As filed with the Securities and Exchange Commission on January 24, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact name of registrant as specified in its charter)
Delaware 52-1449733
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(410) 962-8044
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MARK K. JOSEPH
Chairman of the Board and Chief Executive Officer
Municipal Mortgage & Equity, LLC
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(410) 962-8044
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
ROBERT E. KING, JR., ESQ.
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
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Approximate date of commencement of proposed sale to the public: From time
to time after this registration statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is to be expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of Registration Fee
Securities to be Registered Aggregate Price Aggregate Offering
Registered Per Unit (1) Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, no 589,565 18.59 $10,960,013 $2,893
par value
- ------------------------------------------------------------------------------------------------------------------
Common Shares, no * 18.59 $10,000,000 $2,640
par value
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) under the Securities Act of 1933, such estimate is
computed on the basis of the price of the average of the high and low
prices of our common shares reported on the New York Stock Exchange within
the last five days prior to the filing of this registration statement.
* There is hereby registered an indeterminate number of common shares with a
maximum aggregate offering price that will not exceed $10,000,000.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Subject to Completion--Dated January 24, 2000
PROSPECTUS
- ----------
589,565 Shares
and
Up to $10,000,000 of Shares
MUNICIPAL MORTGAGE & EQUITY, LLC
Common Shares
- --------------------------------------------------------------------------------
On October 20, 1999, Municipal Mortgage & Equity, LLC, a Delaware limited
liability company commonly referred to as MuniMae, acquired 100% of the capital
stock of Midland Financial Holdings, Inc., a Florida corporation commonly
referred to as Midland, from Messrs. Robert J. Banks, Keith J. Gloeckl and Ray
F. Mathis, for approximately $45 million. Of this amount, $23 million in cash
and 589,565 MuniMae common shares were paid by MuniMae at the closing, subject
to certain post-closing adjustments, with $3.33 million in MuniMae common shares
being payable annually over a three-year period if Midland meets certain
performance targets. This prospectus relates to those MuniMae common shares that
Messrs. Banks, Gloeckl and Mathis received in connection with the acquisition of
Midland by MuniMae, and may offer for sale from time to time, together or
separately, in separate amounts, at prices and on terms to be set forth in one
or more supplements to this prospectus.
Our common shares are currently listed on the New York Stock Exchange, Inc.
under the symbol "MMA." We expect that Messrs. Banks, Gloeckl and Mathis will
sell their common shares on the New York Stock Exchange at market prices
prevailing at the time of sale. If any agents or underwriters are involved in
the sale of any of the shares of Messrs. Banks, Gloeckl and Mathis, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying prospectus supplement. We will not
receive any portion of the proceeds from the sale of the common shares by any of
Messrs. Banks, Gloeckl and Mathis.
Investing in our common shares involves risks which are described in the
"Risk Factors" section beginning on page 6 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is incomplete and may be changed. We may
not sell these securities until our registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
The date of this prospectus is January 24, 2000.
<PAGE>
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION.......................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................3
THE COMPANY...............................................................4
RISK FACTORS..............................................................6
USE OF PROCEEDS..........................................................18
SELLING SHAREHOLDERS.....................................................18
PLAN OF DISTRIBUTION.....................................................18
DESCRIPTION OF COMMON SHARES.............................................20
FEDERAL INCOME TAX CONSIDERATIONS........................................21
LEGAL MATTERS............................................................28
EXPERTS 28
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. The Securities and
Exchange Commission is referred to in this prospectus as the "Commission." You
may read and copy any document that we file at the Commission's public reference
rooms located at 450 First Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549; at regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601; and at 7 World Trade
Center, New York, New York 10048. Our filings with the Commission are also
available to the public at the Commission's web site at http://www.sec.gov. You
may also read and copy these documents at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under Section 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, until such time as all of the common shares
have been sold by the selling shareholders.
o Our Annual Report on Form 10-K for the year ended December 31, 1998, filed
on March 23, 1999.
o Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed on May 14, 1999.
o Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
filed on August 12, 1999.
o Our Quarterly Report on Form 10-Q for the quarter ended September, 1999,
filed on November 10, 1999.
o Our Current Report on Form 8-K, filed on October 8, 1999.
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o Our Current Report on Form 8-K, filed on November 2, 1999.
o Our Current Report on Form 8-K/A, filed on December 27, 1999.
o Our Prospectus/Consent Solicitation Statement included in MuniMae's
Registration Statement on Form S-4 (File No. 33-99088), as declared
effective by the Commission on May 29, 1996, as it relates to the
description of MuniMae's common shares contained under the caption
"Description of the Shares" and incorporated by reference into Item 1 of
Form 8-A filed with the Commission on July 25, 1996, pursuant to 12(b) of
the Securities and Exchange Act of 1934, including all amendments and
reports updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Municipal Mortgage & Equity, LLC
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
Attn: Derek Cole
(410) 962-8044
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Forward-looking
statements are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend," or "project"
or the negatives of such words or comparable terminology. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
o material adverse changes in the real estate markets;
o risk of default under mortgage bonds or mortgage notes;
o financial condition and bankruptcy of tenants;
o interest rate fluctuations;
o our tax treatment and the tax treatment of our investments;
o environmental and safety requirements;
o possibility that currently unanticipated difficulties may arise in
integrating the operations of newly acquired businesses;
o adequacy of insurance coverage; and
o material adverse changes in general economic and business conditions.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus may not occur.
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THE COMPANY
General
We are a self-advised and self-managed limited liability company. Along
with our predecessor, we have been in the business of originating, investing in
and servicing tax-exempt instruments backed by multifamily housing developments
since 1986. Our primary objective is to maximize value for our shareholders
through increases in tax-exempt income and appreciation in the value of our
shares. We derive our profits from our investments, which we select based on our
real estate and tax-exempt investment expertise. At September 30, 1999, we owned
a portfolio of mortgage bonds and other bond related investments directly or
indirectly secured by 76 multifamily properties. The properties contained a
total of 18,767 units and were located in 18 states and the District of
Columbia. Many of our investments are in participating mortgage bonds.
Participating mortgage bonds are mortgage bonds in which the amount of the
interest payments to bondholders is based, in part, on property performance,
providing bondholders with the opportunity to realize greater returns if and to
the extent property performance improves. Participating mortgage bonds
represented approximately 50% of the fair value of our investments at September
30, 1999.
As a limited liability company, we combine the limited liability,
governance and management characteristics of a corporation with outside
directors with the pass-through income features of a partnership. As a result,
the tax-exempt income derived from our investments may be passed through to you.
Approximately 82% of our income in 1998 was tax-exempt, excluding capital gains.
Strategy
In 1995, we made the strategic decision to restructure. We did so in order
to take advantage of our expertise in multifamily and tax-exempt bond financing
and favorable market conditions for the acquisition of mortgage bonds and other
bond related investments. As a result of that decision, we transformed our
company from an owner of a defined set of investments to an active investor
which acquires and manages a diversified portfolio of mortgage bonds and other
bond related investments. The key elements of our strategy are:
o Selective acquisitions. We seek external growth by investing in new mortgage
bonds and related investments which have characteristics similar to the
investments we have already made and possess attractive returns. Between January
1, 1997 and September 30, 1999, we participated in transactions with respect to
approximately $468 million of mortgage bonds and other bond related assets.
After subsequent securitization transactions, our balance sheet as of September
30, 1999 reflects retained interests of approximately $237 million of
approximately $468 million in transactions completed through September 30, 1999.
o Intensive asset management. Our company seeks to maximize current and future
cash flow growth through active management of our investments. To achieve this
goal, we have implemented strategic asset management plans relating to the
participating mortgage bonds where our return is influenced by the performance
of the underlying property (which were 50% of the fair value of the investments
at September 30, 1999) in order to maximize collections of debt service payments
while maintaining the long term economic viability of the properties. On a
portfolio-wide basis, we conduct ongoing site visits and inspections, management
agent assessments, budget reviews, market analyses and monitoring and monthly
and annual operating statement reviews, and also monitor the establishment and
review of capital plans.
o Balanced funding strategy. We use a combination of equity financing and
securitization of our assets to finance our investments. Securitizations provide
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funds for acquisitions at a low cost relative to the costs of other forms of
financing and generate attractive spreads which benefit our shareholders. When
we securitize a mortgage bond, the bond is typically deposited in a
securitization trust. The securitization trust sells puttable floating option
tax-exempt receipts, commonly known as P-FLOATsSM, and we receive the proceeds
from that sale as well as the right to receive the difference between the funds
generated by the deposited mortgage bond and the amounts the securitization
trust pays as interest to the holders of the short term interests. To the extent
these transactions create interest rate risks, we engage in interest rate swaps
designed to reduce, but not eliminate, such risks. Since January 1, 1998, we
have completed a number of securitization transactions, which as of September
30, 1999 had a weighted average cost of approximately 5.4% of the P-FLOATsSM
sold into the securitization trust. From time to time, our company may purchase
P-FLOATsSM issued by the securitization trust.
Midland Financial Holdings, Inc.
On October 20, 1999 we acquired 100% of Midland Financial Holdings, Inc., a
Florida corporation, for approximately $45 million, subject to certain
post-closing adjustments. 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. A significant
portion of Midland's business is the funding of mortgage loans using federal
income tax credits under Section 42 of the Internal Revenue Code, and investing
in and syndicating limited partnerships with developers that construct or
rehabilitate affordable housing. With the consummation of this transaction,
MuniMae, as a combined entity, has approximately $1.7 billion of investments in
mortgage bonds and equity under management.
Management
Our senior management team, led by Mark K. Joseph, our Chairman and Chief
Executive Officer, has an average of 19 years of experience in the real estate
industry. Management owns approximately 13% of our common shares on a
fully-diluted basis, assuming exercise of all outstanding options to purchase
common shares as of September 30, 1999.
Our principal executive offices are located at:
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(410) 962-8044
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RISK FACTORS
In addition to the other information contained in this prospectus, you
should consider the following risk factors in evaluating our business before
deciding to invest in our common shares.
Factors relating to our company
Should Merrill Lynch cease to securitize our bonds, our inability to find a
similarly qualified securitization source could adversely affect our business.
Merrill Lynch, our primary securitization source to date, may on an annual
basis choose to cease securitizing our portfolio of mortgage bonds. Should we be
unable to find a similarly qualified securitization source, our residual
interest tax-exempt securities receipts, commonly known as RITESSM, may be
subject to call. In addition, we may have to purchase the mortgage bonds held in
the securitization trust at par value or Merrill Lynch may sell the mortgage
bonds held in the securitization trust to a third party. To the extent that
Merrill Lynch is unable to receive par value from the sale of the mortgage bonds
held in the securitization trust, Merrill Lynch may foreclose on additional
mortgage bonds pledged to secure repayment of the puttable floating option
tax-exempt receipts, commonly know as P-FLOATsSM, issued by the securitization
trust. As a result, we may suffer diminished cash flow from our ownership
interests in these pledged mortgage bonds.
Contractual relationships with affiliates of certain directors and officers may
result in conflicts of interest.
Affiliates of certain directors and officers of MuniMae are responsible for
a full range of property management functions for certain properties securing
our mortgage bonds. These affiliates receive property management fees pursuant
to management contracts. We believe that these contracts provide for fees which
are at or below market rates for property management fees. These management
contracts will continue to be renewed only if (i) such affiliates are providing
property management services at a price competitive with the prices which would
be charged for such services by independent parties for comparable services in
the same geographic location, and (ii) in the case of any management contract
with any affiliate of any member of our board of directors, such management
contract is approved by the independent directors of MuniMae. Nonetheless,
conflicts may exist in determining whether to renew or terminate these
management contracts, and in setting the fees payable under such contracts,
since any change in such fees could affect the amounts payable under the related
mortgage bonds.
Certain entities which control certain properties securing the mortgage
bonds are controlled by Mark K. Joseph, our Chairman of the Board and Chief
Executive Officer. As a result, such entities could have interests which do not
fully coincide with, or even are adverse to our interests. Such entities could
choose to act in accordance with their own interests, which could adversely
affect our company. Among the actions such entities could desire to take might
be selling property securing a mortgage bond, and thereby causing a redemption
event, at a time and under circumstances which would not be advantageous to
MuniMae.
Management and certain affiliates as well as an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated own term growth shares, which participate in
our cash flow. The term growth shares, which will be redeemed when the preferred
equity of our company issued in 1996 is fully redeemed, are expected to have
little or no residual value, but while outstanding receive an aggregate of 2% of
our net cash flow. While these shares remain outstanding, the holders may have
conflicts of interest in determining whether redemption of the preferred equity
issued in 1996 and term growth shares is in our best interest, in particular due
to the limited residual value of the term growth shares. Holders of term growth
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shares also receive a greater return as cash flow increases in total, regardless
of whether per share cash flow increases or there is a distribution to
shareholders.
We could become subject to registration requirements under the Investment
Company Act.
We at all times intend to conduct our business so as not to become
regulated as an investment company under the Investment Company Act of 1940. The
Investment Company Act exempts entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate." Under the Commission's current interpretation, in
order to qualify for this exemption, we must maintain at least 55% of our assets
directly in qualifying interests and the balance in real estate-type interests.
For example, unless certain mortgage securities represent all of the
certificates issued with respect to an underlying pool of mortgages, such
mortgage securities may be treated as securities separate from the underlying
mortgage loans and, thus, may not be considered qualifying interests for
purposes of the 55% requirement. Similar interpretations mandate that we own
"whole" bonds in order for our mortgage bonds to be qualifying interests. Based
on advice of counsel, we believe we meet the 55% test. However, our residual
trust interests and certain of its mortgage bonds are not qualifying interests.
The requirement to maintain 55% of our assets in qualifying interests may
inhibit our ability to acquire certain kinds of assets or to securitize
additional interests in the future. If we fail to qualify for exemption from
registration as an investment company, our ability to maintain our financing
strategies would be substantially reduced, and we would be unable to conduct our
business as we currently do. Such a failure to qualify could have a material
adverse effect on MuniMae.
Our limited operating history does not predict future performance.
We embarked on our acquisition growth strategy in 1996. Accordingly, we
have not yet developed an extensive financial history nor have we experienced a
wide variety of interest rate fluctuations or market conditions. Consequently,
our financial results to date may not be indicative of future results.
Furthermore, there can be no assurance that we will achieve returns on our
investments sufficient to compensate for interest rate and credit risks inherent
in our investment strategy.
Any failure to effectively manage our growth may adversely affect results of
operations.
To manage our growth effectively, we must continue to improve and expand
our existing resources and management information systems. If we are unable to
manage growth effectively, our financial conditions and results of operations
may be adversely affected.
We may be unable to integrate our recent acquisitions successfully into our
existing operations.
On October 20, 1999 we acquired 100% of the capital stock of Midland
Financial Holdings, Inc. The integration of the operations of Midland into our
business may be subject to the following risks:
o the inability to reconcile different business practices, information and
communication systems, accounting methodologies and management philosophies
and strategies; and
o the inability to retain qualified management personnel at Midland.
If any of these situations were to occur, it could have an adverse effect on our
financial condition and results of operations.
If the warehouse lenders that are currently providing Midland with capital for
loans cease to do so, Midland's business may be adversely affected.
A significant portion of Midland's business as to funding mortgage loans
(financing affordable housing multifamily projects, student housing projects and
conventional apartment projects) are warehoused with, or funded by, the Detroit
General Retirement System, the Detroit Police and Fire Retirement System, the
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Wayne County Employees' Retirement System and the Midland Affordable Housing
Group Trust. In addition, the above pension funds make equity investments in
limited partnerships owned, syndicated or controlled by Midland, owning such
multi-family apartments and/or student housing projects. Midland does not have
written agreements with any of the pension funds to make such investments on a
continuing basis nor have they made any commitment to continue their
relationships with Midland. If these pension funds were to stop making loans to
Midland or participating in our private placement equity transactions or change
the terms upon which they have historically made capital available to us, there
is no guarantee that Midland would be able to find alternate sources of funding
or that such alternate sources of funding would be on terms as favorable as the
terms upon which Midland is currently borrowing. Any failure to find alternate
funding sources on similar terms could adversely affect Midland's ability to
make mortgage loans.
If the Midland Affordable Housing Group Trust were to terminate, Midland's
receipt of advisory fees and mortgage funding may be adversely affected.
Our subsidiary, Midland Advisory Services, Inc., has a contract with the
Midland Affordable Housing Group Trust to provide advisory services for which it
earns a fee. In addition, Midland Affordable Housing Group Trust also provides
Midland with funding to make mortgage loans. The Midland Affordable Housing
Group Trust terminates in December, 2003 unless its beneficiaries vote to
continue it. If the trust were to terminate, our subsidiary, Midland Advisory
Services, Inc., would cease to receive the advisory service fees it is presently
earning and we would cease to be able to borrow funds from Midland Affordable
Housing Group Trust in order to fund Midland's mortgage loans. This could have
an adverse effect on Midland's business.
Our board of directors can unilaterally effect changes in investment, financing
and certain other policies.
Our major policies, including our policies with respect to acquisitions,
financing, growth, debt, capitalization and distributions, are determined by our
board of directors. Although our board has no present intention to change our
business plan, it may amend or revise these and certain other policies from time
to time without a vote of our shareholders. Accordingly, shareholders have no
control over changes in the policies of our company (except for certain policies
directly affecting holders of preferred shares), and changes in our policies may
not fully serve the interests of all of our shareholders.
If our systems do not continue to be Year 2000 compliant we could suffer
financial losses.
We completed our corrective actions in preparation for the Year 2000 and
believe that our systems are Year 2000 compliant. So far none of our computer
systems or software applications have experienced any material errors in
inputting, storing, manipulating or outputting dates in the year 2000. However,
given the complexity of the issue and the possibility of unforeseen risks, we
cannot assure you that all our computer, software application, trading systems,
internal accounting and other business systems, working either alone or in
conjunction with those of third parties who do business with us, will continue
to accept input of, store, manipulate and output dates in the year 2000 or after
without error. If any of this were to happen, we may suffer business
interruptions or shutdown, reputational harm or legal liability and, as a
result, financial loss.
We depend on key employees.
We are dependent for the selection, structuring and monitoring of our
investments on the diligence and skill of our executive officers. Many of these
executive officers would be difficult to replace.
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Factors relating to our business
Multifamily apartment properties may not generate sufficient income or proceeds
at sale to satisfy their obligations on the mortgage bonds.
One of the major risks of investing in mortgage bonds secured by
multifamily residential properties is the possibility that the property securing
a mortgage bond will not generate income sufficient to meet its operating
expenses, including debt service on the related mortgage bonds. Another risk is
that the net proceeds of a sale of the property securing a mortgage bond will
not be sufficient to repay the related mortgage bonds. If these events occur,
delays in payments on the mortgage bonds and/or losses of principal on the
mortgage bonds may occur. The factors affecting the operations of each property
securing a mortgage bond and its potential for appreciation in value include:
o general or local economic or market conditions and changes in neighborhood
characteristics;
o changes in real estate taxes, insurance premiums and cost of utilities;
o changes in the amount of operating, administrative and maintenance costs
related to property securing a mortgage bond;
o rental value, rental strikes and collection difficulties;
o governmental rules and fiscal policies;
o vandalism and uninsured losses; and
o competition from existing and future housing complexes in the vicinity of
the property securing the mortgage bonds.
A significant portion of the properties securing the mortgage bonds in
which we have invested have failed in the past to meet required debt service
under the mortgage bonds. Additionally, a number of the mortgage bonds in which
we have invested have been refunded on terms which defer, and in certain
circumstances reduce, the amounts payable under those bonds. There can be no
assurance that such defaults and refundings will not occur in the future.
A decline in general economic or real estate market conditions could adversely
affect our business.
Our business may be adversely affected by periods of economic slowdown or
recession. These periods may be accompanied by declining property values or
performance, particularly declines in the value or performance of multifamily
properties. Any material decline in property values weakens the value of the
properties as collateral for our investments and increases the possibility of a
loss in the event of default. With respect to a significant portion of our
investments, a decline in performance of the related underlying multifamily
properties will directly affect our interest income. Significant declines in the
late 1980s and early 1990s in the value of the underlying properties and in cash
flow on the properties led to defaults on most of the mortgage bonds held by our
predecessor. As a result, our predecessor had to restructure, refinance or
extend many of its investments. There can be no assurance that similar problems
may not occur in the future.
Although the mortgage bonds are issued by state or local governments, they are
not general obligations of any state or local government.
Each mortgage bond we own is secured by an assignment to a bond trustee on
behalf of all bondholders (and all beneficial owners of such bonds) of the
related mortgage loan. The loan is secured by a mortgage on the underlying
property and an assignment of rents. Although the mortgage bonds are issued by
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state or local governments or their agencies or authorities, the mortgage bonds
are not general obligations of any state or local government. No government is
liable under the mortgage bonds, nor is the taxing power of any government
pledged to the payment of principal or interest under the mortgage bonds. In
addition, the underlying mortgage loans are nonrecourse. This means that the
owners of the underlying properties are not liable for the payment of principal
and interest under the loans except to the extent of cash flow from, and value
of, the properties. Accordingly, the sole source of funds for payment of
principal and interest under the mortgage bonds is the revenue derived from
operation of the properties and amounts derived from the sale, refinancing or
other disposition of such properties.
Investments in junior mortgages present more risk than investments in senior
mortgages.
When we invest in mortgages (or related bonds) which are junior to senior
mortgages on a particular property, we are subject to the risks of such an
investment. These risks include the risks (i) that borrowers may not be able to
make debt service payments on both the senior and the junior mortgages, (ii)
that the value of the mortgaged property may be less than the amounts owed under
both mortgages, and (iii) that debt service collected on the junior mortgages
may be lower than our costs of funds. If any of the above occurred, our ability
to make expected distributions to you could be adversely affected.
Defaults on securitized mortgage bonds or an inability to securitize our
mortgage bonds in the future could adversely affect our business.
We seek to enhance our overall return on our investments and to purchase
additional investments through the securitization of part of our portfolio of
mortgage bonds. In a typical securitization, mortgage bonds are sold and
deposited into a trust. Short term floating rate interests in the securitization
trust, which have first priority on the cash flow from the mortgage bonds, are
sold to third-party investors and these interests are paid before our residual
interest. We retain the residual cash flow from the securitization trust and
receive the proceeds from the sale of the floating rate interests in the
securitization trust, less certain transaction costs. We will recognize taxable
capital gains (or losses) upon the sale of mortgage bonds into the
securitization trust. In the event the securitization trust into which the sold
bonds are deposited cannot meet its obligations, all or a portion of the
deposited mortgage bonds may be distributed to the floating rate interest
holders or sold to satisfy such obligations. Therefore, cash flow from these
mortgage bonds may not be available to pay any amounts on our residual interest
and in the event of the liquidation of the mortgage bonds, we will receive no
payment except to the extent that the market value of the mortgage bonds exceeds
the amounts due on the other obligations of the trust. Additional mortgage bonds
may be pledged to secure repayment of the floating rate certificates. Upon any
default in repayment of such certificates, the pledged mortgage bonds may be
subject to foreclosure and sale and we may lose the cash flow from, and/or our
ownership interest in, these pledged mortgage bonds. We may have a limited
ability to remedy defaults inside the securitization trust and prevent the loss
of our investment in the residual interest. As a result of these
securitizations, we generally own higher yielding but riskier portions of
bond-related investments such as residual interest tax-exempt securities
receipts, commonly know as RITESSM. Furthermore, RITESSM may be subject to call
in certain circumstances which are beyond our control. Where the mortgage bonds
bear fixed rates of interest, securitization may also create interest rate
risks, as described below.
We rely, in part, on securitizations to fund our investments. Accordingly,
our ability to achieve our investment objectives depends on our ability to
successfully securitize our mortgage bonds and manage our interest rate
exposure. Certain of the mortgage bonds may have credit or other characteristics
which make them unsuitable for securitization at this time. Any failure to
consummate securitization and interest rate swap transactions could reduce our
net interest income and have a material adverse effect on our operations.
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<PAGE>
An increase in interest rates or ineffective risk management could adversely
affect our business.
An increase in market interest rates may lead prospective purchasers of our
existing assets or holders of our debt or equity securities to demand a higher
annual yield than they would have otherwise. A rise in market interest rates
could also increase our cost of borrowing funds for investment in additional
assets. Both of these risks could adversely affect the amount of funds available
for distribution to you. Any increase in market interest rates also may reduce
the market value of our assets and the market value of our securities.
The results of our operations depend on, among other things, the level of
net interest income we derive from the difference between the return on the
securitized mortgage bonds and the short term floating rate payments owed to the
floating rate certificate holders. While the interest rate on the securitized
mortgage bonds is fixed, the third party holders of the floating rate
certificates in the securitization are paid interest at a floating rate that is
reset periodically. Our company, as holder of the residual trust interest,
receives the balance of interest on the mortgage bonds not used to pay the third
party trust certificates. Rising short term interest rates would reduce the net
interest income available to us and possibly result in a loss.
Further, when short term tax-exempt interest rates are higher than long
term tax-exempt interest rates, our return, as a purchaser of the residual trust
interests on newly acquired and securitized mortgage bonds, may be lower than
the short term floating tax-exempt interest rate payments owed to the floating
rate certificate holders. As a result, this may significantly reduce our
investment return on such residual interests.
To reduce our exposure to rising interest rates, we enter into interest
rate swaps. Interest rate swaps are contracts exchanging an obligation to pay a
floating rate approximating the rate on the floating rate trust certificates for
an obligation to pay a fixed rate. Net swap payments received by our company, if
any, will be taxable income, even though the investment being hedged pays
tax-exempt interest. The interest rate swaps are for limited time periods which
generally match the anticipated prepayment date of the underlying mortgage bond
or the term of the securitization trust. However, securitization trust periods
are typically shorter and interest rate swap periods may be shorter than the
term of the underlying bond. Consequently, there is no certainty that prepayment
will occur at the end of the swap or trust period or that we will be able to
acquire interest rate swaps at favorable prices, or at all, when our existing
arrangements expire. If this occurs we would be fully exposed to the interest
rate risks described above.
To the extent that we purchase the puttable floating option tax-exempt
receipts, commonly known as P-FLOATsSM, issued in connection with a
securitization transaction, we may elect to keep in place any related swap if we
expect to use that swap in the future as a hedge with respect to another
transaction. To the extent that we do not terminate a swap when we purchase
short term floating rate interests, we may be exposed to interest rate risks
under the swap, particularly if interest rates decline.
Developing an effective interest rate risk management strategy is complex.
No management strategy can completely insulate us from all potential risks
associated with interest rate changes. In addition, risk management involves
transaction costs. If we hedge against interest rate risks, we may substantially
reduce our net income or adversely affect our financial condition. There can be
no assurance that our interest rate risk management activities will be
effective.
If we purchase interest rate swaps or other instruments, we must rely for
payment under these agreements on the creditworthiness of the counterparties. To
date, our counterparty has been Merrill Lynch Capital Services, Inc. In
addition, certain of the owners of the properties have entered into interest
rate swaps with Credit Suisse Financial Products under which the property owner
pays the counterparty a variable rate up to the cap in exchange for the
counterparty's obligation to pay a fixed rate. If short term interest rates
11
<PAGE>
increase, the cash flow on such property which may be distributed to the holder
of the mortgage bond may decrease. There can be no assurance any third party
will honor its payment obligations under the agreements. If the provider of such
swap or other instrument becomes financially unsound or insolvent, we may be
forced to unwind such swap or other instrument with such provider and may take a
loss on it. Further, we could suffer the adverse consequences against which the
risk management transaction was intended to protect. No assurance can be given
that we can avoid risks of third party insolvency.
We may also engage in limited amounts of buying and selling of other
mortgage hedging securities or other hedging products. These include, but are
not limited to, buying and selling financial futures contracts and options on
financial futures contracts and trading forward contracts in order to hedge
commitments. These types of risk management devices and mortgage instruments are
complex and can produce volatile results. There can be no assurance that our
risk management strategy will have the desired beneficial impact on our cash
flow and on the resulting distribution yield of the securities.
The repeal or amendment of federal income tax credits for low income housing
developments could adversely affect our business.
A portion of the business of Midland Financial Holdings, Inc., a recently
acquired subsidiary, includes (i) funding loans (construction and/or permanent)
that finance affordable housing (multi-family apartments only) using federal
income tax credits under Section 42 of the Internal Revenue Code, and (ii)
investing in and syndicating limited partnerships with developers that construct
and/or rehabilitate affordable housing (multi-family apartments) using federal
income tax credits under Section 42 of Internal Revenue Code. If Section 42 of
the Internal Revenue Code were amended or repealed such that the federal income
tax credits available for such developments would be diminished or eliminated or
that Midland's low income housing developments would no longer qualify for these
tax credits, Midland's business would be adversely affected.
Investments in mortgage bonds and RITESSM may be illiquid.
Our investments lack a regular trading market and may be illiquid. In
addition, during turbulent market conditions, the liquidity of all of our
investments may be adversely impacted. There is no limit to the percentage of
our assets that may be invested in illiquid mortgage bonds and residual interest
tax-exempt securities receipts, commonly know as RITESSM. In the event we
require additional cash, we may be required to liquidate our investments on
unfavorable terms which could substantially reduce the value of our remaining
investments.
Substantial environmental liability may adversely affect our business.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The costs of such removal or remediation could be substantial
and could negatively impact the availability of property cash flow for payments
on our investments. Phase I environmental site assessments (which involve
inspection without soil sampling or groundwater analysis) have been conducted by
independent environmental consultants with respect to most, but not all, of the
properties. The assessments that have been completed have not revealed any
environmental conditions, as of the time such studies were completed, which we
believe would have a material adverse effect on our business, assets or results
of operations. No assurance can be given that these assessments or our
inspections have revealed all environmental liabilities and problems relating to
the properties or that nothing has occurred since the completion of such
assessments. Our management is not aware of any material environmental problems
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<PAGE>
with respect to the properties. No assurance can be given that the properties on
which no environmental assessment was conducted do not contain regulated toxic
or hazardous substances.
Factors relating to federal income tax
Should less than 90% of our gross income not constitute "qualifying income" we
may not be treated as a partnership for federal income tax purposes.
We operate as a partnership for federal income tax purposes, which permits
us to pass through our income and deductions to you, including our tax-exempt
income. The listing of our common shares on the NYSE causes us to be treated as
a "publicly traded partnership" for federal income tax purposes. A publicly
traded partnership is generally taxable as a corporation unless 90% or more of
its gross income is "qualifying income" (which includes interest, dividends,
real property rents, gains from the sale or other disposition of real property,
gain from the sale or other disposition of capital assets held for the
production of interest or dividends and certain other items). Clifford Chance
Rogers & Wells LLP, our outside counsel, has advised us that, although the issue
is not free from doubt, tax-exempt interest income constitutes qualifying income
for this purpose. Our management has represented that in all relevant prior
years of our existence that at least 90% of our gross income was "qualifying
income" and has covenanted to conduct our operations in a manner such that at
least 90% of our gross income, including tax-exempt interest, will constitute
qualifying income. Based upon and subject to the foregoing representation and
the discussion in this prospectus under the caption "Federal Income Tax
Considerations - General - Partnership status of MuniMae," in the opinion of
Clifford Chance Rogers & Wells LLP, MuniMae has been and will continue to be
classified as a partnership for federal income tax purposes. If for any reason
less than 90% of our gross income constitutes qualifying income, our income and
deductions would not pass through to you and you would be treated for federal
income tax purposes as stockholders in a corporation. In such event, we would be
required to pay income tax at regular corporate rates on any portion of our net
income that did not constitute tax-exempt income. Distributions to you would
constitute ordinary dividend income to the extent of our earnings and profits,
which would include its tax-exempt income, as well as any taxable income we
might have. In addition, dividend distributions to our shareholders would not be
deductible by us for federal income tax purposes. See "Federal Income Tax
Considerations - General - Publicly traded partnership rules."
If issuers or underlying borrowers of the mortgage bonds in which we invest fail
to comply with certain continuing requirements under the Internal Revenue Code
the tax-exempt status of the mortgage bonds may be adversely affected.
On the date of initial issuance of the mortgage bonds we own, bond counsel
or special tax counsel rendered its opinion to the effect that, based on the law
in effect on the date of issuance, interest on such mortgage bond is excludable
from gross income for federal income tax purposes, except with respect to any
mortgage, other than a mortgage bond, the proceeds of which are loaned to a
charitable organization described in Section 501(c)(3) of the Internal Revenue
Code, during any period in which it is held by a "substantial user" of the
property or a "related person." Such opinions may have been conditioned on
compliance with state and local usury laws.
The Internal Revenue Code establishes certain requirements which must be
met subsequent to the issuance and delivery of tax-exempt bonds for interest on
such mortgage bonds to remain excluded from gross income for federal income tax
purposes. Among these continuing requirements are restrictions on the investment
and use of the bond proceeds and, for mortgage bonds the proceeds of which are
loaned to a charitable organization described in Section 501 (c)(3) of the
Internal Revenue Code, the continued exempt status of such charitable
organization borrower. In addition, the continuing requirements include income
restrictions and regulatory agreement compliance. Each issuer of the mortgage
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bonds, as well as the underlying borrowers, has covenanted in an arbitrage
certificate or similar document to comply with certain procedures and guidelines
designed to ensure satisfaction with the continuing requirements of the Internal
Revenue Code. Failure to comply with these continuing requirements of the
Internal Revenue Code may cause the interest on such bonds to be includable in
gross income for federal income tax purposes retroactive to the date of
issuance, regardless of when such noncompliance occurs. Clifford Chance Rogers &
Wells LLP, counsel to MuniMae, has not passed upon, and does not assume any
responsibility for, but rather has assumed the continuing correctness of, the
opinions of bond counsel or special tax counsel relating to the tax-exemption of
interest on the mortgage bonds we own and has not independently verified whether
any events or circumstances have occurred since the original issuance of the
mortgage bonds that would adversely affect such opinion of bond counsel or
special tax counsel. However, as of the date of this offering memorandum, none
of MuniMae, its affiliates or Clifford Chance Rogers & Wells LLP has actual
knowledge of any events that may adversely affect the tax-exempt status of the
mortgage bonds, including any notice that the IRS considers interest on any of
the bonds to be includable in gross income.
Our action to enforce our rights under certain mortgage bonds currently in
default may adversely affect the tax-exempt status of those bonds.
Certain underlying borrowers of the mortgage bonds in which our predecessor
invested have defaulted on their monetary obligations. Of the 22 mortgage bonds
that were owned by our predecessor, 11 were refunded in 1995. Prior to this
refunding, the underlying borrowers on these 11 mortgage bonds that were
refunded failed to make timely debt service payments, resulting in defaults. In
addition, the underlying borrowers on five of the mortgage bonds that were not
refunded also defaulted on their monetary obligations and continue to be in
default. Although we have not completed foreclosure proceedings in any cases,
our management believes that it has exercised and continues to exercise prudent
business practices to enforce its creditor's rights under the applicable bond
documents, including initiating foreclosure proceedings on the mortgaged
properties when advisable. A risk exists that the IRS may treat our actions to
exercise, or not to exercise, our rights under one or more of the mortgages of
the defaulted mortgage bonds as constituting a material modification of the
terms of the defaulted mortgage bonds and, therefore, conclude that these
mortgage bonds were reissued for federal income tax purposes. If the IRS were
successful in maintaining this position, interest on these defaulted mortgage
bonds probably would be taxable for federal income tax purposes. We have been
advised by counsel, and we believe, that our actions (or failures to act) taken
in connection with the default of these mortgage bonds would not, under
then-published rulings, decisions, statutes and regulations, result in a
reissuance of such mortgage bonds. Clifford Chance Rogers & Wells LLP has not
passed upon, and does not assume responsibility for, but rather has assumed the
correctness of, counsel's advice to MuniMae on this issue. Unlike a ruling from
the IRS, however, the advice of counsel has no binding effect, and no assurances
can be given that the conclusions reached will not be contested by the IRS or,
if contested, will be sustained by a court. We will contest any adverse
determination by the IRS on this issue (at our additional expense).
Interest from certain mortgage bonds currently in default may be subject to
federal income tax.
Interest payable on certain of the mortgage bonds owned by our predecessor
currently in default depends upon the cash flow from, and proceeds upon sale of,
the underlying properties. If the IRS determined that these bonds involved an
equity investment in the respective properties because of this feature, all or
part of the interest on these bonds would not qualify as tax-exempt interest for
federal income tax purposes. To the best of our knowledge, these bonds have not
been challenged as to their tax-exempt status. Prior to the acquisition of these
bonds, we received opinions of counsel to the effect that, based upon certain
assumptions described in such opinions, it was more likely than not that each of
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<PAGE>
the mortgage bonds owned by our predecessor would be treated for federal income
tax purposes as representing indebtedness and that no portion of such mortgage
bonds or any payments receivable thereunder will be considered (i) an equity
interest in the conduit borrower, (ii) an equity interest in a venture between
the conduit borrower and MuniMae, or (iii) an ownership interest in the
underlying properties. We have received similar opinions with respect to the
participating subordinate mortgage bonds and one additional participating
mortgage bond. We assume the continuing correctness of these opinions. With
respect to five of the mortgage bonds owned by our predecessor which have
defaulted, but were not refunded, we have not received any updated opinions of
counsel with respect to the issue of whether the underlying mortgage bonds
should be treated as equity. The original opinions issued with respect to
certain of these mortgage bonds indicated that the mortgage bonds were, more
likely than not, indebtedness, but included a qualification that no opinion was
expressed with respect to the characterization of the mortgage bonds as
indebtedness or equity under circumstances of default. Unlike a ruling from the
IRS, however, an opinion of counsel has no binding effect, and no assurances can
be given that the conclusions reached in such opinion will not be contested by
the IRS or, if contested, will be sustained by a court. We will contest any
adverse determination by the IRS on this issue (at our additional expense).
None of the opinions described in the preceding paragraph were rendered by
Clifford Chance Rogers & Wells LLP, and Clifford Chance Rogers & Wells LLP has
not passed on and does not assume any responsibility for the opinions of other
counsel on this issue. Moreover, Clifford Chance Rogers & Wells LLP has not made
any independent determination as to whether any events or circumstances have
occurred or intervened since the original issuance of the "indebtedness"
opinions that would adversely affect such opinions (including the defaults
described above).
Our investments in new assets may provide income that is subject to federal
income tax.
We have been making additional investments in mortgage bonds and related
assets and have been entering into risk management transactions involving
derivative financial instruments, such as interest rate swaps. Such investments
may produce income that is subject to federal income tax and is not "qualifying
income" for purposes of the publicly traded partnership rules. In addition, our
investments may include investments in mortgage bonds that need to be
restructured and remarketed. We could recognize a taxable gain (or loss) upon
any such restructuring and remarketing of the mortgage bonds even though such
restructuring does not result in any cash proceeds. In addition, various
conditions would have to be met to insure that the restructuring and remarketing
of the mortgage bonds would not cause the loss of the tax-exempt status of
interest on such bonds. Any taxable income produced by other assets or taxable
gain recognized upon restructuring and remarketing of new investments in
mortgage bonds will be allocated to you and will be subject to federal income
tax.
Your distributive share of our income may be taxable regardless of whether you
receive from us an amount of cash equal to such distributive share.
We currently invest in instruments that produce tax-exempt income. However,
the IRS may seek to recharacterize a portion of our tax-exempt income as taxable
income as described above. We may also have taxable income in the form of market
discount. See "Federal Income Tax Considerations--Certain income tax
considerations relating to MuniMae and its shareholders--Tax-exempt income."
Your distributive share of such income will be taxable to you, regardless of
whether an amount of cash equal to such distributive share is actually
distributed to you. However, we expect that you will not owe taxes relating to
your investment in our common shares in excess of the distributions that you
will have actually received from us.
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If the IRS deems us to be a related person of a substantial user the tax-exempt
status of some of the mortgage bonds in which we invest may be adversely
affected.
Interest on the mortgage bonds in which we invest, other than mortgage
bonds the proceeds of which are loaned to a charitable organization, will not be
excluded from gross income during any period in which we are a "substantial
user" of the corresponding property or are a "related person" to a "substantial
user." A "substantial user" generally includes any underlying borrower and any
person or entity who uses the property on other than a de minimis basis. We
would be a related person to a substantial user for this purpose if, among other
things, a substantial user was also a holder of our preferred or common shares,
or any person who is a parent, child or spouse of a holder of our preferred or
common shares. A partner of a conduit borrower or owner of a property, among
other people, will, for this purpose, be a "related person" to a "substantial
user" of the property. We have received opinions and/or advice with respect to
most of the mortgage bonds in which we invest to the effect that we are not a
substantial user or a related person thereto. There exist certain levels of
direct or indirect common ownership between us and certain of the borrowers of
the mortgage bonds which were considered when we received advice that we were
not a related person of a substantial user of the facilities financed by such
mortgage bonds. Clifford Chance Rogers & Wells LLP has not passed upon, nor
assumed any responsibility for, but rather, except as provided in the next
paragraph, has assumed the correctness of such opinions and/or advice. However,
based upon discussions with our management, as of the date of this prospectus,
Clifford Chance Rogers & Wells LLP does not have knowledge of any facts or
circumstances that would adversely affect the conclusions under such opinions
and/or advice.
Three of our officers collectively own, directly or indirectly, more than
50% of the profits and/or capital interests in partnerships which are the
underlying borrowers on 13 of the mortgage bonds in which we invested through a
custodial receipt arrangement. We have represented to Clifford Chance Rogers &
Wells LLP that none of our officers who own interests in these partnerships
(including any interests held pursuant to certain attribution rules of the
Internal Revenue Code) own, directly or indirectly (taking into account certain
attribution rules of the Internal Revenue Code) in the aggregate, more than 5%
of our capital or profits interests. In the opinion of Clifford Chance Rogers &
Wells LLP, based upon our representation and the assumptions and qualifications
discussed below, we will not, by virtue of any equity investment in MuniMae by
any of our officers, be treated as a related person of any substantial user of
any of the facilities financed with the proceeds of a mortgage bond relating to
these partnerships. In issuing the foregoing opinion, Clifford Chance Rogers &
Wells LLP has assumed that our representations are true and correct and has not
made any independent determination as to our equity ownership or the equity
ownership of these partnerships. The foregoing opinion assumes that (i) the
mortgage bonds will be treated as indebtedness for federal income tax purposes,
(ii) interest on such mortgage bonds is excludable from gross income for federal
income tax purposes except during any period in which it is held by a
substantial user of the property or related person thereto, and (iii) none of
MuniMae or any of its affiliates is treated as a substantial user of the
property for any reason. Unlike a ruling from the IRS, however, the opinion of
Clifford Chance Rogers & Wells LLP is not binding and no assurances can be given
that the conclusion reached will not be contested by the IRS or, if contested,
will be sustained by a court. We intend to contest any adverse determination by
the IRS on the substantial user issue. Any such contest will result in our
incurrence of additional expenses. The issue of whether we will be treated as a
related person of a substantial user for these purposes is a highly factual
inquiry which ultimately depends upon our direct and indirect ownership. Because
our common shares are publicly traded, there can be no assurances that we will
not be treated as a related person to a substantial user at a future time.
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If the IRS does not agree with our allocation of income you may be allocated a
higher share of our taxable income.
To the extent we have net income, we will use various accounting and
reporting conventions to determine your allocable share of our income, gain,
loss and deduction including allocating any market discount taxable as ordinary
income to you. Our allocation provisions will be recognized for federal income
tax purposes only if they are considered to have "substantial economic effect"
and are not retroactive allocations. There is no assurance that the IRS will
agree with our various accounting methods, conventions and allocation
provisions, particularly our allocation of adjustments attributable to the
differences between your purchase price of our common shares and your share of
our tax basis on our assets. Because as a publicly traded partnership we may be
unable to comply with the literal requirements of the applicable Treasury
regulations and because certain of our allocations may not have "substantial
economic effect," Clifford Chance Rogers & Wells LLP is unable to express an
opinion on these issues. See "Federal Income Tax Considerations--Certain income
tax considerations relating to MuniMae and its shareholders--Allocation of
income and loss."
Factors relating to our common shares
Anti-takeover provisions may discourage changes of control.
Our organizational documents contain provisions that may be deemed to have
an anti-takeover effect. These provisions include the staggered terms of our
directors, business combination and fair price provisions and control share
acquisitions provisions. We have adopted a shareholder rights plan. Further, the
employment agreements of certain of our officers provide them with substantial
payments should their employment terminate as a result of a change of control.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and management and in the
policies formulated by the board, and to discourage an unsolicited takeover of
MuniMae if the board determines that such a takeover is not in the best
interests of those groups to which it feels it owes a fiduciary duty, including
our shareholders. These provisions may, however, have the effect of delaying,
deferring or preventing a takeover attempt that a given shareholder might
consider to be in his or her best interest, including offers that might result
in a premium over market price for the common shares. These provisions may
reduce interest in the company as a potential acquisition target or reduce the
likelihood of a change in the management or voting control of MuniMae without
the consent of our board of directors. In addition, in the event that certain
business combination or share acquisition transactions occur, and Shelter
Development Holdings, Inc., our special shareholder, does not approve of such
transaction, Shelter Development Holdings has the right to withdraw as a
shareholder of MuniMae; and in the event of such withdrawal, (i) we would be
obligated to pay Shelter Development Holdings $1,000,000, and (ii) a new special
shareholder might have to be found in order to ensure that we are not deemed to
be taxable as a corporation, any of which may have an adverse effect on MuniMae
or our common shares. Shelter Development Holdings, Inc. is controlled by Mark
K. Joseph, our Chairman and Chief Executive Officer.
Shareholders have no control over the issuance of additional securities.
We may issue additional securities, including preferred interests, in the
public or private market to obtain funds for the acquisition of additional
assets or may exchange such securities for additional assets. Our ability to
sell or exchange such securities will depend on conditions then prevailing in
the relevant capital markets and our results of operations, financial conditions
and business prospects. The issuance of such additional securities will not be
subject to your approval, may affect the timing and amount of distributions to
you, and may affect the trading price of our securities. You will not have any
preemptive rights in connection with our issuance of any additional securities.
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USE OF PROCEEDS
We will not receive any portion of the proceeds from the sale of the common
shares by any of the selling shareholders.
SELLING SHAREHOLDERS
Messrs. Banks, Gloeckl and Mathis acquired 589,565 MuniMae common shares in
connection with the closing of our acquisition of Midland Financial Holdings,
Inc. on October 20, 1999. Under the terms of the Purchase Agreement, dated
September 30, 1999, we agreed to acquire 100% of the capital stock of Midland
for up to $45 million. Of this amount, $23 million in cash and 589,565 MuniMae
common shares were payable at the closing, subject to certain post-closing
adjustments, and $3.33 million in MuniMae common shares being payable annually
over a three-year period if Midland meets certain performance targets. Under the
terms of a Registration Rights Agreement dated as of October 20, 1999 by and
among MuniMae and Messrs. Banks, Gloeckl and Mathis, we agreed to register the
shares received by Messrs. Banks, Gloeckl and Mathis under the Purchase
Agreement in order to allow Messrs. Banks, Gloeckl and Mathis to sell their
shares from time to time. The table below sets forth: (i) each of Messrs. Banks,
Gloeckl and Mathis' affiliation with MuniMae, (ii) the aggregate number of
common shares owned by each of Messrs. Banks, Gloeckl and Mathis, and (iii) the
number of common shares (and percentage of the outstanding shares) owned by each
of Messrs. Banks, Gloeckl and Mathis after the offering made by this prospectus.
<TABLE>
<CAPTION>
Number of % of the
common outstanding Number of common shares required to
shares common be held after the offering3
Name Affiliation held1 shares2 Year Year Year Year
---- ----------- ----- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Banks Senior Vice 353,739 2.1% 353,739 353,739 353,739 156,863
President
& Director
Keith F. Gloeckl Senior Vice 117,913 0.7% 117,913 117,913 117,913 52,288
President
Ray F. Mathis Senior Vice 117,913 0.7% 117,913 -- -- --
President
</TABLE>
- --------------------
1 At October 20, 1999.
2 At September 30, 1999.
3 MuniMae has entered into employment agreements, dated October 20, 1999,
with each of Messrs. Banks and Gloeckl for a term of four years and with
Mr. Mathis for a term of one year. Mr. Banks' employment agreement requires
that during the first three years of his employment he hold common shares
with a value of at least $7.2 million and that during the fourth year he
hold common shares with a value of at least $3 million. Mr. Gloeckl's
employment agreement requires that during the first three years of his
employment he hold common shares with a value of at least $2.4 million and
that during the fourth year he hold common shares with a value of at least
$1 million. Mr. Mathis' employment agreement requires that during the
one-year term of his employment he hold common shares with a value of at
least $2.4 million. In each case, the value of such common shares is
measured at $19.125 per share, the closing price per share of our common
shares on the New York Stock Exchange on October 20, 1999.
PLAN OF DISTRIBUTION
This prospectus relates to the possible offer and sale from time to time by
Messrs. Banks, Gloeckl and Mathis (or by pledgees, donees, transferees or other
successors in interest of each of Messrs. Banks, Gloeckl and Mathis) of their
common shares. We have registered their common shares for resale to provide them
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with freely tradeable securities. However, registration of their common shares
does not necessarily mean that they will offer or sell any of their common
shares. We will not receive any proceeds from the offering or sale of their
common shares.
Messrs. Banks, Gloeckl and Mathis (or pledgees, donees, transferees or
other successors in interest) in one or more transactions (which may involve
block transactions) may sell the common shares to which this prospectus relates
from time to time:
o on the New York Stock Exchange, Inc., where our common shares is listed for
trading;
o in other markets where our common shares may become traded;
o in negotiated transactions;
o through short sales or put and call option transactions through
underwriters or dealers (who may act as agent or principal);
o directly to one or more purchasers;
o through agents; or
o in a combination of such methods of sale.
We expect that Messrs. Banks, Gloeckl and Mathis will sell their common shares
through the New York Stock Exchange at market prices prevailing at the time of
sale.
Any underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from each of Messrs. Banks, Gloeckl and
Mathis or such other persons who may be effecting sales under this prospectus
(as supplemented or amended to reflect such transaction). Underwriters may sell
the common shares to which this prospectus relates to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Messrs. Banks, Gloeckl and Mathis or other persons
effecting sales under this prospectus (as supplemented or amended to reflect
such transaction), and any such underwriters, dealers and agents, may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, and any
discounts or commissions they receive and any profit on the sale of the common
shares they realize may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933. We have agreed to indemnify each of Messrs.
Banks, Gloeckl and Mathis against certain liabilities, including liabilities
arising under the Securities Act of 1933. Messrs. Banks, Gloeckl and Mathis or
other persons effecting sales under this prospectus (as supplemented or amended
to reflect such transaction) may agree to indemnify any such underwriters,
dealers and agents against certain liabilities, including liabilities under the
Securities Act of 1933.
Messrs. Banks, Gloeckl and Mathis may enter into risk management
transactions with broker-dealers or other financial institutions. In connection
with such transactions, broker-dealers or other financial institutions may
engage in short sales of our common shares in the course of hedging the
positions they assume with any of Messrs. Banks, Gloeckl and Mathis. Messrs.
Banks, Gloeckl and Mathis may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or other financial institution of our common shares, which
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shares such broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction).
Under the securities laws of certain states, the common shares to which
this prospectus relates may be sold in such states only through registered or
licensed brokers or dealers. In addition, in certain states, common shares may
not be sold unless the common shares have been registered or qualified for sale
in such state or an exemption from registration or qualification is available
and is complied with.
Messrs. Banks, Gloeckl and Mathis also may resell all or a portion of their
common shares in open market transactions in reliance upon Rule 144 under the
Securities Act of 1933, provided they meet the criteria and conform to the
requirements of such rule.
Upon notification by any of Messrs. Banks, Gloeckl and Mathis that any
material arrangement has been entered into with a broker-dealer for the sale of
their common shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act of 1933, disclosing (i) the name of each such
selling security holder and of the participating broker-dealer(s), (ii) the
number of common shares involved, (iii) the price at which such common shares
are to be sold, (iv) the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
DESCRIPTION OF COMMON SHARES
The following brief description of our common shares does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of our Amended and Restated Certificate of Formation and Operating
Agreement and by-laws, copies of which are exhibits to the registration
statement of which this prospectus is a part.
General
-------
Our Amended and Restated Certificate of Formation and Operating Agreement
does not limit the number of common shares which our board of directors may
cause us to issue. We had 16,806,755 common shares outstanding at September 30,
1999. We will pay distributions to holders of our common shares on a pro rata
basis when declared by our board of directors out of funds legally available
therefor. Distributions to holders of our common shares are subject to
preferences on distributions on our then outstanding preferred shares and any
other preferred securities which may be issued by us in the future.
Holders of our common shares have no preemptive, conversion, sinking fund
or cumulative voting rights. Our common shares are not redeemable, except
pursuant to certain anti-takeover provisions adopted by us.
Our Amended and Restated Certificate of Formation and Operating Agreement
and by-laws set forth the relationship of our shareholders to MuniMae and to one
another and the manner in which we will conduct our operations, much like the
articles and by-laws of a Delaware corporation or the partnership agreement of a
Delaware general or limited partnership. While, as a limited liability company,
we are not subject to the Delaware General Corporation Law, the Delaware Limited
Liability Company Act permits a limited liability company agreement to provide,
and our Amended and Restated Certificate of Formation and Operating Agreement
and by-laws do provide, that the management of a limited liability company shall
be conducted by a board of directors and officers designated by such board and
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that the holders of shares in such limited liability company (as is the case
with the holders of our common shares) be afforded substantially all of the
rights that are afforded holders of common stock issued by a corporation
organized under the Delaware General Corporation Law. In all material respects,
the fiduciary duties of our directors and officers and any duties of any
controlling shareholder of MuniMae and their affiliates are the same as those
applicable under the Delaware General Corporation Law.
Transfer Agent and Registrar
----------------------------
The transfer agent and registrar for our common shares is the Registrar and
Transfer Company located at: 10 Commerce Drive, Cranford, New Jersey 07016,
telephone number (908) 497-2300.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the federal income tax
considerations which are material to a typical shareholder who is a United
States citizen or resident and is based upon the Internal Revenue Code, judicial
decisions, final, temporary and proposed Treasury regulations and administrative
rulings and pronouncements of the Internal Revenue Service, commonly known as
the "IRS." No attempt has been made to comment on all federal income tax matters
affecting us or our shareholders. The discussion does not purport to deal with
federal income or other tax consequences applicable to an investment by certain
categories of shareholders, including, without limitation, tax-exempt
organizations, dealers in securities, banks, insurance companies, Subchapter S
corporations, real estate investment trusts and persons who are not citizens or
residents of the United States and is not to be construed as tax advice. In the
opinion of Clifford Chance Rogers & Wells LLP, the following discussion reflects
the federal income tax considerations which are material to a typical
shareholder. No ruling on the federal, state or local tax considerations
relevant to the issuance of the common shares, the debt characterization of the
mortgage bonds, the tax-exempt character of interest on the mortgage bonds or
other investments, our classification as a partnership, or any other issue has
been, or will be, requested from the IRS or from any other tax authority.
Moreover, no assurance can be given that the conclusions reached by Clifford
Chance Rogers & Wells LLP will be accepted by the IRS or, if challenged by the
IRS, sustained in court. This summary is based on current legal authority.
Legislative or administrative changes or court decisions may occur which could
significantly modify the statements and opinions expressed herein.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES TO THEM PRIOR TO
PURCHASING THE COMMON SHARES.
General
Partnership status of MuniMae. Based upon and subject to our
representations and the discussion set forth below, we will be classified as a
partnership for federal income tax purposes. Under Regulations that are
effective as of January 1, 1997, in the case of a "business entity" that was in
existence prior to January 1, 1997, the claimed classification of the entity
will be respected for all periods prior to January 1, 1997 if (i) the entity had
a reasonable basis for its claimed classification, (ii) the entity and all
members of the entity recognized the federal tax consequences of any change in
the entity's classification within sixty months prior to January 1, 1997, and
(iii) neither the entity nor any member was notified in writing on or before May
8, 1996, that the classification of the entity was under examination (in which
case the entity's classification will be determined in the examination). Based
on our representations that the IRS did not examine our classification or the
classification of our predecessor as a partnership on or before May 8, 1996 and
based upon its review of our Amended and Restated Certificate of Formation and
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Operating Agreement and the limited partnership agreement of our predecessor,
Clifford Chance Rogers & Wells LLP has advised us that in its opinion, we and
our predecessor have satisfied the foregoing requirements. However, our taxation
as a partnership further depends upon our satisfaction of the "qualifying
income" exception for publicly traded partnerships described below.
Publicly traded partnership rules. We are a "publicly traded partnership"
because our common shares are traded on the NYSE. A publicly traded partnership
is generally taxable as a corporation unless 90% or more of its gross income is
"qualifying income." Qualifying income includes interest, dividends, real
property rents, gains from the sale or disposition of real property, gains from
the sale or other disposition of capital assets held for the production of
interest or dividends and certain other items. Clifford Chance Rogers & Wells
LLP has advised us that, although the issue is not free from doubt, tax-exempt
interest constitutes qualifying income for this purpose. In addition, under
Treasury regulations finalized on December 17, 1998, income from notional
principal contracts such as interest rate swaps, caps and floors will be
included in qualifying income if the property, income or cash flow that measures
the amounts to which the partnership is entitled under such contracts would give
rise to qualifying income if held or received directly by the partnership. Our
management has represented that in all of our (and our predecessor's) relevant
prior years, at least 90% of our gross income was qualifying income and has
covenanted to conduct our operations in a manner such that we will continue to
satisfy the qualifying income exception.
Interest, including tax-exempt interest, will not be treated as qualifying
income for these purposes if such interest is derived in the conduct of a
financial or insurance business. We have represented and covenanted that we have
acted and will continue to act as an investor with respect to our investments
and that we have not and will not engage in the active conduct of a lending or
banking or similar financial business. If for any reason more than 10% of our
gross income is attributable to non-qualifying income, including interest income
derived from the conduct of a lending, banking or similar financial business, we
would be taxable as a corporation for federal income tax purposes. Based upon
and subject to the foregoing representations and covenants and based upon its
review of our investments and operational activities as reported by our
management, in the opinion of Clifford Chance Rogers & Wells LLP, although the
issue is not free from doubt, we (and our predecessor) have been and will
continue to be properly treated as a partnership for federal income tax
purposes.
If we were taxable as a corporation in any taxable year for federal income
tax purposes, our income and deductions would be reported only on our tax return
rather than being passed through to our shareholders and we would be required to
pay income tax at corporate rates on any portion of our net income that did not
constitute tax-exempt income. In this regard, a portion of our tax-exempt income
may be included in determining our alternative minimum tax liability. The
imposition of any such tax would reduce the amount of cash available to be
distributed to our shareholders. In addition, distributions to our shareholders
would be taxable as ordinary dividend income to the extent of our earnings and
profits, which would include our tax-exempt income as well as any taxable income
we might have. Payments of such dividends would not be deductible by us.
Certain income tax considerations relating to MuniMae and its shareholders.
Taxation of MuniMae and its shareholders. A partnership itself is not
subject to any federal income tax. Assuming we are classified as a partnership
for tax purposes, we will not be subject to federal income tax and each
shareholder will be required to report on his or her personal income tax return
his or her distributive share of our income, gain, loss, deduction and items of
tax preference and will be subject to tax on his or her distributive share of
our taxable income, regardless of whether any portion of that income is, in
fact, distributed to such shareholder. Thus, shareholders may be required to
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accrue income, without the current receipt of cash if we do not make cash
distributions while generating taxable income from operations. Consequently, a
shareholder's tax liability with respect to his or her share of our taxable
income may exceed the cash actually distributed in a given taxable year.
We must file a federal information tax return on Form 1065. We will provide
information as to each shareholder's distributive share of our income, gain,
loss, deduction and items of tax preference on a Schedule K-1 supplied to such
shareholder after the close of our fiscal year. In preparing such information,
we will utilize various accounting and reporting conventions, some of which are
discussed herein, to determine each shareholder's allocable share of income,
gain, loss and deduction. There is no assurance that the use of such conventions
will produce a result that conforms to the requirements of the Internal Revenue
Code, Treasury regulations or IRS administrative pronouncements and there is no
assurance that the IRS will not successfully contend that such conventions are
impermissible. Any such contentions could result in substantial expenses to us
and our shareholders as a result of contesting such contentions, as well as an
increase in tax liability to shareholders as a result of adjustments to their
allocable share of the our income, gains, losses and deductions.
Tax-exempt income. We expect that a significant portion of our revenues
will constitute tax-exempt income. There are risks that certain amounts of
income that we will report as tax-exempt may not qualify for such treatment.
Allocation of income and loss. Article 4 of our Operating Agreement
allocates our profits and losses and corresponding items of taxable and
tax-exempt income, gain, loss and deductions (including nondeductible expenses).
The allocations generally allocate to holders of common shares all of our items
of income, gain, loss and deductions other than items of income gain, loss and
deduction attributable to the SCATEF Assets (as defined in our Operating
Agreement), which are used to fund most or all distributions in respect of
certain of our preferred shareholders. Additional items of income, gain, loss or
deduction (including tax-exempt interest) are allocated to certain of our
preferred shareholders to the extent the items attributable to the SCATEF Assets
are insufficient to account for the distributions payable to such holders under
Article 5 of our Operating Agreement.
Our allocation provisions will be recognized for federal income tax
purposes only if they are considered to have "substantial economic effect" and
are not retroactive allocations. If any allocation of an item fails to satisfy
the "substantial economic effect" requirement, the item will be allocated among
the shareholders based on their respective "interests" in us, determined on the
basis of all of the relevant facts and circumstances. Such a determination could
result in the income, gains, losses, deductions or credits allocated under our
Operating Agreement being reallocated among the shareholders. Such a
reallocation, however, would not alter the distribution of cash flow under our
Operating Agreement.
The Operating Agreement permits shareholders' capital accounts to be
increased or decreased to reflect the revaluations of property (at fair market
value) on our books in connection with a contribution or distribution of money
or other property. Capital accounts will generally be restated to reflect an
issuance of additional common shares.
When common shares are sold or exchanged, we are required to account for
the variation between the basis of the transferees in the common shares and the
transferee's share of the tax basis of our assets (less the transferee's share
of our debt) allocable to his or her common shares. The IRS has not issued
guidance as to how a company with publicly traded shares can comply with these
rules.
There is no assurance the IRS will agree with our method of allocating
income, gain, loss and deduction (including tax-exempt interest and
nondeductible expenses) to the holders of our common shares, or our
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determination and allocation of adjustments attributable to differences between
the purchase price of common shares and their shares of the tax basis in our
assets. Because as a publicly traded partnership we may be unable to comply with
the literal requirements of the Treasury regulations and because certain of our
Operating Agreement's allocations may not have "substantial economic effect,"
Clifford Chance Rogers & Wells LLP is unable to express an opinion on these
issues. However, we do not expect that any reasonable adjustments which may be
required by the IRS would substantially increase the share of the taxable income
allocable to shareholders.
Shareholder's basis in common shares. A shareholder's adjusted basis in
common shares is relevant in determining the gain or loss on the sale or other
disposition of common shares and the tax consequences of a distribution from us.
In addition, a shareholder is entitled to deduct on his personal income tax
return, subject to the limitations discussed below, his distributive share of
our net loss, if any, to the extent of such shareholder's adjusted basis in his
common shares. A shareholder's basis in his common shares will generally be his
purchase price for the common shares, increased by his share of items of our
income (including tax-exempt interest) and gain, and reduced, but not below
zero, by his share of our items of loss and deduction (including any
nondeductible expenses) and by any cash distributions received by such
shareholder from us.
Treatment of cash distributions to our shareholders from us. Cash
distributions made to our shareholders will generally be treated as a
non-taxable return of capital and will not generally increase or decrease such
shareholders' share of taxable income or loss from us. A return of capital
generally does not result in any recognition of gain or loss for federal income
tax purposes but reduces a shareholder's adjusted basis in his common shares.
Distributions of cash in excess of a shareholder's adjusted basis in his common
shares immediately prior thereto will result in the recognition of gain to the
extent of such excess.
Sale of the common shares. Gain or loss will be recognized by a shareholder
upon the sale of the common shares acquired in an amount equal to the difference
between the amount realized on the sale and the tax basis of the shareholder
allocable to the common shares. Except to the extent attributable to unrealized
receivables or inventory, which are not expected to be material, such gain or
loss will be capital gain or loss if the common shares are capital assets in the
hands of the holder thereof and will be long term capital gain or loss if the
shareholder's holding period in the common shares is more than one year. In
general, an individual's long term capital gain is taxed at a maximum rate of
20% (10% for individuals in the 15% tax bracket).
It is the position of the IRS that a partner has a single aggregate basis
in all of the partner's partnership interests and that, to determine gain or
loss upon a sale of a portion of such partnership interest, the portion of the
partner's basis allocated to the interest being sold equals the partner's share
of partnership liabilities transferred in the sale plus the partner's aggregate
tax basis (excluding basis attributable to partnership liabilities) multiplied
by the ratio of the fair market value of the interests sold to the fair market
value of all of the partner's partnership interests. This rule may produce
unexpected results if applied to a shareholder who purchased common shares at
more than one price or who owns preferred shares in addition to common shares
because the sale may result in significantly different gains or losses than in
the case of a shareholder who held only the common shares being sold.
Limitations on deductibility of losses. It is not anticipated that we will
generate any tax losses. A corporate shareholder generally will be entitled to
deduct its distributive share of any of our losses to the extent of the tax
basis of its common shares at the end of the year in which such losses occur.
However, shareholders who are individuals, trusts, estates, personal service
companies and certain closely held C corporations may be subject to limitations
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on deducting our losses, pursuant to the passive loss provisions of the Internal
Revenue Code.
Limitation on interest deductions. The deductibility of a non-corporate
taxpayer's "investment interest" expense is generally limited to the amount of
such taxpayer's "net investment income." Investment interest expense includes:
o interest on indebtedness incurred or continued to purchase or carry
property held for investment and that is not part of a passive activity;
o a partnership's interest expense attributed to portfolio income under the
passive loss rules; and
o the portion of interest expense incurred or continued to purchase or carry
an interest in a passive activity (such as a shareholder's investment in
our shares) to the extent attributed to portfolio income under the passive
loss rules.
Net investment income includes gross income from property held for investment,
gain attributable to the disposition of property held for investment and amounts
treated as gross portfolio income pursuant to the passive loss rules less
deductible expenses (other than interest) directly connected with the production
of investment income.
A shareholder would treat as investment interest expense his allocable
portion of our total interest expense, if any, or of any margin account or other
interest expense incurred to purchase or carry a common share, that is
attributable to our gross portfolio income less deductible expenses directly
connected with such portfolio income. The portion of a shareholder's allocable
share of our interest expense, or of any margin account or other interest
expense incurred to purchase or carry a common share, that is attributable to
our passive income is subject to the passive loss limitations described above.
Deductibility of interest connected with tax-exempt income. The Internal
Revenue Code disallows any deduction for interest paid by a taxpayer on
indebtedness incurred or continued for the purpose of purchasing or carrying a
tax-exempt obligation. A purpose to carry tax-exempt obligations will be
inferred whenever a taxpayer owns tax-exempt obligations and has outstanding
indebtedness which is neither directly connected with personal expenditures nor
incurred in connection with the active conduct of a trade or business. The IRS
might take the position that a shareholder's allocable portion of any interest
paid by us on our borrowings and any interest paid by the shareholder on
indebtedness incurred to purchase our shares should be viewed, in whole or in
part, as incurred to enable such shareholder to continue carrying such
tax-exempt obligations and, therefore, that the deduction of any such interest
by such shareholder should be disallowed in whole or in part. We do not expect
to incur any significant amount of indebtedness to purchase or carry tax-exempt
investments. However, a risk exists that the IRS may take the position that
P-FLOATsSM sold as part of the securitizations are debt. Puttable floating
option tax-exempt receipts, commonly known P-FLOATsSM, are senior securities
that bear interest at rate that is reset weekly so that they sell at par value.
We have received opinions of counsel to the effect that the P-FLOATsSM are not
debt for federal income tax purposes. However, if the IRS were to successfully
assert this position, interest paid to the holders of P-FLOATsSM may not be
deductible.
Alternative minimum tax. Unless grandfathered, interest on the mortgage
bonds generally is an item of tax preference for purposes of the alternative
minimum tax. To the extent that the interest we receive on any of our mortgage
bonds is such an item of tax preference, a portion of the interest income
allocable to a holder of common shares also will be a tax preference item.
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Other federal income tax considerations. The Internal Revenue Code contains
certain provisions that could result in other tax consequences as a result of
ownership of the common shares or the inclusion in certain computations
including, without limitation, those related to the corporate alternative
minimum tax and environmental tax.
Ownership of tax-exempt obligations may result in collateral tax
consequences to certain taxpayers, including, without limitation, financial
institutions, property and casualty insurance companies, certain foreign
corporations doing business in the United States, certain S corporations with
excess passive income, individual recipients of social security or railroad
retirement benefits and individuals otherwise eligible for the earned income
credit. Prospective purchasers of common shares should consult a tax advisor as
to the applicability of any such collateral consequences.
Company expenses. We have incurred or will incur various expenses in
connection with our ongoing administration and operation. Payments for services
generally are deductible if the payments are ordinary and necessary expenses,
are reasonable in amount and are for services performed during the taxable year
in which paid or accrued. We anticipate that a portion of our ordinary expenses
will be allocable to tax-exempt interest income. The Internal Revenue Code
prohibits the deduction of any expense otherwise allowable under Section 212
which is allocable to tax-exempt interest income. Shareholders who are
individuals will not be permitted to deduct the portion of our expenses related
to tax-exempt income in calculating their federal income tax liability.
To the extent our expenses are not disallowed as described in the previous
paragraph, payments for services related to the acquisition of an asset having a
useful life in excess of one year, such as brokerage fees, generally must be
capitalized into the cost basis of the acquired property. The IRS may not agree
with our determinations as to the deductibility of fees and expenses and might
require that certain expenses be capitalized and amortized or depreciated over a
period of years. If all or a portion of such deductions were to be disallowed,
on the basis that some of the foregoing expenses are non-deductible syndication
fees or otherwise, our taxable income would be increased or our losses would be
reduced.
An individual's miscellaneous itemized deductions, including his or her
investment expenses, are deductible only to the extent they exceed 2% of his or
her adjusted gross income. Under the Taxpayer Relief Act of 1997, if we elect to
be treated as an "electing large partnership" under the Internal Revenue Code,
the limitation on miscellaneous itemized deductions will apply at the
partnership level. In that case, instead of the 2% floor, 70% of our total
miscellaneous itemized deductions would be disallowed.
Section 754 election. We have elected under Section 754 of the Internal
Revenue Code to adjust the basis of partnership property on the transfer of
preferred and common shares by the difference between the transferee's basis for
his shares and the transferee's allocable share of the basis of all of our
property. The increase or decrease affects the basis of our property only with
respect to the transferee holder of shares. The procedure for allocating the
basis adjustment is complex and there is no assurance that the IRS would not
challenge our allocations of the basis adjustment among our assets.
Backup withholding. Distributions to shareholders whose common shares are
held on their behalf by a "broker" may constitute "reportable payments" under
the federal income tax rules regarding "backup withholding." Backup withholding,
however, would apply only if the shareholder failed to furnish his Social
Security number or other taxpayer identification number of the person subject to
the backup withholding requirement (e.g., the "broker") or furnished an
incorrect Social Security number or taxpayer identification number. If "backup
withholding" were applicable to a shareholder, we would be required to withhold
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31% of each distribution to such shareholder and to pay such amount to the IRS
on behalf of such shareholder.
Issuance of additional common shares. We are likely to issue new common
shares to additional investors to finance the acquisition of additional
investments. On any issuance of additional common shares, the capital accounts
of the existing shareholders will be adjusted to reflect a revaluation of our
property (based on their then fair market value, net of liabilities, to which
they are then subject).
Tax returns, audits, interest and penalties. We will supply Schedules K-1
to Form 1065 to each shareholder of record as of the last day of each month
after the end of each calendar year. We are not obligated to provide tax
information to persons who are not such shareholders of record.
Any shareholder who sells or exchanges a common share will be required to
notify us of such transaction in writing within 30 days of the transaction (or,
if earlier, by January 25 of the calendar year after the year in which the
transaction occurs). The notification is required to include the names and
addresses of the transferor and the transferee; the taxpayer identification
number of the transferor and, if known, of the transferee; and the date of the
sale or exchange. A shareholder will not be required to notify us of a sale or
exchange of a common share if an information return is required to be filed by a
broker with respect to such sale or exchange. Any transferor who fails to notify
us of a sale or exchange may be subject to a $50 penalty for each such failure.
We will treat any transferor shareholder who provides all of the information
requested of the transferor on the depositary receipt as having satisfied this
notification requirement.
In addition, we must file a return notifying the IRS of any sale or
exchange of a common share of which we have notice and report the name and
address of the transferee and the transferor who were parties to such
transaction, along with all other information required by applicable Treasury
regulations, including the fair market value of the selling shareholder's
allocable share of unrealized receivables (including depreciation recapture, if
any). If we do not know the identity of the beneficial owner of the common
share, the record holder of such common share may be treated as the transferor
or transferee, as the case may be. If we fail to file such a return, we may be
subject to a penalty of $50 for each such failure up to an annual maximum of
$250,000 (with no limit in the case of intentional disregard of the filing
requirement). We are also required to provide this information to the transferor
and the transferee. If we fail to furnish any such information, we may be
subject to a penalty of $50 per failure up to an annual maximum of $250,000.
However, we would not be required to file a return upon the sale or exchange of
a common share with respect to which an information return is required to be
filed by a broker.
To the extent our tax returns are examined by the IRS, the tax treatment of
our income, gain, loss, deductions or credits will be determined at the
partnership level in a unified proceeding, rather than separate proceedings for
each holder of common or preferred shares. We may elect to be treated as an
"electing large partnership" under the Internal Revenue Code. If we make such
election, only we (and not our shareholders) will receive notice of IRS
adjustments to our return. We (and not our shareholders) would have the right to
appeal the adjustments. Under the electing large partnership provisions, we may
elect to either combine the adjustments with similar items for the current tax
year and pass through the adjustment to the shareholders for such year, or pay a
tax on any adjustment at the highest individual or corporate rate, plus interest
and penalties. In general terms, if we do not elect to be treated as an electing
large partnership, we will still be subject to a unified partnership proceeding,
but shareholders owing at least a one percent profits interest in the
partnership whose name and address is furnished to the IRS would receive notice
of the commencement of an audit as well as notice of the final partnership
administrative adjustment. Also, if we do not elect "electing large partnership"
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status, our tax matters partner would generally not be able to settle on behalf
of, and bind, shareholders with a one percent or greater profits interest.
State, local and foreign income taxes. In addition to the federal income
tax consequences described above, shareholders should consider potential state,
local and foreign tax consequences of an investment in our shares and are urged
to consult their individual tax advisors in this regard. The rules of some
states and localities for computing and/or reporting taxable income may differ
from the federal rules. Interest income that is tax-exempt for federal purposes
may be taxable by some states and localities.
Both the substantive features and the filing requirements of state income
taxation of shareholders will vary according to several factors which include
the following:
o the status of the shareholder;
o whether the state imposes personal or corporate income taxation or instead
imposes a form of franchise, unincorporated business or occupational
taxation;
o whether the state will allow credits or exemptions for income taxes to
which a shareholder is subject in his state or other jurisdiction of
residence;
o the level of personal exemptions or credits allowed by the state and
whether those exemptions or credits are required to be prorated in the
ratio of income sourced in the taxing state to total income; and
o whether the applicable tax rate structure is applied on the basis of income
sourced in the taxing jurisdiction or on the basis of total income of a
nonresident taxpayer.
We may be required to withhold state taxes from distributions to shareholders in
some instances.
The summary of tax consequences set forth above is for general information
only and does not address the circumstances of any particular shareholder.
Shareholders should consult their own tax advisors as to the specific tax
consequences of the purchase, ownership and disposition of common shares
including the application of state, local and foreign tax laws.
LEGAL MATTERS
Certain legal matters will be passed upon for MuniMae by Clifford Chance
Rogers & Wells LLP, New York, New York.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended December 31, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection
with the offerings described in this registration statement. We are responsible
for all costs, expenses and fees associated with the registration of these
common shares. All expenses are estimated except the Securities and Exchange
Commission registration fee.
Securities and Exchange Commission registration fee........... $ 5,533
Accounting fees............................................... 20,000
Legal fees and expenses....................................... 35,000
-------
Total................................................. $60,533
=======
These estimated expenses do not include expenses of preparing prospectus
supplements and other expenses relating to offerings of particular securities.
Messrs. Banks, Gloeckl and Mathis will be responsible for all costs, expenses
and fees associated with the future sales by them of these common shares.
Item 15. Indemnification of Directors and Officers.
MuniMae's Amended and Restated Certificate of Formation and Operating
Agreement, dated as of August 1, 1996, contains the following provisions
relating to indemnification of directors and officers. All terms capitalized
below and not otherwise defined shall have the meanings set forth in MuniMae's
Amended and Restated Certificate of Formation and Operating Agreement.
"8.1. Limitations on Liability, and Indemnification of, Directors and
Officers.
(a) No Directors or officers of the Company shall be liable,
responsible or accountable in damages or otherwise to the Company or
any of the Shareholders for any act or omission performed or omitted
by him or her, or for any decision, except in the case of fraudulent
or illegal conduct of such person. For purposes of this Section 8.1,
the fact that an action, omission to act or decision is taken on the
advice of counsel for the Company shall be evidence of good faith and
lack of fraudulent conduct.
(b) All Directors and officers of the Company shall be entitled
to indemnification from the Company for any loss, damage or claim
(including any reasonable attorney's fees incurred by such person in
connection therewith) due to any act or omission made by him or her,
except in the case of fraudulent or illegal conduct of such person;
provided, that any indemnity shall be paid out of, and to the extent
of, the assets of the Company only (or any insurance proceeds
available therefor), and no Shareholder shall have any personal
liability on account thereof.
(c) The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the Person acted fraudulently or illegally.
(d) The indemnification provided by this Section 8.1 shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any agreement, vote of Shareholders or Directors, or
II-1
<PAGE>
otherwise, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(e) Any repeal or modification of this Section 8.1 shall not
adversely affect any right or protection of a Director or officer of
the Company existing at the time of such repeal or modification.
(f) The Company may, if the Board of Directors of the Company
deems it appropriate in its sole discretion, obtain insurance for the
benefit of the Company's Directors and officers, relating to the
liability of such persons."
MuniMae has purchased insurance for the benefit of the directors and
officers of MuniMae, relating to the liability of such persons. The directors
and officers liability insurance insures (i) the officers and directors of
MuniMae from any claim arising out of an alleged wrongful act by such persons
while acting as directors and officers, and (ii) MuniMae to the extent that it
has indemnified the directors and officers for such loss.
Item 16. Exhibits.
The following is a list of all exhibits filed as a part of this
registration statement on Form S-3:
Exhibit Number Exhibit
- -------------- -------
1.1 Form of Underwriting Agreement.(1)
2.1 Stock Purchase and Contribution Agreement, dated as of September
30, 1999, by and among Municipal Mortgage & Equity, LLC, and
Robert J. Banks, Keith J.
Gloeckl and Ray F. Mathis.(2)
2.2 Registration Rights Agreement, dated as of October 20, 1999, by
and between Municipal Mortgage & Equity, LLC, and Robert J.
Banks, Keith J. Gloeckl and Ray F. Mathis.(3)
4.1 Amended and Restated Certificate of Formation and Operating
Agreement of MuniMae.(4)
4.2 Amendment No. 1 to the Amended and Restated Certificate of
Formation and Operating Agreement of MuniMae.(5)
4.3 By-laws of MuniMae.(6)
4.4 Form of specimen certificate representing common shares.(7)
5.1 Opinion of Clifford Chance Rogers & Wells LLP.
8.1 Opinion of Clifford Chance Rogers & Wells LLP as to certain tax
matters.
23.1 Consent of Clifford Chance Rogers & Wells LLP (contained in the
opinion filed as Exhibit 5.1).
23.2 Consents of PricewaterhouseCoopers LLP.
24.1 Powers of attorney (set forth in the signature pages to this
registration statement).
- -------------------------
(1) To be filed by amendment, by incorporation by reference or by
filing of a Current Report on Form 8-K in connection with the
offering of the common shares.
(2) Filed as an Exhibit to MuniMae's Current Report on Form 8-K,
filed October 8, 1999.
(3) Filed as an Exhibit to MuniMae's Current Report on Form 8-K/A,
filed December 27, 1999.
II-2
<PAGE>
(4) Filed as an Exhibit to MuniMae's Amended Annual Report on Form
10-K/A for the year 1997 and incorporated by reference.
(5) Filed as an Exhibit to MuniMae's Quarterly Report on Form 10-Q,
filed May 14, 1999.
(6) Filed as an Exhibit to MuniMae's Registration Statement on Form
S-3, as amended (Registration No. 333-56049), filed on June 29,
1998, and incorporated by reference.
(7) Filed as Exhibit 4.1 to MuniMae's Registration Statement on Form
S-4 (File No. 33-99088), filed November 7, 1995, and incorporated
by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
that are incorporated by reference in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment, any of the securities being registered which remain unsold
at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
II-3
<PAGE>
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective;
and
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Baltimore, State of Maryland, on this 24th day of
January, 2000.
MUNICIPAL MORTGAGE & EQUITY, LLC
By: /s/ Mark K. Joseph
--------------------------------------------
Name: Mark K. Joseph
Title: Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that we the undersigned officers and
directors of Municipal Mortgage & Equity, LLC, hereby severally constitute Mark
K. Joseph and Michael L. Falcone and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the registration statement filed
herewith and any and all amendments to said registration statement (including,
without limitation, any amendments filed pursuant to Section 462(b) of the
Securities Act of 1933, as amended), and generally to do all such things in our
names and in our capacities as officers and directors to enable Municipal
Mortgage & Equity, LLC to comply with the provisions of the Securities Act of
1933, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signature as they may be signed by our said
attorneys, or any of them, to said registration statement and any and all
amendments.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ Mark K. Joseph
- --------------------------- Chairman of the Board and January 24, 2000
Mark K. Joseph Chief Executive Officer
(Principal Executive
Officer) and Director
II-5
<PAGE>
/s/ Gary A. Mentesana Chief Financial Officer January 24, 2000
- --------------------------- (Principal Financial
Gary A. Mentesana Officer and Principal
Accounting Officer)
/s/ Charles C. Baum Director January 24, 2000
- ---------------------------
Charles C. Baum
/s/ Richard O. Berndt Director January 24, 2000
- ---------------------------
Richard O. Berndt
/s/ Robert S. Hillman Director January 24, 2000
- ---------------------------
Robert S. Hillman
/s/ William L. Jews Director January 24, 2000
- ---------------------------
William L. Jews
/s/ Carl W. Stearn Director January 24, 2000
- ---------------------------
Carl W. Stearn
/s/ Douglas A. McGregor Director January 24, 2000
- ---------------------------
Douglas A. McGregor
/s/ Michael L. Falcone Director January 24, 2000
- ---------------------------
Michael L. Falcone
/s/ Robert J. Banks Director January 24, 2000
- ---------------------------
Robert J. Banks
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
1.1 Form of Underwriting Agreement.(1)
2.1 Stock Purchase and Contribution Agreement, dated as of September
30, 1999, by and among Municipal Mortgage & Equity, LLC, and
Robert J. Banks, Keith J.
Gloeckl and Ray F. Mathis.(2)
2.2 Registration Rights Agreement, dated as of October 20, by and
between Municipal Mortgage & Equity, LLC, and Robert J. Banks,
Keith J. Gloeckl and Ray F. Mathis.(3)
4.1 Amended and Restated Certificate of Formation and Operating
Agreement of MuniMae.(4)
4.2 Amendment No. 1 to the Amended and Restated Certificate of
Formation and Operating Agreement of MuniMae. (5)
4.3 By-laws of MuniMae.(6)
4.4 Form of specimen certificate representing common shares.(7)
5.1 Opinion of Clifford Chance Rogers & Wells LLP.
8.1 Opinion of Clifford Chance Rogers & Wells LLP as to certain tax
matters.
23.1 Consent of Clifford Chance Rogers & Wells LLP (contained in the
opinion filed as Exhibit 5.1).
23.2 Consents of PricewaterhouseCoopers LLP.
24.1 Powers of attorney (set forth in the signature pages to this
registration statement).
- -------------------------
(1) To be filed by amendment, by incorporation by reference or by
filing of a Current Report on Form 8-K in connection with the
offering of the common shares.
(2) Filed as an Exhibit to MuniMae's Current Report on Form 8-K,
filed October 8, 1999 and incorporated by reference.
(3) Filed as an Exhibit to MuniMae's Current Report on Form 8-K/A,
filed December 27, 1999.
(4) Filed as an Exhibit to MuniMae's Amended Annual Report on Form
10-K/A for the year 1997 and incorporated by reference.
(5) Filed as an Exhibit to MuniMae's Quarterly Report on Form 10-Q,
filed May 14, 1999.
(6) Filed as an Exhibit to MuniMae's Registration Statement on Form
S-3, as amended (Registration No. 333-56049), filed on June 29,
1998, and incorporated by reference.
(7) Filed as Exhibit 4.1 to MuniMae's Registration Statement on Form
S-4 (File No. 33-99088), filed November 7, 1995, and incorporated
by reference.
II-7
<PAGE>
Exhibit 5.1
January 24, 2000
Municipal Mortgage & Equity, LLC
218 North Charles Street, Suite 500
Baltimore, MD 21201
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for Municipal Mortgage & Equity, LLC, a
Delaware limited liability company (the "Company"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement"), filed by the
Company with the Securities and Exchange Commission (the "Commission") for
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 589,565 common shares, and up to $10,000,000 of common shares, of
limited liability interest of the Company (the "Common Shares") to be offered
from time to time by Messrs. Robert J. Banks, Keith J. Gloeckl and Ray I.
Mathis, (together, the "Sellers") together or separately, in separate amounts,
and at prices and on terms to be set forth in one or more prospectus
supplements. The Common Shares have no par value.
In so acting, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of the Company's Amended and Restated
Certificate of Formation and Operating Agreement (the "Operating Agreement"),
the Stock Purchase and Contribution Agreement, dated September 30, 1999, among
the Company and the Sellers, and such corporate records, documents, certificates
and other instruments as in our judgment are necessary or appropriate to enable
us to render the opinions expressed below. As to factual matters relevant to the
opinions set forth below we have, with your permission, relied upon certificates
of officers of the Company and public officials.
Based upon the foregoing and on such examination of law as we have deemed
necessary, we are of the opinion that:
1. The Common Shares have been duly authorized by all necessary action of the
Company's Board of Directors (the "Board"), and are validly issued, fully
paid and nonassessable (subject to the Distribution Liability (as defined
in the Operating Agreement)).
In rendering the foregoing opinions, we have assumed that (i) the Registration
Statement, and any amendments thereto, will have become and at the time of the
secondary sale of the Common Shares will continue to be effective, (ii) a
prospectus supplement describing the Common Shares offered pursuant to the
Registration Statement will have been filed with the Commission, (iii) the
resolutions authorizing the Company to register the Common Shares will remain in
effect and unchanged at all times during which the Common Shares are offered,
sold, or issued by any of the Sellers and (iv) all Common Shares will be sold in
compliance with applicable federal and state securities laws.
We are members of the Bar of the State of New York and the opinions set forth in
this letter relate only to the federal laws of the United States of America, and
the Delaware Limited Liability Company Act.
<PAGE>
We understand that prior to offering for sale of any Common Shares you will
advise us in writing of the terms of such offering and of such Common Shares and
will afford us an opportunity to review the operative documents (including the
applicable prospectus supplement and any applicable underwriting agreement)
pursuant to which the Common Shares are to be offered, sold, and issued and will
file as an exhibit to the Registration Statement such supplement or amendment to
this opinion (if any) as we may reasonably consider necessary or appropriate by
reason of the terms of such Common Shares or any changes in the Company's
capital structure or other pertinent circumstances.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us in the prospectus under the
caption "Legal Matters." In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Clifford Chance Rogers & Wells LLP
<PAGE>
Exhibit 8.1
January 24, 2000
Municipal Mortgage & Equity, LLC
218 North Charles Street
Suite 500
Baltimore, Maryland 21201
Re: Municipal Mortgage & Equity, LLC (the "Company")
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income tax
matters in connection with the transactions contemplated in the Registration
Statement (the "Registration Statement") filed by the Company on Form S-3 with
the Securities and Exchange Commission (the "Commission") for registration under
the Securities Act of 1933, as amended (the "Securities Act"), of 589,565 common
shares, and up to $10,000,000 of common shares, of limited liability interest of
the Company (the "Common Shares") to be offered from time to time by Messrs.
Robert J. Banks, Keith J. Gloeckl and Ray I. Mathis, (together, the "Sellers")
together or separately, in separate amounts, and at prices and on terms to be
set forth in one or more prospectus supplements (the "Offering").
We have acted as special counsel to the Company with respect to the Offering of
the Common Shares pursuant to the Registration Statement. This letter is for
delivery in connection with the filing of the Registration Statement and is
intended to confirm as of the date hereof the opinions described in the sections
of the prospectus captioned "Factors relating to federal income tax" and
"FEDERAL INCOME TAX CONSIDERATIONS." We hereby consent to the use of this
opinion letter as an exhibit to the Registration Statement of the Company and to
the reference to this Firm in the Registration Statement under the captions
"Factors relating to federal income tax" and "FEDERAL INCOME TAX
CONSIDERATIONS."
In rendering the opinion stated below, we have examined and relied, with your
consent, upon the following:
(i) the prospectus and Registration Statement;
(ii) the Amended and Restated Certificate of Formation and Operating
Agreement of the Company; and
(iii)such other documents, records and instruments as we have deemed
necessary to enable us to render the opinions referred to in this
letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures on each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations and statements set forth in such documents are true and correct,
(v) all obligations imposed by any such documents on the parties thereto have
<PAGE>
been or will be performed or satisfied in accordance with their terms and (vi)
the Company at all times will be organized and operated in accordance with the
terms of such documents. We have further assumed the accuracy of the statements
and descriptions of the Company's intended activities as described in the
prospectus.
For purposes of rendering the opinion stated below, we have also assumed, with
your consent, the accuracy of the representations and covenants contained in the
Certificate of Representations dated as of the date hereof provided to us by the
Company and attached hereto (the "Certificate of Representations"). These
representations generally relate to the classification and the operation of the
Company.
Based upon and subject to the foregoing, we are of the opinion that:
(1) The opinions set forth in the Prospectus under the captions
"Factors relating to federal income tax" and "Federal Income Tax
Considerations." and identified as our opinions are hereby
confirmed.
(2) The summary of federal income tax considerations set forth in the
prospectus fairly summarizes the federal income tax considerations
that are likely to be material to a typical holder of Common
Shares.
The opinions stated above are subject to and based upon the assumptions,
qualifications, limitations, representations and covenants discussed in the
prospectus. The opinions stated above also represent our conclusions as to the
application of federal income tax laws existing as of the date of this letter to
the transactions contemplated in the prospectus and we can give no assurance
that legislative enactments, administrative changes or court decisions may not
be forthcoming that would modify or supersede our opinions. Moreover, there can
be no assurance that positions contrary to our opinions will not be taken by the
Internal Revenue Service, or that a court considering the issues would not hold
contrary to such opinions. Further, the opinions set forth above represents our
conclusions based upon the documents, facts and representations referred to
above. Any material amendments to such documents, changes in any significant
facts or inaccuracy of such representations could affect the opinions referred
to herein. Although we have made such inquiries and performed such
investigations as we have deemed necessary to fulfill our professional
responsibilities as counsel, we have not undertaken an independent investigation
of all of the facts referred to in this letter.
We express no opinion as to any federal income tax issue or other matter except
those set forth above.
Very truly yours,
/s/ Clifford Chance Rogers & Wells LLP
<PAGE>
Exhibit 23.2
CONSENTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
----------------------------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-) of Municipal Mortgage & Equity, LLC of our
reports dated March 10, 1999 and March 13, 1998 relating to the consolidated
financial statements of Midland Financial Holdings Inc. and Subsidiaries, which
appear in the Current Report on Form 8-K/A of Municipal Mortgage & Equity, LLC
dated December 27, 1999.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
January 24, 2000
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 4, 1999 relating to the
financial statements, which appears in Municipal Mortgage and Equity, L.L.C.'s
Annual Report on Form 10-K for the year ended December 31, 1998. We also consent
to the references to us under the headings "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
January 24, 2000
