any such completed Tax Return at least 15 Business Days prior to the
due date for filing of such Tax Return and Purchaser and its representatives
shall have the right to review (but not to require any change to) such Tax
Return prior to the filing of such Tax Return, which each Seller is hereby
irrevocably authorized to sign on behalf of the Company. All Taxes with respect
to such Tax Returns ("Pre-Closing Taxes") which exceed the accruals therefor as
shown on the Closing Audit shall be paid as follows. All such Taxes which are
federal income taxes shall be paid by Sellers; all other such Taxes shall be
paid by Purchaser or the Company and shall constitute a Loss to Purchaser for
purposes of Section 10.02. Purchaser shall not amend any Pre-Closing Tax Returns
without the Sellers' consent. Sellers shall not amend any such Tax Return
without the written approval of Purchaser, which approval may not be
unreasonably withheld.
7.02. Transfer Taxes. Purchaser shall pay one-half and Sellers shall
pay one-half of any and all sales, use, transfer, real property transfer,
recording, gains, stamp stock transfer and other similar taxes and fees
("Transfer Taxes") arising out of or in connection with the transactions
effected pursuant to this Agreement, and each shall indemnify, defend, and hold
harmless the other with respect to its proportionate share of such Transfer
Taxes. The party required by law to file all necessary documentation and Tax
Returns with respect to such Transfer Taxes shall do so.
7.03. Post-Closing Taxes and Sellers' Post-Closing Taxes.
(a) Purchaser shall timely prepare and file (or cause to
be prepared and filed) all Tax Returns required by law for all Taxes covering
the Company for periods ending after the date of Closing, including periods
which include a period prior to the date of Closing ("Post-Closing Tax
Returns"). Purchaser will determine in good faith the basis on which all
Post-Closing Tax Returns are to be filed. Purchaser shall timely pay or cause to
be paid all Taxes relating to Post-Closing Tax Returns ("Post-Closing Taxes").
(b) For purposes of determining the adequacy of the
accruals for Taxes on the Company's balance sheets as of the date of the Closing
Audit (prepared in accordance with GAAP), the amount of any Taxes for a period
beginning before and ending after the date of the Closing Audit which shall be
deemed to have accrued on or before the date of the Closing Audit ("Sellers'
Post-Closing Taxes") shall be:
(i) in the case of any real or personal property Tax,
an amount equal to the Tax for the Assets and Properties owned by the Company or
any Subsidiary on the date of the Closing Audit for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in the
entire taxable period ending on the date of the Closing Audit and the
denominator of which is the number of days in the entire taxable period;
(ii) in the case of any other Tax, the amount that
would be payable by the Company or any Subsidiary if its taxable year ended on
the date of the Closing Audit.
At least 30 days prior to the filing of any Post-Closing Tax Return which
includes any Sellers' Post-Closing Taxes, Purchaser shall provide Sellers with a
copy of the return along with Purchaser's calculation of Sellers' Post-Closing
Taxes related thereto and shall, at the request of Sellers, during the following
30 days consult with Sellers concerning such Post-Closing Tax Return.
(c) Upon the filing of the Post-Closing Tax Returns,
Sellers shall pay to Purchaser any of Seller's Post-Closing Taxes which
constitute federal income taxes to the extent such Taxes exceed the accruals
therefor as shown on the Closing Audit; all of Seller's Post- Closing Taxes
which are not federal income taxes shall be paid by Purchaser or the Company and
shall constitute a Loss to Purchaser for purposes of Section 10.02.
7.04. Notification of Audits. Purchaser shall promptly notify Sellers
in writing upon receipt by Purchaser of notice of (i) any pending or threatened
federal, state, local or foreign Tax audits or assessments of the Company, so
long as any period relating to Pre-Closing Taxes remains open, and (ii) any
pending or threatened federal, state, local or foreign Tax audits or assessments
of the Purchaser which may affect the Tax liabilities of the Company, in each
case for periods relating to Pre-Closing Taxes only.
7.05. Maintenance of Records. After the date of Closing, Purchaser and
Sellers shall make available to the other, as reasonably requested, all
information, records or documents relating to Tax liabilities or potential Tax
liabilities of Sellers, any Affiliate of Sellers or the Company or any
Subsidiary for any period commencing before the Closing Date and for the portion
of any period allocated to Sellers under Section 7.03, and shall preserve all
such information, records and documents until the expiration of any applicable
statute of limitations, including extensions thereof, or such other period as
required by Law. Purchaser and Sellers shall also make available to each other
as reasonably requested by Purchaser or Sellers, as the case may be, personnel
responsible for preparing or maintaining information, records and documents, in
connection with Tax matters. In case at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement, the
parties hereto shall take all such necessary action.
7.06. Purchase Price Adjustment Any payments made to Sellers, the
Company or Purchaser pursuant to this Article VII shall constitute an adjustment
of the Purchase Price for Tax purposes and shall be treated as such by Purchaser
and Sellers on their Tax Returns to the extent permitted by law.
7.07. Tax Sharing Agreements. All Tax sharing or similar agreements, if
any, to which the Company or its Subsidiaries is a party will be cancelled at or
prior to the Closing and neither the Company, its Subsidiaries nor Purchaser
shall not be bound thereby or have any obligation thereunder.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 Conditions to Purchaser's Performance. Purchaser's obligation to
proceed to Closing shall be conditioned upon the satisfaction (or the waiver in
writing by Purchaser) of each of the following:
(a) Michael L. Falcone shall have been elected as a trustee
of the Trust effective as of the Closing.
(b) Sellers shall have obtained and delivered to Purchaser
written consent to the Transaction of FannieMae and the Trust and each other
Person listed on Schedule 8.01.
(c) Each of Sellers' representations and warranties set
forth in Article III shall be true and correct in all material respects and
Sellers shall so certify in writing at Closing.
(d) Sellers shall be in a position to deliver to Purchaser
certificates evidencing the Midland Shares and good and valid title to the
Shares, free and clear of all Liens.
(e) Sellers shall have performed in all material respects
all obligations and agreements and complied with all covenants in this Agreement
or in any Operative Agreement to be performed and complied with by any of
Sellers at or before Closing and Sellers shall so certify in writing at Closing.
(f) Each of Sellers shall have executed and delivered to
Purchaser that employment agreement in the form attached hereto as Exhibit B and
intended to be executed by him (collectively, the "Employment Agreements"). The
Employment Agreements shall provide collectively for an annual salary before
incentive compensation of $650,000 to be divided among the Sellers (and any
replacement for Ray Mathis after his contract expires) as the Sellers may
decide.
(g) Purchaser shall have received certificates of good
standing for the Company and each of its Subsidiaries for the States of Florida,
Michigan, California and Texas and each other state listed on Schedule 3.03,
each such certificate of good standing to be dated as of a date not more than 30
days prior to the Closing Date.
(h) Purchaser shall have received an estoppel certificate
from the lessor under the real property lease for the Company's Florida offices.
(i) There shall not have occurred any material adverse
change in the Business or Condition of the Company since the Unaudited Financial
Statement Date, and with respect to the Assets and Properties of the Company
there have been no payment defaults and no occurrence which if not waived would
result in a payment default.
(j) All notice periods shall have elapsed or otherwise
been terminated under the HSR Act.
(k) There shall not have been commenced or threatened
against Sellers, Purchaser or any Affiliate of either any Action of Proceeding
(i) involving any challenge to, or seeking damages or other relief in connection
with any of the transactions contemplated hereby or (ii) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of such transactions.
(l) There shall not have been made or threatened by any
Person any claim asserting that such Person (i) is a holder or a beneficial
owner of, or has any Option with respect to, any of the stock, or any other
voting, equity or ownership interest in, the Company or any Subsidiary or (ii)
is entitled to all or any portion of the Purchase Price.
(m) Sellers shall have provided Purchaser with evidence
of the termination of that certain agreement known as Midland Financial
Holdings, Inc. Optional-Purchase Stock Agreement dated January 2, 1991 among the
Company and the Sellers.
8.02 Conditions to Sellers' Performance. Sellers' obligation to proceed
to Closing shall be conditioned upon the satisfaction (or the waiver in writing
by Sellers) of each of the following:
(a) Purchaser shall have obtained and delivered to
Sellers the written consent to the Transaction of each of the following: (i)
each Person whose consent to the Transaction is required by any Contract, Order
or Law by which Purchaser is bound or to which it is subject and (ii) the Board
of Directors of Purchaser.
(b) Each of Purchaser's representations and warranties
set forth in Article IV of this Agreement shall be true and correct in all
material respects and Purchaser shall so certify at Closing.
(c) Purchaser shall have performed in all material
respects all obligations and agreements and complied with all covenants in this
Agreement or in any Operative Agreement to be performed and complied with by
Purchaser at or before Closing and Purchaser shall so certify in writing at
Closing.
(d) Purchaser shall have executed and delivered to Sellers
the Employment Agreements.
(e) Purchaser shall have executed and delivered to Sellers
the Registration Rights Agreement (the "Registration Rights Agreement")
attached hereto as Exhibit C.
(f) All notice periods shall have elapsed or otherwise
been terminated under the HSR Act.
(g) There shall not have been commenced or threatened
against Sellers or any Affiliate of Sellers any Action or Proceeding (i)
involving any challenge to, or seeking damages or other relief in connection
with, any of the transactions contemplated hereby or (ii) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of such transactions.
(h) There shall not have occurred any adverse change in the
Business or Condition of the Purchaser since June 30, 1999 which would require
a filing by Purchaser with the SEC.
(i) Robert Banks shall have been elected to a three-year
term as a director of Purchaser, effective as of the Closing Date.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
9.01 Survival of Representations, Warranties, Covenants and Agreements.
Notwithstanding any right of Purchaser (whether or not exercised) to investigate
the affairs of the Company and the Subsidiaries or any right of any party
(whether or not exercised) to investigate the accuracy of the representations
and warranties of the other party contained in this Agreement, Sellers and
Purchaser have the right to rely fully upon the representations, warranties,
covenants and agreements of the other contained in this Agreement. The
representations, warranties, covenants and agreements of Sellers and Purchaser
contained in this Agreement will survive the Closing (a) indefinitely with
respect to the representations and warranties contained in Sections 3.02, 3.04,
3.05 (but only insofar as it relates to the capital stock of the Subsidiaries),
3.30, 4.02, 4.03, 4.07, 4.08 and 10.01(c), and the indemnity contained in
Section 10.01(b), (b) until six years after the Closing Date with respect to
matters covered by Sections 3.10, 4.01, 4.13, 6.06, 10.01(a) and 10.02(d), (c)
until one year after the date of Closing in the case of Section 3.13 and all
other representations and warranties and any covenant or agreement to be
performed in whole or in part on or prior to the Closing or (d) with respect to
each other covenant or agreement contained in this Agreement, for a period
comparable to that used in clause (c) following the last date on which such
covenant or agreement is to be performed or, if no such date is specified,
indefinitely, except that any representation, warranty, covenant or agreement
that would otherwise terminate in accordance with clause (b), (c) or (d) above
will continue to survive if a Claim Notice or Indemnity Notice (as applicable)
shall have been timely given under Article X on or prior to such termination
date, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article X.
9.02 Certain Purchase Rights. In the event of a Business Combination as
defined in Section 12.1 of Purchaser's Amended and Restated Certificate of
Formation and Operating Agreement which does not meet the voting requirements of
either Section 12.2 or Section 12.3(b)(i) of such Operating Agreement, the
members of the Board of Directors of the Company, as constituted immediately
prior to the effective date of such Business Combination, shall have the right
to acquire the Company and its Subsidiaries from Purchaser for the fair value of
the Company and its Subsidiaries. Fair value shall be determined by Robert A.
Stanger & Co., Inc., or if it shall no longer be in the business of performing
such valuations for real estate lending companies, then by a firm which is an
expert in such valuations and which is mutually agreeable to Purchaser and such
Board members. The Board members shall notify Purchaser in writing within ten
(10) Business Days after the Board members have notice of the Control Company
Interests Acquisition or Business Combination that they wish to exercise their
rights hereunder. Within ten (10) Business Days after their receipt of the
determination of fair value, the Board members shall notify Purchaser whether
they wish to proceed. If they elect to proceed, the purchase shall be
consummated within one hundred twenty (120) days of such election, at which time
the purchase price shall be paid in cash and Purchaser shall deliver such bills
of sale, stock certificates and other instruments of title as may be necessary
to convey complete ownership of the Company and its Subsidiaries and their
respective assets and properties to the Board members or their designees. During
the period between valuation and closing, Purchaser shall take no action outside
the ordinary course of business which could have a Material Adverse Effect on
the value of the Company and its Subsidiaries. This Section 9.02 shall survive
the Closing for a period of twenty (20) years.
ARTICLE X - INDEMNIFICATION
10.01. Tax Indemnifications.
(a) Sellers will indemnify and hold harmless Purchaser
and the Company from and against liability for Pre-Closing Taxes and Sellers'
Post-Closing Taxes in accordance with Sections 7.01 and 7.03(c).
(b) Purchaser agrees to promptly indemnify and reimburse
Sellers for all federal income taxes which they are required to pay as a result
of a determination by IRS that the delivery of the Purchaser Closing Shares or
the Earn-out Shares is a recognition event for federal income tax purposes, or
if any payment of Earn-out Shares is made in cash under Section 2.04(e). The
amount of the indemnity shall be the amount of tax which the Sellers are
required to pay to the IRS as a consequence of the foregoing, plus an amount
sufficient to pay any additional tax the Sellers are required to pay on account
of such payment, plus any interest and penalties the Sellers are required to
pay. If, in lieu of Earn-Out Shares, Purchaser at any time pays cash to Sellers
pursuant to Section 2.04(e) of this Agreement, then Purchaser shall also pay in
cash, at the same time, an amount equal to the amount of tax which the Sellers
are required to pay to the IRS as a consequence of the foregoing, plus an amount
sufficient to pay any additional tax the Sellers are required to pay on account
of such payment, plus any interest and penalties the Sellers are required to
pay.
(c) Unless and until the IRS shall notify Sellers in
writing to the contrary, Sellers shall treat delivery of the Purchaser Closing
Shares and the Earn-out Shares as non-recognition events under Section 721 of
the Code neither Sellers nor Purchaser and shall take any action inconsistent
with such treatment.
10.02. Other Indemnification.
(a) Sellers shall, jointly and severally, indemnify
Purchaser and its officers, directors, employees, agents and Affiliates in
respect of, and hold each of them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Sellers contained in this Agreement.
(b) Purchaser agrees to indemnify Sellers and hold each
of them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Purchaser contained in this Agreement.
(c) No amounts shall be payable as a result of any claim
arising under Sections 10.01(a) or 10.02(a) unless and until the Indemnified
Parties thereunder have suffered, incurred, sustained or become subject to
Losses referred to in such Section in excess of $1,000,000 in the aggregate, in
which event the Indemnified Parties shall only be entitled to seek indemnity
from Sellers for the amount of losses in excess of $1,000,000, provided that
this paragraph (c) shall not limit Purchaser's right to indemnity resulting from
a misrepresentation or breach of warranty by Sellers contained in Sections 3.02,
3.04 and 3.24.
Notwithstanding anything to the contrary contained in this Agreement,
in no event shall Sellers' aggregate liability under this Agreement exceed $10
million.
(d) Sellers shall indemnify and hold Purchaser, the
Company and its Subsidiaries harmless from any and all Loss on any construction
loans made by the Company or its Subsidiaries on those certain projects known as
Manhattan Square and the Capstone transaction in Eugene, Oregon. This indemnity
shall not be subject to the limitations of Section 10.02(c).
(e) The remedies provided in Sections 10.01(a), 10.02(a)
and 10.02(d) constitute the exclusive remedy against Sellers for any claim in
connection with this Agreement.
10.03. Method of Asserting Claims. All claims for indemnification by
any Indemnified Party under Section 10.02 will be asserted and resolved as
follows:
(a) In the event any claim or demand in respect of which
an Indemnifying Party might seek indemnity under Section 10.02 is asserted
against or sought to be collected from such Indemnified Party by a Person other
than Sellers, the Company, any Subsidiary, Purchaser or any Affiliate of Sellers
or Purchaser (a "Third Party Claim"), the Indemnified Party shall deliver a
Claim Notice with reasonable promptness to the Indemnifying Party. If the
Indemnified Party fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third Party Claim, the
Indemnifying Party will not be obligated to indemnify the Indemnified Party with
respect to such Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been prejudiced by such failure of the Indemnified Party.
(i) The Indemnifying Party will have the right upon
notice to the Indemnified Party to defend, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings, which
proceedings will be prosecuted by the Indemnifying Party to a final conclusion
or will be settled at the discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party, which shall not be unreasonably withheld
or delayed, in the case of any settlement that provides for any relief other
than the payment of monetary damages. The Indemnifying Party will have full
control of such defense and proceedings, including any compromise or settlement
thereof; provided, however, that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this clause (i),
file any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to protect
its interests; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in
contesting any Third Party Claim that the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 10.02 with respect
to such Third Party Claim and agrees to indemnify and hold the Indemnifying
Party harmless from any Losses results from such Third Party Claim.
(ii) If the Indemnifying Party fails to prosecute
reasonably diligently the Third Party Claim, then the Indemnified Party will
have the right to defend, at the sole cost and expense of the Indemnifying
Party, the Third Party Claim by all appropriate proceedings, which proceedings
will be prosecuted by the Indemnified Party in a diligent manner and in good
faith and may be settled at the discretion of the Indemnified Party (with the
consent of the Indemnifying Party, which consent may be withheld or given at the
Indemnifying Party's discretion). The Indemnified Party will have full control
of such defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party will bear its own costs and expenses with respect to such
participation. If the Indemnifying Party disputes its liability with respect to
the Third Party Claim under Section 10.02, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute, and if such claim is less than $1,000,000 and is not resolved through
negotiations within the Resolution Period, such dispute shall be resolved by
arbitration in accordance with paragraph (d) of this Section 10.03.
(b) In the event any Indemnified Party should have a
claim under Section 10.02 against any Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that an Indemnifying Party has been irreparably
prejudiced thereby. If the Indemnifying Party disputes its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party will
proceed in good faith to negotiate a resolution of such dispute, and if such
claim is less than $1,000,000 and is not resolved through negotiations within
the Resolution Period, such dispute shall be resolved by arbitration in
accordance with paragraph (d) of this Section 10.03.
(c) In the event of any Loss in excess of $100,000,
resulting from a misrepresentation, breach of warranty or nonfulfillment or
failure to be performed of any covenant or agreement contained in this Agreement
as to which an Indemnified Party would be entitled to claim indemnity under
Section 10.02 but for the provisions of paragraph (c) thereof, such Indemnified
Party may nevertheless deliver a written notice to the Indemnifying Party
containing the information that would be required in a Claim Notice or an
Indemnity Notice, as applicable, with respect to such Loss. If the Indemnifying
Party notifies the Indemnified Party that it does not dispute the claim
described therein or fails to notify the Indemnified Party within the Dispute
Period whether the Indemnifying Party disputes the claim described in such Claim
Notice or Indemnity Notice, as the case may be, the Loss specified in the notice
will be conclusively deemed to have been incurred by the Indemnified Party for
purposes of making the determination set forth in paragraph (c) of Section
10.02. If the Indemnifying Party has timely disputed the claim described in such
Claim Notice or Indemnity Notice, as the case may be, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if less than $1,000,000 and not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by arbitration in
accordance with paragraph (d) of this Section 10.03.
(d) Any dispute submitted to arbitration pursuant to
this Section 10.03 shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three members (hereinafter sometimes
called the "Board of Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one (1) member and the
third member shall be selected by mutual agreement of the other members, or if
the other members fail to reach agreement on a third member within twenty days
after their selection, such third member shall thereafter be selected by the
American Arbitration Association upon application made to it for such purpose by
the Indemnified Party. The Board of Arbitration shall meet in Tampa Bay,
Florida, or Baltimore, Maryland, as a majority of the members of the Board of
Arbitration may determine, and shall reach and render a decision in writing
(concurred in by a majority of the members of the Board of Arbitration) with
respect to the amount, if any, which the Indemnifying Party is required to pay
to the Indemnified Party in respect of a claim filed by the Indemnified Party.
In connection with rendering its decisions, the Board of Arbitration shall adopt
and follow such rules and procedures as a majority of the members of the Board
of Arbitration deems necessary or appropriate. To the extent practical,
decisions of the Board of Arbitration shall be rendered no more than thirty
calendar days following commencement of proceedings with respect thereto. The
Board of Arbitration shall cause its written decision to be delivered to the
Indemnified Party and the Indemnifying Party. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty calendar day
period) shall be final, binding and conclusive on the Indemnified Party and the
Indemnifying Party and entitled to be enforced to the fullest extent permitted
by law and entered in any court of competent jurisdiction. Each party to any
arbitration shall bear its own expense in relation thereto, including, but not
limited to, such party's attorneys' fees, if any, and the expenses and fees of
the member of the Board of Arbitration appointed by such party, provided,
however, that the expenses and fees of the third member of the Board of
Arbitration and any other expenses of the Board of Arbitration not capable of
being attributed to any one member shall be borne in equal parts by the
Indemnifying Party and the Indemnified Party Board of Arbitration shall be
divided between the Indemnifying Party and the Indemnified Party in the same
proportion as the portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to the portion of such
claim determined not to be so payable.
ARTICLE XI - MISCELLANEOUS
11.01. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
Municipal Mortgage & Equity LLC
218 North Charles Street, Suite 500
Baltimore, Maryland 21201-4019
Facsimile No.: 410-727-5387
Attn: Michael L. Falcone
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Facsimile No.: 212-878-8375
Attn: Robert E. King, Jr.
and a copy to:
Gallagher, Evelius & Jones, LLP
218 N. Charles Street, Suite 400
Baltimore, Maryland 21201
Facsimile No.: 410-837-3085
Attn: Stephen A. Goldberg
If to Sellers, to:
Robert J. Banks
Midland Financial Holdings, Inc.
33 N. Garden Avenue, Suite 1200
Clearwater, Florida 33755
Facsimile No.: 727-443-6067
and
Keith J. Gloeckl
Midland Financial Holdings, Inc.
33 N. Garden Avenue, Suite 1200
Clearwater, Florida 33755
Facsimile No.: 727-443-6067
and
Ray F. Mathis
Midland Financial Holdings, Inc.
33 N. Garden Avenue, Suite 1200
Clearwater, Florida 33755
Facsimile No.: 727-443-6067
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Facsimile No.: 313-465-7357
Attn: Gregory J. DeMars
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other party hereto.
11.02. Entire Agreement. This Agreement and the Operative Agreements
supersedes all prior discussions and agreements between the parties with respect
to the subject matter hereof and thereof, including, without limitation, that
certain letter of intent between the parties dated May 27, 1999, and contains
the sole and entire agreement between the parties hereto with respect to the
subject matter hereof and thereof.
11.03. Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each party will pay its own costs and expenses, and Sellers shall pay the costs
and expenses of the Company and the Subsidiaries, incurred in connection with
the negotiation, execution and closing of this Agreement and the transactions
contemplated hereby.
11.04. Public Announcements. Sellers and Purchaser will not issue or
make any reports, statements or releases to the public or generally to the
employees, customers, suppliers or other Persons to whom the Company and the
Subsidiaries sell goods or provide services or with whom the Company and the
Subsidiaries otherwise have significant business relationships with respect to
this Agreement or the transactions contemplated hereby without the consent of
the other, which consent shall not be unreasonably withheld. If either party is
unable to obtain the approval of its public report, statement or release from
the other party and such report, statement or release is, in the opinion of
legal counsel to such party, required by Law in order to discharge such party's
disclosure obligations, then such party may make or issue the legally required
report, statement or release and promptly furnish the other party with a copy
thereof. Sellers and Purchaser will also obtain the other party's prior approval
of any press release to be issued immediately following the execution of this
Agreement and upon Closing.
11.05. Confidentiality. Each party hereto will hold, and will use its
best efforts to cause its Affiliates and their respective Representatives to
hold, in strict confidence from any Person (other than any such Affiliate or
Representative), unless (i) compelled to disclose by judicial or administrative
process (including, without limitation, in connection with obtaining the
necessary approvals of this Agreement and the transactions contemplated hereby
of Governmental or Regulatory Authorities) or by other requirements of Law or
(ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit
of its rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided that the foregoing restrictions
will not apply to Purchaser's use of documents and information concerning the
Company and the Subsidiaries furnished by Sellers hereunder.
11.06. Further Assurances; Post-Closing Cooperation.
(a) At any time or from time to time after the Closing,
Sellers and Purchaser shall execute and deliver to Purchaser or Sellers, as the
case may be, such other documents and instruments, provide such materials and
information and take such other actions as Purchaser or Sellers may reasonably
request more effectively to vest title to the Midland Shares in Purchaser and,
to the full extent permitted by Law, to put Purchaser in actual possession and
operating control of the Company, the Subsidiaries, and the Tax Credit
Partnerships and their respective Assets and Properties and Books and Records,
and otherwise to cause Sellers to fulfill their obligations under this Agreement
and the Operative Agreements to which they are parties.
(b) Following the Closing, each party will afford the
other party, its counsel and its accountants, during normal business hours,
reasonable access to the books, records and other data relating to the Business
or Condition of the Company and the Subsidiaries in its possession with respect
to periods prior to the Closing and the right to make copies and extracts
therefrom, to the extent that such access may be reasonably required by the
requesting party in connection with (i) the preparation of Tax Returns, (ii) the
determination or enforcement of rights and obligations under this Agreement,
(iii) compliance with the requirements of any Governmental or Regulatory
Authority, (iv) the determination or enforcement of the rights and obligations
of any Indemnified Party or (v) in connection with any actual or threatened
Action or Proceeding. Further, each party agrees for a period extending six
years after the Closing not to destroy or otherwise dispose of any such books,
records and other data unless such party shall first offer in writing to
surrender such books, records and other data to the other party and such other
party shall not agree in writing to take possession thereof during the ten day
period after such offer is made.
(c) If, in order properly to prepare its Tax Returns,
other documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business or Condition of the Company not referred to
in paragraph (b) above, and such information, documents or records are in the
possession or control of the other party, such other party shall use its best
efforts to furnish or make available such information, documents or records (or
copies thereof) at the recipient's request, cost and expense. Any information
obtained by Sellers in accordance with this paragraph shall be held confidential
by Sellers in accordance with Section 11.05.
(d) Notwithstanding anything to the contrary contained in
paragraphs (b) and (c) of this Section, if the parties are in an adversarial
relationship in litigation or arbitration, the furnishing of information,
documents or records in accordance with any provision of this Section shall be
subject to applicable rules relating to discovery.
11.07. Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.08. Amendment. Except as set forth in Section 5.08, this Agreement
may be amended, supplemented or modified only by a written instrument duly
executed by or on behalf of each party hereto.
11.09. No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article X.
11.10. No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except that Purchaser may assign any or all of its rights,
interests and obligations hereunder (including, without limitation, its rights
under Article X) to a wholly-owned subsidiary, provided that any such subsidiary
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein, but no such assignment shall relieve Purchaser of its
obligations hereunder. Subject to the preceding sentence, this Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and assigns.
11.11. Headings; Exhibits. The headings used in this Agreement or in
any Schedules have been inserted for convenience of reference only and do not
define or limit the provisions hereof. Reference herein to Exhibits, unless
indicated, shall refer to the Exhibits attached to this Agreement, which hereby
are incorporated in and constitute a part of this Agreement.
11.12. Breach, Abandonment, Termination. If any party shall fail to
fulfill its obligations hereunder, including without limitation its obligations
to close and to satisfy those conditions to Closing which are its
responsibility, the other parties shall have all remedies available to them at
law or in equity, including the right to specific performance.
11.13. Consent to Jurisdiction and Service of Process. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the United
States District Court for Northern District of Maryland and the Middle District
of Florida or any state court located in Baltimore City, Maryland or Tampa Bay,
Florida in any such action, suit or proceeding, and agrees that any such action,
suit or proceeding shall be brought only in such court (and waives any objection
based on forum non conveniens or any other objection to venue therein). Nothing
herein shall affect the right of any party to serve process in any other manner
permitted by Law or to commence legal proceedings or otherwise proceed against
the other in any other jurisdiction.
11.14. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
11.15. Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Maryland applicable to a Contract
executed and performed in such State without giving effect to the conflicts of
laws principles thereof.
11.16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by each
party hereto as of the date first above written.
SELLERS:
By: /s/ ROBERT J. BANKS
Robert J. Banks
By: /s/ KEITH J. GLOECKL
Keith J. Gloeckl
By: /s/ RAY F. MATHIS
Ray F. Mathis
PURCHASER:
MUNICIPAL MORTGAGE & EQUITY, LLC
By: /S/ MICHAEL L. FALCONE
Michael L. Falcone
President and COO
<PAGE>
PRESS RELEASE Contact: Derek K. Cole
Director, Investor Relations
EMBARGOED UNTIL (888) 788-3863
4:30pm, October 4, 1999
MuniMae Agrees to Acquire the Midland Companies
--------------------------------------
Combined Companies Will Manage $1.7 Billion
of Multifamily Real Estate Debt & Equity Investments
BALTIMORE, MD, October 4, 1999 -- Municipal Mortgage & Equity, LLC (NYSE: MMA),
also known as MuniMae, a nationwide originator, investor and servicer of
tax-exempt multifamily housing bonds, announced today that it has signed a
binding agreement to purchase the Midland Companies ("Midland"), a privately
held Fannie Mae lender that originates, services and asset manages investments
in multifamily debt and equity on behalf of institutional investors and for its
own account. The $45 million cash-and-stock transaction is expected to close
over the next several weeks.
The combined companies will manage $1.7 billion of investments in multifamily
real estate debt and equity. A portfolio of 557 multifamily housing communities,
encompassing 51,926 apartment units in 45 states, the District of Columbia and
the U.S. Virgin Islands secures the investments.
Midland, headquartered in Clearwater, Florida with offices in Dallas, Texas,
Detroit, Michigan, Portland, Oregon and San Francisco, California, will continue
to operate under the Midland name. Midland is a Fannie Mae delegated underwriter
and servicer (DUS), that manages construction and permanent loans as well as
equity investments on behalf of its pension fund investors, and also raises
equity from corporations for investments in the federal affordable housing tax
credit program.
MuniMae Chairman and CEO, Mark K. Joseph, commented, "We believe this is an
excellent opportunity for MuniMae. It is a natural extension of our business.
Acquiring the Midland Companies greatly expands our reach in the multifamily
finance marketplace. As one of only three Fannie Mae DUS lenders in the country
which provides equity financing in addition to Fannie Mae debt financing,
Midland brings MuniMae access to important additional capital resources. Fannie
Mae is the largest provider of capital for housing in the nation. To join the
Fannie Mae family of lenders opens up new paths of growth for us. Further, with
Midland's experienced team of loan originators in geographically diverse areas,
MuniMae will be able to better serve existing customers and extend our customer
base nationally. By creating a stronger, more dynamic national organization,
this acquisition will enhance long-term value creation for our shareholders.
We will continue our low leverage approach to the multifamily housing finance
business. We will continue to increase our core holdings of tax exempt bonds
secured by apartment communities. We expect that, with this acquisition's
addition to our Cash Available for Distribution ("CAD"), we can not only grow
our tax exempt dividend, but also lower our payout ratio, measured on a
recurring income basis. Achieving this will both grow MuniMae strategically and
increase the security of the dividend payments to our shareholders."
Midland, which includes a holding company and six operating companies, will
become a wholly owned subsidiary of MuniMae. Midland Chairman and CEO, Robert J.
Banks, who will join the MuniMae Board of Directors, commented, "I am extremely
pleased to be joining MuniMae as they seek new growth opportunities. Our
approach to business and our dedication to our customers will remain unchanged.
We will continue to operate all of our businesses under the Midland name, and
most importantly, the quality people at Midland who have built our business to
date will continue on. The merger was a natural progression for Midland. The
larger equity base and the additional access to capital will enable us to grow
and compete more aggressively. Since 1977, we have originated in excess of $2.6
billion in financing for multifamily housing involving over 1,300 properties in
48 states. With the similar business philosophies and cultures between Midland
and MuniMae, and with the capital resources now available to us, we anticipate
an even greater ability to serve our customers needs, to provide growth and
challenge for our employees and to enhance shareholder value."
MuniMae President and COO, Michael L. Falcone, commented, "We expect the Midland
transaction to be accretive to CAD per share in 2000. Further, it will increase
the percentage of income to shareholders which is exempt from Federal income
taxes. Managing over $1.7 billion of investments in real estate debt and equity
begins to give us economies of scale that we could not previously obtain. The
addition of the Midland product line will enable us to capture a larger volume
of deals, while enabling Midland to aggressively offer additional tax-exempt
financing alternatives to its customers. Everyone at MuniMae and Midland is
excited about the future for our customers, our employees and our shareholders."
MuniMae has agreed to pay $45 million for Midland. At closing, $23 million will
be paid in cash and $12 million in stock. Assuming certain performance targets
are met, including an annual contribution to CAD of at least $6 million, $10
million in additional stock will be paid over the next three years.
MuniMae originates, invests in and services tax-exempt multifamily housing
bonds. The 76 multifamily housing communities that secure MuniMae's portfolio
are located in 38 markets in 18 states and the District of Columbia, and contain
18,767 units with an average occupancy of 94%. The properties represent
approximately $750 million in real estate value. Over half of MuniMae's bond
assets provide for the Company to participate in the appreciation of the
underlying apartments on a tax-exempt basis through contingent interest
payments.
MuniMae is organized as a limited liability company, which makes it exempt from
tax at the corporate level and provides the benefit of corporate governance. In
addition, the Company passes through to its shareholders primarily tax-exempt
dividends, which are generated by its municipal bond investments. Dividends to
shareholders are declared quarterly and paid in February, May, August and
November.
The comments of MuniMae Chairman Joseph, Midland Chairman Banks and MuniMae
President Falcone contain statements that are forward looking in nature and
reflect management's current views with respect to future events and financial
performance. These statements are subject to many uncertainties and risks and
should not be considered guarantees of future performance. Actual results may
vary materially from projected results based on a number of factors, including
the actual performance of the properties pledged as collateral for the
portfolio, general conditions in the local real estate markets in which the
properties are located and prevailing interest rates.
MUNIMAE: TAX-EXEMPT DIVIDENDS AND GROWTH THROUGH REAL ESTATE
www.munimae.com www.gomidland.com
