As filed with the Securities and Exchange Commission on August 3, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 6162 13-3949418
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification No.)
---------------------------------
625 Madison Avenue
New York, New York 10022
(212) 421-5333
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------------
STUART J. BOESKY
President and Chief Executive Officer
Charter Municipal Mortgage Acceptance Company
625 Madison Avenue
New York, New York 10022
(212) 421-5333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------------
Copy to:
MARK SCHONBERGER
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York 10022
(212) 318-6859
---------------------------------
Approximate date of commencement of the proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
----------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Proposed
Amount to Maximum Proposed Maximum Amount of
Title of Securities be Offering Price Aggregate Offering Registration Fee
to be Registered Registered(1) Per Share (2) Price (3)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest in 2,115,630 $12.28125 $25,982,580.9375 $1,610.41
the Registrant
========================================================================================================================
</TABLE>
(1) Represents the maximum number of common shares of beneficial interest
in the Registrant estimated to be issuable to holders of shares of
beneficial interest in American Tax Exempt Bond Trust in the proposed
merger of American Tax with and into a wholly-owned subsidiary of the
Registrant. Includes 21,156 common shares of beneficial interest in the
Registrant that would be issuable to Related AMI Associates, Inc. in
respect of its 1% interest in all items of income, loss and
distributions in American Tax.
(2) Estimated solely for the purpose of determining the Registration Fee in
accordance with Rule 457(f) of the rules and regulations under the
Securities Act of 1933, as amended. Pursuant to Rule 457(f), the
proposed maximum offering price per share of the common shares of
beneficial interest in the Registrant is based upon the average of the
high and low reported sales prices of the such shares on the American
Stock Exchange Composite Transaction Tape on November 3, 1999. The day
prior to the filing of the preliminary proxy materials pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
(3) Pursuant to Rule 0-11(a)(2) under the Securities Exchange Act of 1934,
as amended, the total registration fee of $6,859.41 (calculated by
multiplying the proposed maximum aggregate offering price by .000264)
was reduced in amount by $5,249.00, the filing fees paid pursuant to
Securities Exchange Act of 1934 Rule 0-11 in connection with the filing
of the preliminary proxy materials of American Tax with the Securities
and Exchange Commission on November 4, 1999. 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 the Registration Statement
shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
================================================================================
<PAGE>
AMERICAN TAX EXEMPT BOND TRUST
625 Madison Avenue
New York, New York 10022
Dear Shareholders,
The manager of American Tax Exempt Bond Trust, Related AMI Associates,
Inc., and the Board of Trustees of Charter Municipal Mortgage Acceptance Company
are pleased to present to you for your approval the proposal to merge your fund,
American Tax, with and into a wholly-owned subsidiary of CharterMac. If the
merger is completed, you will receive 1.43112 CharterMac common shares for each
American Tax share you own. CharterMac common shares trade on the American Stock
Exchange under the symbol "CHC".
You are being asked to approve the following proposals:
o the merger of American Tax with and into a subsidiary of CharterMac;
o the amendments to American Tax's trust agreement which will allow the
merger.
Please take the time to vote on the proposals by completing and mailing
the enclosed consent form to American Tax in the enclosed self-addressed
envelope. The deadline for returning the enclosed consent form is October ___
2000, which date may be extended.
There are risks involved in the merger. In determining whether to
approve the merger, you should consider such risks, which include the risk that:
o you will not know the value of the merger consideration at the
time you give your consent.
o you will no longer be a shareholder in an entity which is
structured to acquire a fixed amount of assets, sell those assets
and distribute the proceeds to you.
o if the merger were to have occurred at CharterMac's 52 week low as
of August 1, 2000, the CharterMac common shares received by all
American Tax shareholders in the merger would reflect an aggregate
value for their American Tax shares of $23,800,838 which is
$1,684,544 less than the fair market value of American Tax's net
assets as of March 31, 2000.
o the managers of both American Tax and CharterMac are owned and
controlled by the same people and they share the same legal
counsel.
o American Tax shareholders will be required to pay capital gains
tax as a result of the merger but will not receive a special cash
distribution for the payment of such tax.
For a detailed description of the risks involved in the merger, you
should read the section of the consent statement-prospectus entitled "Risk
Factors" on page [__].
All of the proposals require the affirmative vote of the holders of a
majority of the outstanding American Tax shares entitled to vote on the
proposals. CharterMac's board of trustees has only approved the merger if it can
pay for the transaction using only its common shares.
Sincerely,
Stuart J. Boesky
Director and President of Related
AMI Associates, Inc., Manager
American Tax Exempt Bond Trust
/293812.1
<PAGE>
Neither the SEC nor any state securities regulators have approved the CharterMac
common shares to be issued in the merger or determined if this consent
statement- prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
This consent statement-prospectus provides you with detailed
information about the proposed merger. American Tax and CharterMac encourage you
to read this document carefully. In addition, you may obtain information about
American Tax or CharterMac from documents which have been filed with the
Securities and Exchange Commission.
Consent statement-prospectus dated August [__], 2000
and first mailed to shareholders on August [__], 2000
/293812.1
<PAGE>
AMERICAN TAX EXEMPT BOND TRUST
625 Madison Avenue
New York, NY 10022
NOTICE OF CONSENT SOLICITATION
TO THE SHAREHOLDERS OF AMERICAN TAX EXEMPT BOND TRUST:
NOTICE IS HEREBY GIVEN that the manager of American Tax Exempt Bond
Trust, Related AMI Associates, Inc., is soliciting the consent of the holders of
shares of beneficial interest of American Tax to the following proposals:
o Approval and Adoption of Merger Agreement: To approve and adopt
the merger agreement, dated as of November 2, 1999, among American
Tax, Charter Municipal Mortgage Acceptance Company and CM Holding
Trust, a wholly-owned subsidiary of CharterMac, pursuant to which
American Tax will be merged with and into CM Holding, with CM
Holding being the surviving business trust.
o Removal of Section 23.2 from Trust Agreement: To approve and adopt
an amendment to American Tax's trust agreement to remove Section
23.2, to be effective immediately prior to the merger, which
contains a provision which may otherwise grant American Tax
shareholders who vote "no" on the proposed merger, the choice of
(a) accepting CharterMac common shares or (b) either (1) remaining
a shareholder of American Tax or (2) receiving cash for their
American Tax shares equal to each American Tax shareholder's pro
rata share of the appraised value of the net assets of American
Tax.
o Removal of Section 23.3(a) through (d) from Trust Agreement: To
approve and adopt an amendment to American Tax's trust agreement
to remove Sections 23.3(a) through (d), to be effective
immediately prior to the merger, which contain restrictions that
could be construed to prohibit the consummation of the merger.
o Removal of Section 15.4.9 from Trust Agreement: To approve and
adopt an amendment to American Tax's trust agreement to remove
Section 15.4.9, to be effective immediately prior to the merger,
which contains a provision which could be construed to otherwise
prevent Related AMI or its affiliates, including for this purpose
CharterMac, from purchasing first mortgage bonds from American Tax
in the merger.
o Extension of Solicitation Period: To approve, if necessary, the
extension of the solicitation period.
All of the proposals require the affirmative vote of the holders of a
majority of the outstanding American Tax shares entitled to vote on the
proposals, except the extension of the solicitation period, which only requires
the majority of votes cast. Consummation of the merger is conditioned on the
approval of the amendments to the American Tax trust agreement.
The close of business on August 1, 2000 has been fixed as the record
date for determining those shareholders entitled to consent to the proposals.
Only shareholders of record on the record date are entitled to notice of and to
consent to the proposals. The deadline for returning the enclosed consent form
is no later than October ___, 2000, which date may be extended by Related AMI
with the requisite shareholder vote.
By order of the Board of Directors of Related AMI
Associates, Inc., Manager
-------------------------------------------------
Teresa Wicelinski
Secretary, Related AMI Associates, Inc.
August [___], 2000
New York, New York
Please complete, date, sign and return the enclosed consent form in the
enclosed envelope, which requires no postage if mailed in the United States.
/293812.1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
SUMMARY...........................................................................................................1
Introduction.................................................................................................1
The Companies................................................................................................2
Ownership Structure..........................................................................................2
Recommendation of Related AMI Associates Inc. ...............................................................4
No Right to Demand an Appraisal of Your American Tax Shares..................................................7
Risks of the Merger .........................................................................................7
Conflicts of Interest........................................................................................7
Federal Income Tax Consequences of the Merger................................................................7
Comparison of Compensation and Distribution Paid to Managers as a Result of the Merger.......................9
Ownership of CharterMac Following the Merger................................................................10
Effect of Merger on American Tax Shareholder Plans..........................................................10
Unaudited Comparative Per Share Data........................................................................10
Unaudited Historical Comparative/Pro Forma Per American Tax Share...........................................11
Record Date; Vote Required for Approval of Proposals; Revocation of Consent by American Tax
Shareholders............................................................................................11
Opinions of Financial Advisors..............................................................................11
Appraisal Report and Valuations.............................................................................12
Conditions to Completion of the Merger......................................................................12
Termination of the Merger Agreement; Expenses...............................................................13
Waiver and Amendment........................................................................................13
Accounting Treatment........................................................................................13
Regulatory Approvals .......................................................................................13
Selected Financial Data.....................................................................................14
Selected Consolidated Historical and Pro Forma Financial Data of CharterMac.................................14
RISK FACTORS.....................................................................................................17
You will not know the value of the merger consideration at the time consents for the merger are due.........17
Upon the merger, you will no longer own shares in a finite life entity......................................17
The exchange ratio is based on CharterMac's stock price eleven months ago...................................17
American Tax is more restricted in the amount and type of debt it can incur than is CharterMac..............17
American Tax shareholders are subject to market risks arising from share price fluctuations................18
Issuance of additional CharterMac common shares may result in dilution to CharterMac
shareholders and price reductions.......................................................................18
Immediate sales may adversely affect the market value of the CharterMac common shares.......................18
The American Tax shareholders will have no dissenters' appraisal rights.....................................19
CharterMac and American Tax made forward-looking statements in this consent statement-
prospectus. These forward-looking statements may not prove to be accurate..............................19
CONFLICTS OF INTEREST............................................................................................20
AMERICAN TAX CONSENT SOLICITATION................................................................................22
Matters To Be Considered....................................................................................22
Recommendation of Related AMI...............................................................................24
Consent Solicitation Procedures.............................................................................24
Expense of Solicitation and Proposals.......................................................................24
THE MERGER.......................................................................................................26
</TABLE>
/293812.1
-i-
<PAGE>
<TABLE>
<S> <C>
Page
Background of the Merger....................................................................................26
How the Merger Consideration Was Determined.................................................................29
Recommendation of Related AMI and American Tax's Reasons for the Merger.....................................30
Opinion and Valuation of American Tax's Financial Advisor...................................................35
Appraisal and Valuation Delivered to American Tax...........................................................52
Valuation of American Tax's Net Assets by McDonald Investments..............................................55
Recommendation of the CharterMac Board of Trustees and CharterMac's Reasons for the Merger..................55
Opinion of CharterMac's Financial Advisor...................................................................56
Appraisal Delivered to CharterMac...........................................................................64
COMPARISON OF BENEFITS AND DETRIMENTS OF
ALTERNATIVES TO MERGER......................................................................................65
General.....................................................................................................65
Summary of the Alternatives.................................................................................65
Comparison of Alternatives to the Proposals.................................................................67
THE MERGER AGREEMENT.............................................................................................75
Conversion of Shares........................................................................................75
Exchange of Certificates; Fractional Shares.................................................................75
Time of the Merger..........................................................................................76
Waiver of Deferred and Unpaid Fees..........................................................................76
Representations and Warranties..............................................................................76
Conditions to Completion of the Merger......................................................................76
Solicitation................................................................................................77
Termination of the Merger Agreement.........................................................................78
Extension, Waiver and Amendment of the Merger Agreement.....................................................78
Expenses....................................................................................................79
Accounting Treatment........................................................................................79
Stock Exchange Listing......................................................................................79
FEDERAL INCOME TAX CONSEQUENCES..................................................................................80
The Merger..................................................................................................80
The Waiver..................................................................................................82
Merger Expenses.............................................................................................83
INFORMATION ABOUT CHARTERMAC.....................................................................................84
Structure of CharterMac.....................................................................................86
Managing Trustees And Executive Officers....................................................................87
Statutory Trustee...........................................................................................89
Committees of the CharterMac Board of Trustees..............................................................89
Beneficial Ownership of CharterMac common shares............................................................89
Related Charter.............................................................................................90
Beneficial Ownership........................................................................................92
Certain Relationships and Related Transactions..............................................................92
Compensation, Reimbursements and Distributions to Related Charter...........................................93
Description of CharterMac Subsidiary's Preferred Shares.....................................................94
INFORMATION ABOUT AMERICAN TAX...................................................................................96
American Tax's Business.....................................................................................96
Description of American Tax's Investments...................................................................96
</TABLE>
/293812.1
-ii-
<PAGE>
<TABLE>
<S> <C>
Page
Management and Additional Information.......................................................................97
Certain Relationships and Related Transactions..............................................................98
Ownership of Underlying Property by an Affiliate............................................................99
Security Ownership of Beneficial Owners of American Tax Shares..............................................99
PRICE RANGE OF SHARES AND DISTRIBUTIONS.........................................................................100
CharterMac.................................................................................................100
American Tax...............................................................................................101
CHARTERMAC COMMON SHARES AND COMPARISON
OF SHAREHOLDER RIGHTS......................................................................................103
Description of the CharterMac Shares.......................................................................103
Comparison of Rights of CharterMac Shareholders and American Tax Shareholders..............................104
APPRAISAL RIGHTS................................................................................................111
LEGAL MATTERS...................................................................................................111
EXPERTS.........................................................................................................111
AVAILABLE INFORMATION...........................................................................................111
INCORPORATION OF INFORMATION BY REFERENCE.......................................................................112
PRO FORMA FINANCIAL INFORMATION.................................................................................114
Introduction...............................................................................................114
</TABLE>
<TABLE>
<CAPTION>
APPENDICES
<S> <C>
Appendix A Merger Agreement
Appendix B Fairness Opinion Of Legg Mason Wood Walker Incorporated To The CharterMac
Board of Trustees, Dated October 26, 1999
Appendix C Fairness Opinion Of McDonald Investments Inc. To Related AMI, Dated as of
November 1, 1999
Appendix D Amendments to Amended And Restated Business Trust Agreement Of American Tax
Appendix E Summarization Letter Of Cushman & Wakefield of Florida, Inc., Dated October 20,
1999
Appendix F Valuation Letter Of McDonald Investments Inc., Dated as of November 1, 1999
</TABLE>
NOTE: We have included with this consent statement-prospectus the following
reports for each of American Tax and CharterMac:
o Form 10-K/A-1 for the year ended December 31, 1999 (as amended
and restated) o Form 10-Q/A-1 for the three month period ended
March 31, 2000 (as amended and restated)
/293812.1
-iii-
<PAGE>
SUMMARY
Introduction
Your fund, American Tax Exempt Bond Trust, is asking you to approve the
merger of American Tax with and into CM Holding Trust, a wholly-owned subsidiary
of Charter Municipal Mortgage Acceptance Company, which calls itself CharterMac
and is traded on the American Stock Exchange under the symbol "CHC". CM Holding
will be the surviving entity. As consideration in the merger, you will have the
right to receive 1.43112 CharterMac common shares for each American Tax share
you own. If approved, the merger is expected to be completed in the third
quarter of 2000.
Original Distribution Policy. As described in the prospectus you
received if you invested in American Tax during its initial offering, American
Tax has always attempted to maintain a stable distribution rate. The
distribution rate was set at the rate American Tax expected to be able to pay
after it had fully invested the proceeds of its initial offering. American Tax's
initial offering was a blind pool which means that it raised proceeds in advance
of identifying investments. The initial distribution rate was set at a level
which American Tax believed it could maintain after the acquisition stage was
completed, based upon certain internal assumptions about American Tax's future
operations.
Throughout its offering and acquisition stages, American Tax maintained
the distribution level it expected to achieve post-acquisition stage by
implementing the policy described in the prospectus of supplementing the
distributions with proceeds from the amortization and repayment of its short-
term investments.
New Distribution Policy. When American Tax's acquisition stage was
completed at the end of 1997, American Tax realized that the actual performance
of its investment portfolio would not support the initial distribution rate that
it had set based on its original internal assumptions. American Tax's new
distribution policy, adopted in the first quarter of 1998, calls for quarterly
distributions that more closely reflect the actual, rather than the originally
expected, collections of interest payments on its portfolio. However, rather
than implement this new policy immediately, American Tax determined to seek
alternative ways to maintain the current distribution rate. During this time,
American Tax continued to pay distributions at the current rate by supplementing
its actual earnings with the amortization and repayment proceeds from its
short-term investments.
In addition, although under no obligation to do so, over the last eight
quarters, including the quarter ended March 31, 2000, American Tax's manager,
Related AMI Associates, Inc., has deferred payment of expenses, reimbursements
and fees payable to it in order to further supplement the cash available to
maintain the current distribution rate. American Tax will soon deplete the
remaining amortization and repayment proceeds from its short-term investments.
In addition, Related AMI has recently indicated that it is no longer willing to
continue to defer receipt of expenses, reimbursements and fees it is owed.
Maintenance of Existing Distribution Level. Related AMI is
recommending approval of the proposals contained in this consent solicitation in
order to prevent a significant reduction in the distributions currently received
each quarter by American Tax shareholders. Related AMI expects that if the
merger is approved, American Tax shareholders will receive annual per share
distributions from CharterMac which are expected to be only slightly less than
the level of distribution that American Tax shareholders currently receive,
based upon the number of CharterMac common shares they will receive and the
current distribution being paid on CharterMac common shares, and significantly
greater than the distributions which would be paid to you under American Tax's
new distribution policy. Furthermore, while American Tax's distribution level
has been supplemented by a return of capital and the deferral of fees by Related
AMI, the distributions from CharterMac have always been, and are expected to
continue to be, paid exclusively from interest collected on its bond
investments.
Related AMI's Waiver of Unpaid Fees. If the merger is completed Related
AMI will also waive the payment of all deferred and unpaid fees, reimbursements
and expenses due to Related AMI by American Tax through June 30, 1999. The
deferred fees, reimbursements and expenses due to Related AMI totaled $766,747
at June 30, 1999. However, if the merger is consummated, CharterMac's manager,
Related Charter, L.P., will be paid an acquisition fee by CharterMac in the
amount of $475,500 in connection with CharterMac's acquisition of the first
mortgage bonds from American Tax as part of the merger. Since American Tax
shareholders will own 9.3% of CharterMac's shares following the merger, American
Tax shareholders will, in effect, be paying 9.3% or $44,200 of this $475,500 fee
due to Related Charter.
/293812.1
<PAGE>
Opportunity for Growth. Finally, Related AMI believes that American
Tax's current structure and investment policy have prevented it from both taking
advantage of the favorable investment opportunities that exist for tax-exempt
multifamily bonds and benefitting from the stable trading market for tax exempt
real estate securities. This is so because American Tax is restricted from
incurring debt or raising capital to expand the size of its portfolio of
investments and thereby further diversify its investments.
The Companies
The business of both American Tax and CharterMac are substantially
identical. Each company primarily invests in bonds which are not subject to
federal income tax on the holder. The bonds are issued by various state or local
governments or their agencies or authorities and secured by first mortgage loans
on the underlying properties developed by third party developers. Neither
CharterMac nor American Tax is a government affiliated or sponsored enterprise.
The day-to-day operations of both American Tax and CharterMac are managed by
outside managers: Related AMI Associates, Inc. is American Tax's manager and
Related Charter, L.P. is CharterMac's manager. Both managers have subcontracted
with Related Capital Company for the performance of management services.
Related AMI and Related Charter are affiliated companies in that
Stephen M. Ross, Alan P. Hirmes and Stuart J. Boesky are the sole owners or
controlling principals of each company.
Both CharterMac and American Tax are located at 625 Madison Avenue, New
York, New York 10020, (800) 600-6422. Set forth below are tables which depict
the historical operating history of CharterMac and American Tax.
Ownership Structure
Parties Involved in the Merger. To help you better understand the
proposed transaction, we are listing below the various entities involved in the
merger, the name which we will use to refer to each of them and their
relationship to the transaction:
<TABLE>
<S> <C> <C>
Full Name Shorthand Name Relationship to the Transaction
American Tax Exempt Bond American Tax Your fund
Trust
CharterMac Holding Trust CM Holding The entity into which American
Tax will merge
Charter Municipal Mortgage CharterMac The entity which is the parent of
Acceptance Company CM Holding and whose shares
you will receive in the merger
Related AMI Associates, Inc. Related AMI The manager of American Tax
Related Charter, L.P. Related Charter The manager of CharterMac
Related Capital Company Related Capital The operating affiliate of
Related AMI and Related
Charter
</TABLE>
Diagrams. The diagrams set forth below illustrate the ownership of
American Tax and CharterMac at the date of this consent statement-prospectus and
following the consummation of the merger.
/293812.1
2
<PAGE>
[GRAPHIC OMITTED]
/293812.1
3
<PAGE>
Recommendation of Related AMI Associates Inc. (page [__])
Detriments of the Merger. Related AMI believes that the following are
the detriments associated with the proposed merger:
o the merger consideration is a fixed number and will not be
adjusted.
o that you may have originally invested in American Tax because
it was structured as an entity which would sell its assets and
distribute the proceeds to you and may not want to own an
interest in an ongoing business.
o that the structure of the transaction requires the elimination
of the cash-out option and the prohibition on sales to
affiliates which were protections afforded to you in the
American Tax trust agreement in the event of a transaction
such as this merger due to the structure of the merger.
o the perceived conflict of interest of Related AMI since it is
owned by the same entities that own Related Charter.
Benefits of the Merger. Related AMI believes that the following are the
benefits associated with the proposed merger:
o ability to continue to receive a greater level of
distributions than you could expect to receive under American
Tax's new distribution policy.
o ability to have a distribution paid solely from interest
received on bond investments and not supported by a return of
capital or accrual of fees owed to its manager.
o liquidity associated with owning shares in a company listed on
the American Stock Exchange.
o As of June 30, 1999, which is the date the exchange ratio was
determined, the merger consideration to be received by the
American Tax shareholders was above the then current fair
market value of American Tax's net assets after taking into
account the fact that Related AMI is willing to waive deferred
and unpaid expenses, reimbursements and fees due as of June
30, 1999.
o because Related Charter is familiar with American Tax's
assets, the transaction costs associated with the merger
should be approximately $890,000 lower than if American Tax
were merged with a third party.
o because as of December 31, 1999 CharterMac owns 69 mortgage
bonds with a fair market value of $587,892,000 and American
Tax owns only 4 mortgage bonds with a fair market value of
$27,191,567, you will own shares in a company with
significantly greater diversification.
o ability to benefit from the future growth associated with an
open ended, infinite life company.
Based upon Related AMI's evaluation of the consideration to be received
by American Tax in the merger, the opinion of McDonald Investments Inc., a
KeyCorp Company, the appraisal reports of Cushman & Wakefield and the valuation
letter of McDonald Investments, and after considering all of the disadvantages
and advantages of the merger, as well as the amendments to American Tax's trust
agreement, and Related AMI's conclusion that American Tax will not be able to
maintain its current distribution, Related AMI believes that the merger is fair
to you and recommends that you vote for approval and adoption of the merger and
the amendments to American Tax's trust agreement. However, such recommendation
is subject to the conflicts of interests described in this consent statement.
/293812.1
4
<PAGE>
Statistical Comparison of the Value of American Tax Shares to the Value of
CharterMac common shares to be Received as Merger Consideration.
The following table shows the imputed value that is being offered for
your American Tax shares using the following assumptions about the value of the
CharterMac common shares:
o the CharterMac common share high, low and mean price for the
following periods:
o the 30 days ended August 1, 2000 and March 31, 2000;
o the 52 weeks ended June 30, 1999 which is the date the
conversion ratio was determined;
o the analysis of McDonald Investments Inc., American Tax's
financial advisor with respect to the merger;
o the analysis of Legg Mason Wood Walker Incorporated,
CharterMac's financial advisor with respect to the merger; and
o the premium or discount of the foregoing imputed values to
the net asset value of American Tax as of the following
dates:
o June 30, 1999 which is the date the conversion ratio was
determined;
o March 31, 2000 which is the end of the most recent
calendar quarter.
<TABLE>
<CAPTION>
CharterMac Share Price
high low mean
Historical
----------
------------ ------------ ---------------
<S> <C> <C> <C>
CharterMac 30-day high, low and mean trading
prices (as of August 1, 2000) ................ $ 13.375 $ 12.25 $ 12.8125
Comparable American Tax value(1)(2) .......... $ 19.14 $ 17.53 $ 18.34
Percent Premium/(Discount) to American Tax
6/30/99 Net Asset Value(3) of $18.11 per share 5.69% (3.20%) 1.27%
Percent Premium/(Discount) to American Tax
3/31/00 Net Asset Value(3) of $17.24 per share 11.02% 1.68% 6.38%
CharterMac 30-day high, low and mean trading
prices (as of March 31, 2000) ................ $ 12.25 $ 11.75 $ 12.00
Comparable American Tax value(1)(2) .......... $ 17.53 $ 16.82 $ 17.17
Percent Premium/(Discount) to American Tax
6/30/99 Net Asset Value(3) of $18.11 per share (3.20%) (7.15%) (5.17%)
Percent Premium/(Discount) to American Tax
3/31/00 Net Asset Value(3) of $17.24 per share 1.68% (2.44%) (0.41%)
CharterMac 52-week high, low and mean trading
prices (as of June 30, 1999) ................. $ 14.88 $ 11.00 $ 12.94
Comparable American Tax value(1)(2) .......... $ 21.30 $ 15.74 $ 18.52
</TABLE>
/293812.1
5
<PAGE>
<TABLE>
<CAPTION>
CharterMac Share Price
high low mean
<S> <C> <C> <C>
----------- ----------- -----------
Percent Premium/(Discount) to American Tax
6/30/99 Net Asset Value(3) of $18.11 per share . 17.59% (13.07%) 2.28%
Percent Premium/(Discount) to American Tax
3/31/00 Net Asset Value(3) of $17.24 per share . 23.55% (8.70%) 7.42%
McDonald Investments
------
Implied value of CharterMac common shares
based on tax-adjusted dividend yield as
contained in the analysis of McDonaldInvestments $ 13.00 N/A N/A
Comparable American Tax value(1)(2) ............ $ 18.60 N/A N/A
Percent Premium/(Discount) to American Tax
6/30/99 Net Asset Value(3) of $18.11 per share . 2.71% N/A N/A
Percent Premium/(Discount) to American Tax
3/31/00 Net Asset Value(3) of $17.24 per share . 7.89% N/A N/A
Legg Mason
----------
CharterMac common share prices used to
determine the total cost of the merger based on
the number of shares issued in the fairness
opinion issued by Legg Mason ................... $ 13.13 $ 12.44 $ 12.78
Comparable American Tax value(1)(2) ............ $ 18.79 $ 17.80 $ 18.29
Percent Premium/(Discount) to American Tax
6/30/99 Net Asset Value(3) of $18.11 per share . 3.76% (1.69%) 0.99%
Percent Premium/(Discount) to American Tax ..... 8.99% 3.25% 6.09%
3/31/00 Net Asset Value(3) of $17.24 per share
</TABLE>
(1) These amounts are calculated by multiplying the conversion ratio (1.43112)
by the high, low and mean, as applicable, of the CharterMac trading prices,
and prices used by McDonald Investments and Legg Mason to determine the
comparable value of the consideration payable to the American Tax
shareholders.
(2) The conversion ratio was determined by taking American Tax's net asset
value as of June 30, 1999 ($26,787,092) and adding back the liabilities for
accounts payable to Related AMI ($766,747) and subtracting the estimated
cost to American Tax of the merger as of October 15, 1999 ($427,421) and
dividing that result ($27,126,418) by the sum of the number of American Tax
shares outstanding as of June 30, 1999 plus the number of American Tax
shares allocable to Related AMI in respect of its 1% interest in American
Tax. The resulting adjusted value per American Tax share ($18.3362) was
then divided by the June 30, 1999 closing price of CharterMac, $12.8125, to
equal the conversion ratio of 1.43112. The value of each of American Tax's
assets, the bonds, was computed by determining the present value of the
principal and interest income stream to American Tax at rates between 7.5%
and 12%, depending on the analysis of risk associated with collecting the
principal and interest income stream.
(3) "Net asset value" is determined by taking the fair market value of American
Tax's assets and subtracting its liabilities. American Tax's assets are
comprised of investments in bonds, cash and cash equivalents, and accrued
interest receivables. Its liabilities include amounts which are due to
affiliates and accounts payable. American Tax determines the fair market
value of its assets by calculating the present value of the anticipated
income stream generated by the assets using a discount rate equal to the
market interest rate of comparable assets. However, there is no assurance
that American Tax would actually be able to sell its assets for the amount
being attributed to their fair market value.
The foregoing table shows, among other things, that based on the
assumptions contained in the table, the comparable value of the CharterMac
common shares you will receive in the merger could range from a premium as high
as 23.55% to a discount as high as 13.07%. However, because the actual price of
CharterMac common shares may fluctuate, the actual premium or discount to the
value of American Tax's assets, if any, you may receive based on the value of
American Tax's assets could be higher or lower than those indicated in the
table.
/293812.1
6
<PAGE>
No Right to Demand an Appraisal of Your American Tax Shares (page [__])
You do not have appraisal rights with respect to the merger under Delaware
law.
Risks of the Merger (page [__])
There are risks involved in the merger. These risks include:
o You will not know the value of the merger consideration at
the time you give your consent.
o The fact that upon the exchange of your American Tax shares,
you will no longer be a shareholder in an entity which is
structured to acquire a fixed amount of assets, sell those
assets and distribute the proceeds to you.
o While American Tax is generally not permitted to incur debt in
connection with its investment activities, CharterMac can
incur debt in an amount equal to or less than 50% of its total
asset value.
o As a CharterMac shareholder, you will be subject to the risks
of fluctuations of CharterMac's share price in the stock
market.
o The CharterMac common shares you receive in the merger will be
subject to potential dilution from future equity offerings by
CharterMac.
Conflicts of Interest
There are conflicts of interest that arise in the merger. These
conflicts include:
o The managers of both American Tax and CharterMac are owned and
controlled by the same people and they share common legal
counsel. As a result, the terms of the merger were not
determined as a result of arm's length negotiations between
two independent parties.
o Stuart J. Boesky and Michael B. Brenner, are both on the board
of directors of Related AMI, and also serve on the board of
trustees of CharterMac.
o If the merger is consummated, Related Charter will be paid an
acquisition fee by CharterMac in the amount of $475,500 in
connection with the acquisition of American Tax's first
mortgage bonds.
o If the merger is consummated, with respect to the first
mortgage bonds which CharterMac will acquire from American
Tax, while Related Charter will receive a lower rate of annual
fees on those bonds, those fees may be payable over a longer
period of time than would have been the case if Related AMI
had continued to manage the American Tax portfolio and that
portfolio had been liquidated in accordance with the American
Tax's original time-frame.
o Related AMI owns a 1% interest in all items of income, loss
and distributions in American Tax.
o The fees Related Charter may receive under its fee structure
may be greater than the total fees Related AMI would receive.
Federal Income Tax Consequences of the Merger (page [__])
It is expected that, for United States federal tax purposes, you will
recognize taxable income in an amount equal to any gain realized on the merger,
but will not recognize the benefit of any tax loss realized on the merger. Your
tax liability with respect to the gain will be the difference between the value,
as of the closing of the merger, of the CharterMac common shares you will
receive over your adjusted basis in your exchanged American Tax shares.
For example, assuming the value of the CharterMac common shares on the date
of the merger is $12.8125, which was the June 30, 1999 closing price, and the
American Tax original shareholders' adjusted tax basis as of March 31, 2000 is
$18.23, the gain expected to result from the merger will be $0.11 per share
[price $12.8125 x exchange ratio 1.43112 -- tax basis $18.23 = gain $0.11].
American Tax shareholders will be required to pay capital gains tax as a result
of the merger but will not receive a special cash distribution for the payment
of such tax. The amount of this gain will fluctuate as a direct result of the
change in value of CharterMac common shares and the continuation of American
Tax's operations
/293812.1
7
<PAGE>
up until the date of the merger. Certain shareholders that acquired their
American Tax shares in the secondary market or through the reinvestment
plan may recognize a different result.
/293812.1
8
<PAGE>
Comparison of Compensation and Distribution Paid to Managers as a Result of the
Merger
The following table sets forth
o the historical compensation and distributions (Historical) paid to
the manager of American Tax, Related AMI, and its affiliates for the last three
fiscal years and the three months ended March 31, 2000; and
o the aggregate amount of compensation and distributions that would be
paid to the successor manager, Related Charter, and its affiliates as well as
Related AMI (now a common shareholder) during the same time periods as if the
transaction had occurred on January 1, 1997 (Estimated).
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended March 31, ----------------------------------------------------------
2000 1999 1998 1997
-------------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
American Tax
Historical: (In Thousands)
Bond selection fees $ - $ - $ - $ -
Expense reimbursement 22 85 78 85
Loan servicing fees 15 59 59 50
Special distribution 30 119 119 95
Manager's distribution 6 24 24 24
-------------------- ------------------ ------------------ -------------------
Total $ 73 $ 287 $ 280 $ 254
==================== ================== ================== ===================
CharterMac
Estimated (a):
Bond selection fees (b) $ 112 $3,807 $2,352 $576 (g)
Expense reimbursement(c) 136 398 388 114 (g)
Loan servicing fees (d) 411 1,397 1,045 573 (g)
Special distribution (e) 617 2,108 1,567 402 (g)
Management fee (e) - - - 304 (g)
Management Distribution(f) 6 21 20 122 (g)
-------------------- ------------------ ------------------ -------------------
Total $1,282 $7,731 $5,372 $2,091
==================== ================== ================== ===================
</TABLE>
(a) The estimated numbers include the aggregate amount of all compensation that
would have been paid to Related Charter during these respective periods
including the compensation and distributions payable with respect to
CharterMac's portfolio as it existed during these respective periods.
(b) In accordance with CharterMac's management agreement, CharterMac would have
paid Related Charter a bond selection fee equal to $475,500 in 1997 for the
American Tax first mortgage bonds acquired in the merger. The balance of
the bond selection fee in 1997 and the other periods presented in the table
reflect CharterMac's current operating activities.
(c) In accordance with CharterMac's management agreement, Related Charter would
have been reimbursed its overhead cost for these respective periods for the
proportional increase in the CharterMac asset portfolio as a result of the
merger. These overhead costs are subject to certain maximum limits pursuant
to the CharterMac management agreement and therefore, the estimated numbers
include the addition of the historical American Tax expense reimbursements
reduced by the following amounts: $18,893, for the three months, and
$71,829, $64,525 and $73,699, respectively, for the full years.
(d) The compensation structure of the loan servicing fee does not change as a
result of the merger. The historical and post-merger amounts equal .25% per
annum of the outstanding principal amounts of the first mortgage bonds
outstanding. Pursuant to servicing agreements between CharterMac and its
subsidiaries, Related Charter may receive this fee from each respective
subsidiary entity in the form of a loan servicing or management fee.
However, regardless of the component and characterization of the subsidiary
fees, the aggregate fees are limited to the overall asset base fee
structure approved as part of the consolidation.
/293812.1
9
<PAGE>
(e) Historically, the American Tax Special Distribution was equal to .5% of
total invested assets with 1/2 payable currently and 1/2 payable upon the
liquidation of the bonds. In accordance with CharterMac's management
agreement, the Special Distribution on the total merged assets of American
Tax has been reduced to .375%. Prior to the consolidation to form
CharterMac (October 1, 1997), Summit Tax II paid an asset-based fee in the
form of a management fee. After the consolidation to form CharterMac, the
asset-based fee was recharacterized as a special distribution under the
terms of the consolidation.
(f) Reflects manager's distribution paid to both Related AMI and Related
Charter. As part of the merger, Related AMI will receive 21,156 common
shares of CharterMac in respect of its 1% general partner interest in
American Tax. Related AMI would have received distributions with respect to
these 21,156 shares during the respective periods as follows: $5,606, for
the three months ended March 31, 2000 and $21,051, $19,675 and $25,322.
Related Charter, as the general partner of CharterMac, would also receive a
distribution for the 11 shares it owns during the respective periods as
follows: $3, for the three months ended March 31, 2000 and $11, $10 and
$97,123. The year ended 1997 includes information for Summit Tax Exempt
L.P. II (the predecessor partnership to CharterMac) for the nine months
ended September 30, 1997 and CharterMac for the three months ended December
1997.
(g) Information prior to October 1, 1997 (the date CharterMac began operations)
is only in respect to Summit Tax Exempt L.P. II, the predecessor
partnership to CharterMac. Information subsequent to the date CharterMac
began operations includes Summit Tax Exempt L.P. II and other partnerships
which were consolidated to form CharterMac.
Ownership of CharterMac Following the Merger
After the merger, former American Tax shareholders will own
approximately 9.3% of the outstanding CharterMac common shares and present
CharterMac shareholders will own approximately 90.7% of the outstanding
CharterMac common shares.
Effect of Merger on American Tax Shareholder Plans
Pending the vote on the merger and the other proposals contained in
this consent statement- prospectus, Related AMI has suspended American Tax's
reinvestment and redemption plans as of the quarter ending September 30, 1999.
Unaudited Comparative Per Share Data
Related AMI has prepared the following pro forma and pro forma
equivalent of one American Tax share comparison of net income, net asset value
and distribution for the three months ended March 31, 2000 and the year ended
December 31, 1999. The pro forma equivalent of one American Tax share is
calculated by multiplying the number of CharterMac common shares to be received
in the merger for each American Tax share, 1.43112, by the pro forma combined
per share amounts.
American Tax and CharterMac expect to incur integration charges as a result
of the merger. American Tax and CharterMac also anticipate that the merger will
provide the combined company with financial benefits that include reduced
operating expenses and opportunity to earn more revenue. The pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not reflect these expenses
or benefits and, accordingly, does not attempt to predict or suggest future
results. It also does not necessarily reflect what the historical results of the
new company would have been had the businesses of American Tax and CharterMac
been combined.
/293812.1
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<PAGE>
The information in the following tables is based on, and should be read
together with the historical financial information that has been presented by
CharterMac and American Tax in prior securities filings with the Securities
and Exchange Commission. This historical financial information has also
been incorporated into this document by reference.
Unaudited Historical Comparative/Pro Forma Per American Tax Share
<TABLE>
<CAPTION>
Pro Forma
Equivalent Of
American Pro Forma One American
CharterMac Tax Combined Tax Share
---------- --- -------- ---------
<S> <C> <C> <C> <C>
For the three months ended March 31,
2000:
Net income per share
Basic and Diluted $0.29 $0.31 $0.28 $1.41
Net asset value per share 15.29 17.24 15.06 21.61
Distribution per share .265 .40 .266 .381
For the year ended December 31,
1999:
Net income per share
Basic and Diluted $1.02 $.95 $0.99 $1.41
Net asset value per share 15.33 18.09 15.10 21.61
Distribution per share 1.00 1.60 1.01 1.44
</TABLE>
Record Date; Vote Required for Approval of Proposals; Revocation of Consent by
American Tax Shareholders (page [__])
If you owned American Tax shares as of the close of business on August
1, 2000, the record date, you are entitled to vote on approval of the merger and
the amendments to American Tax's trust agreement. On the record date, there were
1,463,521 American Tax shares outstanding. You can cast one vote for each
American Tax share you owned on the record date.
The consent of the holders of a majority of the outstanding American
Tax shares on the record date is required to approve the merger and the
amendments to American Tax's trust agreement. Failing to submit a consent form
is the same as a vote against approval and adoption of the merger and the
amendments to American Tax's trust agreement. The consent of the holders of a
majority of the American Tax shares who actually vote is required to approve an
extension of the solicitation period.
Consents are revocable at any time prior to the date on which consents
of shareholders representing a majority of the total eligible shareholder vote
become effective by delivering written notice to American Tax to its manager,
Related AMI: Attention Investor Relations, 625 Madison Avenue, New York, New
York 10022. After September [**___, 2000 {30 days after mailing}**] and upon
American Tax's receipt of consents from shareholders holding a majority of
shares entitled to vote, the merger and each of the amendments to American Tax's
trust agreement will be deemed approved and adopted.
Opinions of Financial Advisors (pages [__] and [__])
American Tax. In deciding to approve the merger, Related AMI considered
and adopted the conclusions in the opinion of American Tax's financial advisor,
McDonald Investments Inc., dated as of November 1, 1999, as to the fairness,
from a financial point of view, of the exchange ratio to American Tax
shareholders as of the date thereof. McDonald Investments' opinion is attached
to this document as Appendix C. McDonald Investments will not be updating its
opinion; however, as of the date of the printing and mailing of this consent
statement-prospectus, there have not been any significant changes to any
information McDonald Investments considered in its opinion that American Tax
believes would or could alter their fairness determination.
CharterMac. In deciding to approve the merger, the CharterMac board of
trustees considered and adopted the conclusions in the opinion of Legg Mason
Wood Walker Incorporated, dated October 26, 1999, as to the fairness, from
/293812.1
11
<PAGE>
a financial point of view, of the consideration to be paid by CharterMac to the
American Tax shareholders.Legg Mason's opinion is attached to this document as
Appendix B. Legg Mason will not be updating its opinion; however, as of the date
of the printing and mailing of this consent statement-prospectus, there have not
been any significant changes to any information Legg Mason considered in its
opinion that American Tax believes would or could alter their fairness
determination.
Appraisal Report and Valuations (pages [__] and [__])
American Tax and CharterMac. In deciding to approve the merger, the
CharterMac board of trustees and the Related AMI board of directors considered
and adopted the conclusions in the appraisal reports of Cushman & Wakefield as
to the value of the properties which secure American Tax's bonds. The Cushman &
Wakefield appraisal did not value American Tax's assets, which are its
investments in bonds, and, therefore, the Related AMI board of directors
retained, and considered the valuation letter of, McDonald Investments as to the
value of American Tax's net assets.
Each of the professionals retained by American Tax and CharterMac
reached a conclusion as to the value of American Tax's assets. The following
chart shows these valuations, as well as Cushman & Wakefield's appraisal of the
value of the properties underlying American Tax's assets:
Valuation of
Valuation of Properties Underlying
American Tax Assets American Tax Assets
McDonald Investments $26,560,000 Not Applicable
(as of November 1, 1999) (highest reasonably expected
value of American Tax net
assets)
Legg Mason $25,129,818 to $27,951,960 Not Applicable
(as of October 26, 1999) (range depending on
methodology)
Cushman & Wakefield Not Applicable $37,100,000
(as of September 1, 1999)
Cushman & Wakefield's summarization letter, which summarizes the four
separate appraisals they conducted for each of the four properties underlying
American Tax's first mortgage bonds, is attached to this document as Appendix E.
McDonald Investments' valuation letter is attached to this document as Appendix
F.
Conditions to Completion of the Merger (page [__])
Subject to their respective rights to terminate the merger, CharterMac
and American Tax will complete the merger if the following conditions are met.
These conditions include:
o A majority in interest of the American Tax shareholders approve
the merger and the amendments to American Tax's trust agreement.
o There is no injunction or legal restraint blocking the merger.
o The American Stock Exchange approves listing of the CharterMac
common shares to be issued in the merger.
o This consent statement-prospectus is deemed effective by the
Securities and Exchange Commission.
o CharterMac shall have complied with the provisions in its trust
agreement with regard to purchasing mortgage bonds.
/293812.1
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<PAGE>
o The representations and warranties of CharterMac and American Tax
are true and correct as of the consummation of the merger.
o There is no material adverse change to American Tax.
Termination of the Merger Agreement; Expenses (pages [__] and [__])
CharterMac and American Tax may agree in writing at any time to
terminate the merger agreement without completing the merger. Also, the merger
agreement may be terminated:
o if the shareholders of American Tax fail to adopt or approve the
merger and the amendments to the American Tax trust agreement;
o if any law prohibits or restricts the merger;
o if the other party fails to comply in any material respect with
any of the covenants and agreements contained in the merger
agreement, and the failure continues for 30 days, or a
representation or warranty of the other party contained in the
merger agreement is untrue in any material respect;
o if any of the conditions to the merger have become incapable of
being fulfilled and have not been waived;
o if, during the 30 consecutive trading days ending with and
including the trading date that is one trading day immediately
preceding the closing date of the merger, the average closing
price of the CharterMac common shares, as reported on the
American Stock Exchange, is less than $11.18 or greater than
$14.50;
o by American Tax, if the board of directors of Related AMI
withdraws or modifies its approval or recommendation of the
merger because it approves a more favorable transaction.
If the merger agreement is terminated because the American Tax
shareholders do not approve the merger and the amendments to American Tax's
trust agreement, CharterMac will pay its own fees and expenses and Related AMI,
or one of its affiliates, will pay all fees and expenses incurred by American
Tax. If the merger agreement is terminated for any reason other than the failure
of the American Tax shareholders to approve the merger and the amendments to
American Tax's trust agreement, CharterMac and American Tax will pay their own
fees and expenses. If the merger is completed, CharterMac and American Tax will
pay their own fees and expenses.
Waiver and Amendment (page [__])
CharterMac and American Tax may amend the merger agreement and may
waive their right to require the other to adhere to its terms and conditions.
However, American Tax may not do so after shareholder approval of the merger, if
the amendment or waiver materially reduces or changes the merger consideration
that will be received by American Tax, unless American Tax's shareholders
approve such amendment or waiver. For example, a material decline in the amount
per share that American Tax shareholders will receive in the merger or a
material decrease in the value of American Tax's assets or a material decrease
in the value of CharterMac's assets would necessitate resolicitation of the
approval of the American Tax shareholders. As of the date of this consent
statement-prospectus, CharterMac and American Tax do not intend to waive any of
the conditions to completion of the merger or amend the merger agreement.
Accounting Treatment (page [__])
The merger will be treated as a purchase of American Tax by CharterMac
for accounting purposes.
Regulatory Approvals (page [__])
There are no federal, state or local regulatory approvals required in
order to complete the merger.
/293812.1
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<PAGE>
Selected Financial Data
The following tables show summarized historical financial data for each
of CharterMac and American Tax and also show similar pro forma information
giving effect to the merger.
The information in the following tables is based on historical
financial information that CharterMac and American Tax have presented in prior
Securities and Exchange Commission filings. You should read all of the summary
financial information provided in the following tables in connection with this
historical financial information and with the more detailed financial
information which has been incorporated into this document by reference.
CharterMac's financial statements, incorporated by reference into this consent
statement-prospectus, as of December 31, 1999 and 1998 and for the years ended
December 31, 1999, 1998 and 1997 were audited by Deloitte & Touche LLP,
independent auditors. CharterMac's historical information as of December 31,
1997, 1996 and 1995 and for fiscal years ended December 31, 1996 and 1995 were
derived from audited financial statements. American Tax's financial statements,
incorporated by reference into this consent statement-prospectus, as of December
31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997 were
audited by KPMG LLP, independent auditors. The American Tax historical
information as of December 31 1997, 1996 and 1995 and for fiscal years ended
December 31, 1996 and 1995 were derived from audited financial statements.
Selected Consolidated Historical and Pro Forma Financial Data of CharterMac
The selected consolidated historical financial information presented
below, as of and for each of the five years in the period ended December 31,
1999, has been derived from the historical consolidated financial statements of
CharterMac and American Tax. The selected consolidated historical financial
information presented below for the three months ended March 31, 2000 and 1999
is taken from unaudited financial statements that include all adjustments, which
in the opinion of CharterMac and American Tax management are only of a normal
recurring nature, and which CharterMac and American Tax management considers
necessary for a fair presentation of the results of operations for these
periods. Operating results for the three months ended March 31, 2000 presented
below are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2000. CharterMac's and American Tax's selected
financial data presented below should be read in conjunction with the financial
statements and the notes thereto included in CharterMac's and American Tax's
Annual Reports on Form 1--K/A-1 for the year ended December 31, 1999.
The unaudited selected pro forma financial data combine CharterMac's
historical results with American Tax's historical results, in each case, as of
or for the twelve months ended December 31, 1999 and for the three months ended
March 31, 2000 giving effect to the merger as if it had occurred on January 1,
1999 for the operating and other data and March 31, 2000 for the balance sheet
data. The pro forma information reflects the purchase method of accounting.
The unaudited pro forma financial data are presented for comparative
purposes only and are not necessarily indicative of the future financial
position or results of operations of the combined company or of the combined
financial position or the results of operations that would have been realized
had the merger been consummated during the period or as of the dates for which
the pro forma statements are presented. You should read this information in
conjunction with the information contained in the section "Pro Forma Financial
Information".
CharterMac and American Tax expect to incur integration charges as a
result of the merger. It is also anticipated that the merger will provide the
combined company with financial benefits that include reduced operating expenses
and the opportunity to earn more revenue. The pro forma information, while
helpful in illustrating the financial characteristics of the combined company
under one set of assumptions, does not reflect these expenses or benefits and,
accordingly, does not attempt to predict or suggest future results. It also does
not necessarily reflect what the historical results of the combined company
would have been had American Tax and CharterMac been combined.
/293812.1
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
As of and for the Year Ended December 31,
American Tax Exempt Bond Trust
-----------------------------------------------------------------------
1995(a) 1996(a) 1997 1998 1999
------- ------- ---- ---- ----
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Total Revenues $ 376,779 $1,392,415 $1,911,461 $2,112,890 $2,134,075
Total Expenses and Minority
Interest 148,893 254,966 224,280 213,017 608,340
Net Income 227,886 1,137,449 1,687,181 1,899,873 1,525,735
Net Income applicable to
Shareholders 224,865 1,067,015 1,576,321 1,763,188 1,392,791
Distributions to Shareholders(e) N/A N/A N/A N/A N/A
Distributions to Shareholders 342,248 1,677,278 2,343,301 2,341,654 2,343,156
Earnings Per Weighted
Average Shares (Basic) 0.57 0.95 1.07 1.20 0.95
Earnings Per Weighted
Average Shares (Diluted) 0.57 0.95 1.07 1.20 0.95
Distribution Per Share (b) .20-1.13 .72-1.60 1.60 1.60 1.60
BALANCE SHEET DATA:
Cash and Cash Equivalents 3,314,564 836,779 1,081,939 889,126 726,567
Total Assets 17,385,740 26,681,549 26,160,922 27,691,637 28,099,830
Total Liabilities 174,470 320,858 469,347 661,178 1,351,501
Minority Interest - - - - -
Total Shareholders'
Equity/partners' Capital 17,211,270 26,360,691 25,691,575 27,030,459 26,748,329
OTHER DATA:
Net Increase (Decrease) in
Cash and Cash Equivalents 3,313,564 (2,477,785) 245,160 (192,813) (162,559)
Net Cash Provided by 218,174 1,375,539 1,866,274 2,198,088 2,322,062
Operating Activities
Ratio of Earnings to Fixed - - - - -
Charges
Ratio of Earnings to Total 0.01 0.04 0.06 0.07 0.05
Assets
Net asset value per Share 18.15 17.83 17.33 18.28 18.09
</TABLE>
<TABLE>
<CAPTION>
Charter Municipal Mortgage Acceptance Company (c)
------------------------------------------------------------------------------------ ----------
1999 Pro
Forma
1995 1996 1997 1998 1999 CharterMac
---- ---- ---- ---- ---- ----------
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
Total Revenues $11,854,566 $11,627,595 $14,229,774 $27,940,120 $40,437,190 $42,576,337
Total Expenses and Minority
Interest 2,666,763 5,782,554 4,173,966 5,914,248 17,255,372 17,851,212
Net Income 9,187,803 5,845,041 10,055,808 22,025,872 23,181,818 24,725,125
Net Income applicable to
Shareholders -- -- 2,437,583 20,342,594 20,951,366 22,390,976
Distributions to Shareholders 9,517,685 9,517,685 7,138,263 N/A N/A N/A
(e)
Distributions to Shareholders N/A N/A 4,735,120 (d) 19,144,597 20,478,101 22,821,257
Earnings Per Weighted
Average Shares (Basic) 0.12 0.99 1.02 0.99
Earnings Per Weighted
Average Shares (Diluted) 0.12 0.98 1.02 0.99
Distribution Per Share (b) 0.23 0.93 1.00 1.01
BALANCE SHEET DATA:
Cash and Cash Equivalents 972,889 249,192 2,296,899 13,093,023 8,653,503 1,028,209
Total Assets 157,019,314 154,896,475 362,390,563 492,585,806 673,791,224 702,366,554
Total Liabilities 652,350 573,874 30,722,364 15,091,600 91,238,729 92,707,639
Minority Interest - - - 150,000,000 267,000,000 267,000,000
Total Shareholders'
Equity/partners' Capital 156,366,964 154,322,601 331,668,199 327,494,206 315,552,495 342,658,915
OTHER DATA:
Net Increase (Decrease) in
Cash and Cash Equivalents 100,227 (723,697) 2,047,707 10,796,124 (4,439,520) 4,602,079
Net Cash Provided by 10,405,327 10,014,905 12,411,974 22,651,186 23,252,906 25,574,968
Operating Activities
Ratio of Earnings to Fixed 24.44 15.64 14.25 15.13
Charges
Ratio of Earnings to Total 0.03 0.04 0.03 0.04
Assets
Net asset value per Share 16.11 15.91 15.33 15.10
</TABLE>
---------------------------
(a) On November 1, 1994 American Tax commenced a public offering and was still
in its offering and acquisition period through 1996.
(b) Distributions received in 1995 and 1996 by shareholders varied depending on
the dates they became shareholders.
(c) Information prior to the date CharterMac began operations is only with
respect to Summit Tax Exempt L.P. II. Information subsequent to September
30, 1997 is with respect to CharterMac which includes Summit Tax Exempt L.P.
II and the other partnerships which were consolidated to form CharterMac.
(d) Represents amount for the three months ended December 31, 1997.
(e) Represents distributions to shareholders of Summit Tax Exempt L.P. II.
/293812.1
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<TABLE>
<CAPTION>
As of and for the Three Months Ended March 31,
-----------------------------------------------------------------------------
American Tax Exempt Bond Trust Charter Municipal Mortgage Acceptance
------------------------------- --------------------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues $ 531,110 $ 539,470 $ 8,188,684 $ 12,050,969
Total Expenses and Minority Interest 78,993 54,812 2,183,162 5,480,580
Net Income 452,117 484,658 6,005,522 6,570,389
Distributions to Shareholders 584,999 586,064 4,925,075 5,443,584
Earnings Per Weighted Average Shares (Basic) 0.29 0.31 0.27 0.29
Earnings Per Weighted Average Shares (Diluted) 0.29 0.31 0.27 0.29
Distribution per Shares 0.400 0.400 0.240 0.265
BALANCE SHEET DATA:
Cash and Cash Equivalents 517,165 602,328 7,492,149 15,308,440
Total Assets 27,610,278 26,826,403 491,748,694 673,168,933
Total Liabilities 725,039 1,341,021 13,700,026 91,434,548
Minority Interest - - 150,000,000 267,000,000
Total Shareholders' Equity 26,885,239 25,485,382 328,048,668 314,734,385
OTHER DATA:
Net Increase (Decrease) in Cash and Cash Equivalents (371,961) (124,239) (5,600,874) 6,654,937
Net Cash Provided by Operating Activities 548,662 497,464 6,586,018 8,442,038
Ratio of Earnings to Fixed Charges - - 718.68 8.19
Ratio of Earnings to Total Assets 0.02 0.02 0.01 0.01
Net asset value per Share 18.19 17.24 15.95 15.29
</TABLE>
<TABLE>
<CAPTION>
--------------
2000 Pro Forma
CharterMac
---------------
OPERATING DATA:
<S> <C>
Total Revenues $12,591,709
Total Expenses and Minority Interest 5,535,392
Net Income 7,056,317
Distributions to Shareholders 6,040,025
Earnings Per Weighted Average Shares (Basic) 0.28
Earnings Per Weighted Average Shares (Diluted) 0.28
Distribution per Shares 0.266
BALANCE SHEET DATA:
Cash and Cash Equivalents 15,910,768
Total Assets 701,665,891
Total Liabilities 92,825,087
Minority Interest 267,000,000
Total Shareholders' Equity 341,840,805
OTHER DATA:
Net Increase (Decrease) in Cash and Cash Equivalents 6,530,698
Net Cash Provided by Operating Activities 8,939,502
Ratio of Earnings to Fixed Charges 8.72
Ratio of Earnings to Total Assets 0.01
Net asset value per Share 15.06
</TABLE>
/293812.1
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RISK FACTORS
In addition to other information in this consent statement-prospectus,
the following risks should be considered by you in deciding whether to approve
the merger and the adoption each of the amendments to American Tax's trust
agreement.
You will not know the value of the merger consideration at the time consents for
the merger are due.
The market value of CharterMac common shares received by you in the
merger could vary depending on fluctuations in the value of the CharterMac
common shares between the date of the merger agreement and the time of the
merger. At the time of the deadline for receiving consents, you will not know
the exact value of the CharterMac common shares that you will receive when the
merger is completed. The exchange ratio of 1.43112 CharterMac common shares for
each American Tax share is a fixed number and amount and will not be adjusted in
the event of any increase or decrease in the price of CharterMac common shares
between the date of the merger agreement and the time of the merger. The market
value may fluctuate because of changes in the business, operations or prospects
of CharterMac, market assessments of the likelihood that CharterMac and American
Tax will complete the merger, the timing of the completion of the merger and
general market and economic conditions. For example, during the year ended
December 31, 1999, the closing price of CharterMac common shares varied from a
low of $11.625 to a high of $13.063 and ended that period at $11.75. Related AMI
urges you to obtain current market quotations for CharterMac common shares.
Upon the merger, you will no longer own shares in a finite life entity.
Upon the dissolution and subsequent liquidation of American Tax's
assets, which is contemplated to occur in 2006, you would be entitled to receive
your pro rata portion of the net proceeds of American Tax's assets. However,
CharterMac is an ongoing infinite life entity that has no specified termination
date and no specified date on which CharterMac's assets will be liquidated and
the proceeds distributed to its shareholders
American Tax shareholders will have additional market risk if the merger is
approved.
Related AMI has assumed for purposes of determining the going concern
value of American Tax's assets that all of American Tax's bonds will be prepaid
at the earliest date allowable. If this assumption were to prove true, American
Tax would liquidate its entire portfolio by 2006. By approving the merger,
American Tax shareholders incur additional market risk because if they wish to
liquidate their investment, they will be required to sell their CharterMac
common shares, the value of which is subject to market forces. Alternatively,
American Tax shareholders could wait for final payment upon liquidation of
American Tax's assets and thereby may incur investment risk with respect to the
ultimate value of American Tax's assets rather than the market value of the
CharterMac common shares.
The exchange ratio is based on CharterMac's stock price eleven months ago.
Related AMI and CharterMac based the exchange ratio on CharterMac's
common share price on June 30, 1999. CharterMac's common share price at the
consummation of the merger may not necessarily be the same as CharterMac's
common share price on June 30, 1999. If the merger were to have occurred at
CharterMac's 52 week low as of August 1, 2000, the CharterMac common shares
received by all American Tax shareholders in the merger would reflect an
aggregate value for their American Tax shares of $23,800,838 which is $1,684,544
less than the fair market value of American Tax's assets as of December 31, 1999
American Tax is more restricted in the amount and type of debt it can incur than
is CharterMac.
Unlike American Tax which is restricted from incurring debt, CharterMac
may incur debt up to 50% of CharterMac's total market value to invest in
tax-exempt multifamily housing bonds. An increase in debt may increase
/293812.1
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<PAGE>
the risk of default on CharterMac's obligations and may reduce the cash flow
available for distribution as a result of fluctuations in the interest rates
applicable to indebtedness of CharterMac.
You will lose your cash-out option.
The terms of the merger require the elimination of the cash-out option.
As a result, you will no longer be able to limit your exposure to risk by
accepting your share of the appraised value of the American Tax's assets.
Rather, you will instead hold CharterMac common shares which may be sold on the
American Stock Exchange. However, the value of the CharterMac common shares is
affected by market fluctuations which may adversely affect the amount you will
receive if you sell your CharterMac common shares. In addition, the value of
your CharterMac common shares at any given time may be more or less than your
share of the fair market value or liquidation value of American Tax's assets.
American Tax shareholders are subject to market risks arising from share price
fluctuations.
The CharterMac common shares you will receive in the merger are listed
on the American Stock Exchange, and therefore, you will bear market risk arising
from fluctuations of share prices of public companies generally. In addition,
even though the CharterMac common shares are listed on the American Stock
Exchange, there can be no assurance as to how active the trading market in its
shares will be, which could make it more difficult to liquidate your investment.
CharterMac's share price will be affected by interest rates.
The shares of companies which produce significant dividend
distributions, such as CharterMac, are sensitive to changes in the market rates
of interest. For instance, in periods of rising interest rates, such shares do
not perform well unless the companies are able to increase dividends in an
amount to keep pace with interest rate increases. In contrast, shares of such
companies generally do well in periods of falling interest rates as long as
their dividends remain stable. Therefore, the market price of CharterMac's
common shares will be influenced by changes in interest rates.
Issuance of additional CharterMac common shares may result in dilution to
CharterMac shareholders and price reductions.
CharterMac expects that it may in the future increase its capital
resources by making additional offerings of equity and debt securities,
including classes of preferred shares, CharterMac common shares, commercial
paper, medium-term notes which have a term of 2 to 10 years, senior or
subordinated notes and mortgage-backed bonds that are separated into different
groups based on their maturity dates. All debt securities and other borrowings,
as well as all classes of preferred shares, will be senior to the CharterMac
common shares in a liquidation of CharterMac. As of August 1, 2000, CharterMac
had approximately $500,000,000 in outstanding debt and preferred shares. The
effect of additional equity offerings may be the dilution of the equity of
CharterMac shareholders or the reduction of the price of shares, or both. If
such CharterMac common shares are issued at a price which is less than the then
market price of the CharterMac common shares, CharterMac's current shareholders'
shares would be diluted.
Immediate sales may adversely affect the market value of the CharterMac common
shares.
It is possible that American Tax shareholders who need immediate
liquidity will sell their CharterMac common shares as soon as possible after the
merger, putting downward pressure on the market value of the CharterMac common
shares. The average daily volume of CharterMac common shares was 22,000 for the
12 months ended March 31, 2000. Upon consummation of the merger there will be
2,115,630 new CharterMac common shares issued, in addition to the 20,582,628
common shares issued and outstanding as of March 31, 2000, all of which will be
available for immediate sale. The new CharterMac common shares to be issued in
connection with the merger represent 10.3% of the current outstanding shares and
9.3% of all CharterMac common shares that will be outstanding after the merger.
The American Tax shareholders will have no dissenters' appraisal rights.
Under Delaware law, you will have no appraisal, dissenters' or similar
rights in connection with the merger, which means that American Tax has no
requirement to purchase your shares of American Tax prior to the merger if you
/293812.1
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<PAGE>
voted against the merger, nor will you be able to contest the amount of the
merger consideration you receive in the merger.
CharterMac and American Tax made forward-looking statements in this consent
statement-prospectus. These forward-looking statements may not prove to be
accurate
This consent statement-prospectus contains statements that are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements other than statements of historical facts included in this consent
statement-prospectus, including statements that use terminology such as
estimate, expect, intend, anticipate, believes, may, will, continue and similar
expressions, are forward-looking statements. All phases of CharterMac's and
American Tax's operations involve risks and uncertainties, many of which are
outside CharterMac's and American Tax's control and any one of which, or a
combination of which, could materially affect the results of CharterMac's
operations and whether the forward-looking statements ultimately prove to be
correct. Important factors that could cause actual results to differ materially
from CharterMac's and American Tax's expectations include:
o increases in interest rates or the cost of borrowing or a default
under any material debt agreements;
o deterioration in general economic conditions;
o inability to originate or acquire attractive investment
opportunities;
o the unavailability of funds to make additional investments;
o governmental factors affecting operations, including, without
limitation, adverse changes in the methods used by state agencies
for allocating tax-exempt financing; and
o other risks described from time to time in CharterMac's or
American Tax's filings with the Securities and Exchange
Commission.
American Tax shareholders will recognize taxable gain upon the merger.
It is expected that, for United States federal tax purposes, you will
recognize taxable income in an amount equal to any gain realized on the merger,
but will not recognize the benefit of any tax loss realized on the merger. Your
tax liability with respect to the gain will be the difference between the value,
as of the closing of the merger, of the CharterMac common shares you will
receive over your adjusted basis in your exchanged American Tax shares. Certain
American Tax shareholders will be required to pay capital gains tax as a result
of the merger but will not receive a special cash distribution for the payment
of such tax. The amount of this gain will fluctuate as a direct result of the
change in value of CharterMac common shares and the continuation of American
Tax's operations up until the date of the merger. Certain shareholders that
acquired their American Tax shares in the secondary market or through the
reinvestment plan may recognize a different result.
You will be bound by the decision of a majority-in-interest of your fellow
shareholders.
Under the trust agreement, if shareholders who own a majority of the
American Tax shares approve the merger transaction and the amendments to the
trust agreement, you and all other shareholders will be bound by the decision of
that majority of your fellow shareholders. Therefore, if the merger is approved,
you will not be entitled to the protections previously contained in the trust
agreement with respect to a "roll-up" transaction such as the proposed merger.
The conclusions reached by management and the financial advisors are based in
part upon assumptions which may not prove to be accurate.
Each of Related AMI, McDonald Investments, Legg Mason and Cushman &
Wakefield have reached conclusions or issued appraisals which rely on
assumptions and forecasts provided by the management of CharterMac and American
Tax. You should recognize that appraised values are opinions and as such may not
represent the true worth or realizable value of the asset being appraised.
Furthermore, the assumptions on which the forecasts and
/293812.1
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<PAGE>
conclusions were based are inherently imprecise and there can be no assurance
than any assumption will be realized. Also, actual future results may vary
materially from the assumptions.
Risks related to anti-takeover provisions.
There are provisions in CharterMac's trust agreement and the management
agreement between CharterMac and Related Charter that may have the effect of
discouraging a third party from making an acquisition proposal for CharterMac
and may thereby inhibit a change in control of CharterMac under circumstances
that could give shareholders the opportunity to realize a premium over the
then-prevailing market prices. Such provisions include the following:
Additional Classes and Series of CharterMac Shares. The CharterMac
trust agreement permits the CharterMac board of trustees to issue additional
classes or series of beneficial interests and to establish the preferences and
rights of any such issued. Therefore, the CharterMac board of trustees could
authorize the issuance of beneficial interests with terms and conditions which
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the CharterMac common shares might receive a
premium for their common shares over the then-prevailing market price of the
CharterMac common shares. To date no shares of CharterMac have been issued which
might have an anti-takeover effect although CharterMac has recently completed a
private placement of preferred shares which have no voting rights and economic
rights which are identical to the outstanding CharterMac common shares. These
preferred shares were sold at a premium to the current trading price of
CharterMac's common shares and are convertible into CharterMac common shares..
Staggered Board. The CharterMac board of trustees has three classes of
managing trustees. The terms of the first, second and third classes will expire
in 2001, 2002 and 2003 respectively. Managing trustees for each class will be
chosen for a three-year term upon the expiration of the current class' term. The
use of a staggered board makes it more difficult for a third-party to acquire
control over CharterMac.
Related Charter's Rights Under the Management Agreement. The CharterMac
management agreement cannot be terminated by CharterMac prior to October 1,
2001, other than for cause, and CharterMac cannot dissolve and liquidate prior
to such date except upon a recommendation of Related Charter. After October 1,
2001, the vote of the holders of 66-2/3% of CharterMac's then outstanding common
shares is required to approve a dissolution and liquidation of CharterMac that
is not recommended by Related Charter and the holders of a majority of the
outstanding common shares are required to approve a dissolution and liquidation
of CharterMac that is recommended by Related Charter. The inability to terminate
CharterMac Management Agreement and the other Management Agreements prior to
October 1, 2001 could discourage third parties willing to acquire a controlling
interest in CharterMac from doing so especially if they were seeking to replace
Related Charter in order to permit them to provide advisory services to
CharterMac and receive the fees otherwise payable to Related Charter.
CONFLICTS OF INTEREST
The managers of American Tax and CharterMac are owned by the same entity.
The managers of both American Tax and CharterMac, which are Related AMI
and Related Charter respectively, are owned by the same entities. Common
ownership can potentially cause a conflict of interest that could effect the
decisions a manager makes. This conflict also means that the terms of the merger
were not determined as a result of arm's length negotiations between two
independent parties.
Two members of Related AMI's board of directors are also members of CharterMac's
board of trustees.
Stuart J. Boesky and Michael B. Brenner are on the board of directors
of Related AMI as well as CharterMac's board of trustees. The best interest of
these two entities may not always coincide, which could result in decisions
being made that are not entirely in the best interest of one or the other
entity.
The compensation payable to affiliates of the American Tax manager will
increase.
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<PAGE>
If the merger is consummated, Related Charter will be paid an
acquisition fee by CharterMac in the amount of $475,500 in connection with the
acquisition of American Tax's first mortgage bonds. In addition, with respect to
the first mortgage bonds which CharterMac will acquire from American Tax, while
Related Charter will receive a lower rate of annual fees on those bonds, those
fees may be payable over a longer period of time than would have been the case
if Related AMI had continued to manage the American Tax portfolio and that
portfolio had been liquidated in accordance with the American Tax's original
time-frame.
American Tax's manager is also a shareholder.
Related AMI owns a 1% interest in all items of income, loss and
distributions in American Tax and it will receive CharterMac common shares on
the same basis as you will. As of the date of this consent statement-prospectus,
Related AMI effectively would own 14,783 shares of American Tax and will receive
21,156 common shares of CharterMac if the merger is completed. Because the
manager has a vested interest in the merger it may not always give advice that
is entirely objective.
American Tax and CharterMac share common legal counsel.
American Tax and CharterMac both utilize Battle Fowler, LLP as their
legal counsel. The best interest of these two entities may not always coincide,
which could result in advice being given that is not entirely in the best
interest of one or the other entity. This conflict also means that the terms of
the merger were not determined as a result of arm's length negotiations between
two independent parties.
McDonald Investments and Legg Mason had prior dealings with CharterMac
In June of 1999 McDonald Investments and Legg Mason acted as
co-managers in a $90 million private placement of preferred stock in a
subsidiary of CharterMac in which they received underwriting discounts of
$139,500 and $167,400 respectively. This prior dealing with CharterMac could
affect the way both McDonald Investments and Legg Mason view CharterMac and the
merger.
/293812.1
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<PAGE>
AMERICAN TAX CONSENT SOLICITATION
Matters To Be Considered
Approval and Adoption of the Merger and the Merger Agreement.
For a description of the merger proposal and the merger agreement, see
"The Merger" and "The Merger Agreement."
Vote Required. Approval and adoption of the merger and the merger
agreement requires the affirmative vote of the holders of a majority of the
American Tax shares outstanding on the record date. Abstentions and brokers
voting without shareholder direction will have the same effect as votes against
such approval and adoption.
Amendment To American Tax's Trust Agreement To Delete The Cash-Out
Provision In A Roll-up Transaction.
The merger agreement provides that, immediately before the merger,
American Tax's trust agreement will be amended to remove Section 23.2. Section
23.2 of the American Tax trust agreement contains a provision which grants
American Tax's shareholders who vote "no" on a proposed roll-up of American Tax
shares the choice of:
o accepting securities of the roll-up entity offered in the
roll-up; or
o either:
o remaining a shareholder of American Tax; or
o receiving cash for their American Tax shares equal to
each American Tax shareholder's pro rata share of the
appraised value of the net assets of American Tax.
As defined in the American Tax trust agreement, a roll-up is a
transaction involving the acquisition, merger, conversion, or consolidation of
American Tax and the issuance to American Tax shareholders of securities of the
entity that survives the acquisition, merger, conversion, or consolidation.
Under the American Tax trust agreement, the merger is considered a roll-up.
Reasons For And Effect Of Amendment To Delete The Cash-Out Provision In
A Roll-up Transaction.
Pursuant to its trust agreement, CharterMac is only able to incur
leverage or other financing not in excess of 50% of CharterMac's total market
value as of the date incurred.
Due to its capital structure and operating strategy, CharterMac
believes that the acquisition of American Tax must be accomplished by offering
its shares, thereby preserving its cash and leveraging capability. In
particular, CharterMac has been structured differently than typical mortgage
real estate investment trusts, which generally utilize high levels of leverage
and acquire subordinated interests in commercial and/or residential mortgage-
backed securities. Instead, CharterMac utilizes low levels of leverage, which as
of September 30, 1999 was 36.65%, and generally invests in and acquires
long-term, fixed-rate, tax-exempt first mortgage bonds. As a result, CharterMac
did not experience the negative effects associated with the volatile interest
rate environment during 1998.
Mortgage real estate investment trusts typically incur leverage at
ratios ranging from between 3:1 to 10:1. In general, the first mortgage bonds
that CharterMac either invests in or acquires call for ten-year restrictions
from prepayments, eliminating CharterMac's susceptibility to significant levels
of repayment risk as a result of interest rate reductions. Consistent with the
foregoing, CharterMac focuses on providing investors with a stable level of
distributions, even through unstable markets.
Taking such concerns into consideration, Related AMI and the CharterMac
board of trustees agreed that the consideration payable to American Tax for its
assets would be restricted solely to CharterMac common shares so that CharterMac
could stay beneath the 50% limit and preserve its cash reserves and available
credit lines which will help permit CharterMac to make additional investments.
/293812.1
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<PAGE>
Vote Required. Approval and adoption of this amendment requires the
affirmative vote of the holders of a majority of the American Tax shares
outstanding on the record date. Abstentions and brokers voting without
shareholder direction will have the same effect as votes against such approval
and adoption.
Amendment To American Tax's Trust Agreement To Delete Conditions To
American Tax's Participation
The merger agreement provides that, immediately before the merger,
American Tax's trust agreement will be amended to remove Sections 23.3(a)
through (d). Sections 23.3(a) through (d) of the American Tax trust agreement
could be construed to otherwise preclude American Tax from entering into a
roll-up transaction which would:
o result in the American Tax shareholders having voting rights
that are less than those provided in the American Tax trust
agreement;
o include provisions that would materially impede or frustrate
the accumulation of securities by any purchaser of the
securities of the roll-up entity;
o limit the ability of an investor to exercise the voting rights
of its securities in the roll-up entity on the basis of the
number of shares held by that investor; or
o result in investors in the roll-up entity having rights of
access to the records of the roll-up entity or rights to
receive reports that are less than those provided in American
Tax's trust agreement.
Reasons For And Effect Of Amendment To Delete Conditions To American
Tax's Participation. Neither Related AMI nor CharterMac believes that the merger
will: result in the American Tax shareholders having voting rights that are less
than those provided in the American Tax trust agreement; include provisions that
would materially impede or frustrate the accumulation of securities by any
purchaser of the securities of the roll-up entity; limit the ability of an
investor to exercise the voting rights of its securities in the roll-up entity
on the basis of the number of shares held by that investor; or result in
investors in the roll-up entity having rights of access to the records of the
roll-up entity or rights to receive reports that are less than those provided in
American Tax's trust agreement.
However, in order to avoid any possible conflict between the terms of
the merger and the conditions set forth in American Tax's trust agreement,
American Tax agreed to seek approval from the American Tax shareholders to
delete these provisions. You should note in particular, that, unlike American
Tax, CharterMac has a classified board of trustees, which means that the
trustees are not all up for reelection each year, and may issue additional
CharterMac common shares. Both of these features of CharterMac's organizational
structure could be interpreted as being inconsistent with the conditions set
forth in American Tax's trust agreement.
Vote Required. Approval and adoption of this amendment requires the
affirmative vote of the holders of a majority of the American Tax shares
outstanding on the record date. Abstentions and brokers voting without
shareholder direction will have the same effect as votes against such approval
and adoption.
Amendment To American Tax Trust Agreement To Remove Transfer
Restriction
The merger agreement provides that, immediately before the merger,
American Tax's trust agreement will be amended to remove Section 15.4.9. Section
15.4.9 of the American Tax trust agreement limits Related AMI or any of its
affiliates from purchasing first mortgage bonds or tax-exempt bonds from
American Tax. Since CharterMac and American Tax are managed by the same
entities, CharterMac is an affiliate of Related AMI.
Reasons For And Effect Of Amendment To Remove The Transfer Restriction.
In order to complete the merger, this provision must be deleted from American
Tax's trust agreement since CharterMac is an affiliate of Related AMI and
therefore would otherwise be prohibited from purchasing American Tax's assets.
Vote Required. Approval and adoption of this amendment requires the
affirmative vote of the holders of a majority of the American Tax shares
outstanding on the record date. Abstentions and brokers voting without
shareholder direction will have the same effect as votes against such approval
and adoption.
/293812.1
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<PAGE>
Recommendation of Related AMI
Related AMI has approved the amendments to American Tax's trust
agreement and recommends that you vote for approval and adoption of the
amendments. However, such recommendation is subject to the conflicts of
interests described in the consent statement.
Approval of the merger is conditioned on the approval of the amendments
to the American Tax trust agreement. American Tax cannot effect the merger as
structured if the amendments to its trust agreement are not approved by you.
Furthermore, CharterMac has only approved the acquisition of American Tax if it
can pay for the transaction using only its common shares.
Consent Solicitation Procedures
American Tax is first sending this consent statement-prospectus and the
accompanying consent form to you on or about August __, 2000. The close of
business on August 1, 2000 has been fixed as the record date for determining
which shareholders are entitled to receive notice of the proposals and submit
consent forms. The records of American Tax indicate that on the record date
there were issued and outstanding 1,463,521 shares which were held by
approximately 1,200 holders of record. Holders of record of American Tax shares
on the record date are each entitled to one vote per share on each matter to be
considered.
The deadline for returning the enclosed consent form is [** not later
than October ___, 2000 {not less than 30 nor more than 60 days after mailing}**]
which date may be extended by Related AMI with the requisite shareholder vote.
Consents are revocable by you by delivering written notice to American
Tax at any time prior to the later of [**September ___ {not less than 30 nor
more than 60 days after mailing}**], 2000 or the date on which consents of
American Tax shareholders representing a majority of the total eligible
shareholder vote become effective. All American Tax shares held by an American
Tax shareholder will be voted as specified by his or her consent form. An
American Tax shareholder who does not return his or her consent form or who
abstains will effectively have not consented to the merger and the amendments to
American Tax's trust agreement. If a consent form is completed and returned, but
no box is marked with respect to the proposals, such shareholder will be deemed
to have consented to the proposals. Each consent submitted by an American Tax
shareholder will be valid for six months, unless earlier revoked. The American
Tax trust agreement requires that shareholders have a minimum of 30 days to
respond to a vote without a meeting. Therefore after [**September ___ {not less
than 30 nor more than 60 days after mailing}**], 2000 and upon American Tax's
receipt of consents of a majority of the total eligible shareholder vote on each
of the proposals, the proposals will be deemed approved and adopted.
Under the terms of the American Tax trust agreement, the consent of the
holders of a majority of the outstanding American Tax shares entitled to vote,
must be obtained before the merger and the amendments to American Tax's trust
agreement can be effected or implemented. The consent of the holders of a
majority of the American Tax shares who actually vote is required to approve an
extension of the solicitation period.
American Tax and its manager, Related AMI, may assist in providing
information to you in connection with any questions you may have with regard to
this consent statement-prospectus. No commission or other remuneration will be
paid or given directly or indirectly for soliciting consents, except for the
normal compensation paid to the officers and employees of Related AMI. Related
AMI may appoint a solicitation agent to assist with the solicitation of
consents.
/293812.1
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<PAGE>
Such solicitation agent will be paid customary solicitation fees and
reimbursement of expenses. American Tax estimates that it will incur the
following expenses as a result of the proposals:
Registration, Listing and Filing: $5,249
Professional Fees: 184,000
Printing and Postage: 25,000
Fairness Opinion: 177,500
Other Transaction Costs 108,251
----------
Total $500,000
========
If the merger agreement is terminated because the American Tax
shareholders do not approve the merger and the amendments to American Tax's
trust agreement, CharterMac will pay its own fees and expenses and Related AMI,
or one of its affiliates, will pay all fees and expenses incurred by American
Tax. If the merger agreement is terminated for any reason other than the failure
of the American Tax shareholders to approve the merger and the amendments to
American Tax's trust agreement, CharterMac and American Tax will pay their own
fees and expenses. If the merger is completed, CharterMac and American Tax will
pay their own fees and expenses. As of March 31, 2000 American Tax had accrued
$388,000 of such costs.
/293812.1
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<PAGE>
THE MERGER
Background of the Merger
The following paragraphs describe the history of the decision of
CharterMac and American Tax to enter into the merger agreement.
During its offering and acquisition stage, American Tax's distribution
policy was to maintain stable distributions. In accordance with this policy,
American Tax distributed to its shareholders proceeds representing amortization
or repayment from its investments in short term tax-exempt securities. American
Tax completed its acquisition stage in 1998 and at that time announced that it
had changed its distribution policy to more closely reflect collections on
American Tax's investments. Under this new policy, American Tax's distributions
would have significantly decreased below the current $.40 per share quarterly
distribution rate. However, while it is under no obligation to do so, because it
felt it had an obligation to provide its investors with the highest distribution
possible, Related AMI supplemented the amount available for distribution by
permitting American Tax to defer payment of its fees, special distributions and
expense reimbursements. As a result, American Tax has been able to maintain a
$.40 per share quarterly distribution rate. Both Related AMI and American Tax
believed that the interest payments received on the mortgage bonds would soon
become sufficient to sustain the initial distribution level, without being
supplemented by Related AMI. Unfortunately, the property cash flows and values
on the two American Tax assets that allow for the payment of participating
interest did not increase as expected.
Following the change in American Tax's distribution policy, Related AMI
began to evaluate alternative means to maintain stable distributions to American
Tax's shareholders including; (1) continuation of American Tax under its current
trust agreement; (2) the liquidation of American Tax; (3) listing American Tax's
shares on a national stock exchange and continuing American Tax under its
current trust agreement; (4) listing American Tax's shares on a national stock
exchange and changing American Tax's structure and investment policy to be a
publicly listed, open-ended, infinite-life operating company; or (5) a
combination of American Tax with CharterMac. A detailed discussion of each
alternative can be found on page 54 under the heading "Comparison of Benefits
and Detriments of Alternatives to Merger".
On May 6, 1999, the officers of Related AMI initiated contact and met
with a representative of First Union Securities. First Union Securities is a
leading provider of financial services to 16 million retail and corporate
customers throughout the east coast and the nation, with $254 billion in assets
and stockholders' equity of $17 billion at March 31, 2000. First Union
Securities operates full service banking offices in 12 east coast states and
Washington, D.C. and full service brokerage offices in 42 states and
international offices worldwide. First Union Securities is the trade name under
which First Union Corporation conducts its investment banking, merger and
acquisition, asset management and mutual fund, brokerage and insurance
businesses. First Union Securities was also the principal placement agent who
participated in the distribution of the American Tax shares in American Tax's
initial offering, to (1) review with First Union Securities American Tax's
current distribution policy and the negative impact it would have on the amount
of future distributions and (2) determine a way in which American Tax could
maintain its $.40 per share quarterly distribution rate in the face of growing
economic pressures to reduce such rate. The economic pressures and specific
market conditions were:
o Lower Than Expected Cash Flow: Underlying property
cash flows and values on the two American Tax assets
that allow for participation in the underlying
properties' cash flows, Reflections and Rolling
Hills, did not increase as expected, due to (1)
rental rates not increasing as anticipated and (2)
property operating expenses being higher than
projected. Therefore, these assets did not produce
participating interest as projected and sufficient to
allow American Tax to sustain its distributions at
the initial expected distribution level after
payment of its regular expenses.
o Changes In The Law: In 1996 the tax law changed with
respect to tax exempt bonds that disallowed interest
based on the operations of the underlying asset
(participating interest) to be characterized as tax
exempt on new bonds issued post 1996. American Tax
began operations in 1993 with a business plan which
called for the purchase of assets which
/293812.1
26
<PAGE>
generate tax exempt income, so, therefore, American
Tax could no longer rely on buying new bonds with
participating interest features as initially
projected.
o Payment Due Related AMI: Related AMI could no longer
supply its services to American Tax without receiving
reimbursements for third-party costs and fees to
cover the costs of its operations.
At this meeting, First Union Securities and Related AMI discussed each
of the possible alternatives enumerated above, to determine which alternative
would allow American Tax shareholders to continue to receive distributions which
were close to their current $.40 per share quarterly distribution. After
analyzing all of the alternatives, Related AMI determined that a merger of
American Tax with CharterMac would be the most likely course of action to
provide American Tax shareholders with a quarterly distribution close to their
current level of $.40 per share. The outcome of the meeting was that Related AMI
would discuss with its legal counsel the option to merge with CharterMac and
that First Union Securities would make their decision as to whether they felt
the merger was a viable alternative.
First Union Securities has since confirmed to American Tax that it
believes that the merger may benefit American Tax shareholders because it will
allow American Tax shareholders to receive future distributions which are
comparable to the distributions that they have been receiving. First Union
Securities has also confirmed that if the merger is not consummated, American
Tax shareholder's future distributions will be significantly reduced under
American Tax's distribution policy. First Union Securities has advised American
Tax that the factors it considered in analyzing the benefits of the merger
included, (a) CharterMac's performance and track record, (b) CharterMac's
historical trading range, (c) the potential investment liquidity and greater
diversification which American Tax shareholders would have as owners of
CharterMac's common shares, and (d) the expectation, based on the pro forma
analysis of the combined companies, that the American Tax shareholders would
continue to receive a comparable tax exempt distribution which exceeds the
distribution supportable under American Tax's distribution policy.
First Union Securities has advised Related AMI that it will only
communicate to shareholders who are its clients and who request information or
advice regarding the proposals. First Union Securities will only provide oral
advice to shareholders through its financial consultants of its views with
respect to the proposals. First Union Securities will provide to its financial
consultants only, a balanced analysis of the potential risks and benefits of the
proposals and how they may affect their clients' investment. This analysis will
be based upon consultations with Related AMI and upon an analysis of the
proposals and current market conditions. First Union Securities will communicate
to the financial consultants through a combination of summary reports on the
proposals, conference calls and electronic media to ensure that all financial
consultants with clients invested in American Tax will receive a thorough
briefing on the proposals.
CharterMac may reimburse the costs incurred by First Union Securities
in supporting the proposals. Such reimbursement is not contingent on the outcome
of the vote on the proposals. CharterMac will not pay First Union Securities any
other compensation, either upon consummation or termination of the merger, other
than this reimbursement. Neither CharterMac nor any of its affiliates have paid
any fees to First Union Securities or its affiliates during the past two years.
At the quarterly CharterMac board of trustees meeting on June 16, 1999,
the officers of CharterMac briefly discussed with the board of trustees the
possible combination of CharterMac with American Tax. At this meeting, the board
of trustees were given background information on American Tax and were given a
brief synopsis of the steps that would need to be taken for a possible merger.
The outcome of the meeting was that the officers of CharterMac would have to
discuss possible merger alternatives with its legal counsel to ensure that any
contemplated business combination was structured in a fair manner.
Recognizing the conflict of interest inherent in the fact that most of
the officers and directors of Related AMI are the same for CharterMac, and with
the goal of structuring the business combination of American Tax and CharterMac
in such a way as to contain fair contractual provisions for both parties, on
July 13, 1999, representatives of American Tax and CharterMac met with their
joint legal counsel, Battle Fowler LLP, to discuss the alternative business
combination structures for American Tax and CharterMac. The outcome of the
meeting was that a consent statement
/293812.1
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<PAGE>
for American Tax's shareholders would need to be drafted by Battle Fowler and
that both CharterMac and American Tax would have to retain financial advisors to
issue fairness opinions on the transaction.
In the opinion of Related AMI's board of directors, the goal of any
business combination involving American Tax was for American Tax's shareholders
to receive liquidity in their investment and at the same time continue to
receive a comparable tax exempt distribution to the one they were receiving from
American Tax. In this regard, Related AMI's board of directors concluded that
there was only one other publicly listed company, Municipal Mortgage & Equity,
LLC, also known as MuniMae, which was comparable with CharterMac and might have
been a viable alternative merger candidate for American Tax. However, Related
AMI's board of directors believed that although MuniMae invests in the same
types of investments as American Tax, its earnings are not comparable to those
of American Tax, which are 100% tax exempt for federal income tax purposes.
Based on MuniMae's public statements, its 1999 earnings are expected to be only
87% tax exempt, while CharterMac expects that its 1999 earnings will be
approximately 97% tax exempt. In addition, had American Tax pursued a merger
with MuniMae, it is unlikely that American Tax shareholders would have received
full value for American Tax's first mortgage bonds for the following reasons:
o Related AMI would not have agreed to waive its deferred fees
and expenses through June 30, 1999;
o American Tax would have had to incur additional transaction
costs in connection with a merger with a non-affiliate which
was unfamiliar with the American Tax portfolio; and
o American Tax would have been required to make extensive
representations, warranties and possibly other concessions.
However, Related AMI considered that a business combination with
MuniMae may have been advantageous because unlike CharterMac, MuniMae manages
its own portfolio with no third party manager. This would lead to lower fees and
could result in lower overall general and administrative expenses.
Based upon the foregoing factors, Related AMI's board of directors
concluded that CharterMac was the most suitable merger candidate.
In June 1999, joint legal counsel for American Tax and CharterMac began
drafting this consent statement-prospectus and a definitive merger agreement and
other agreements contemplated by the merger. In October 1999, Related AMI
retained McDonald Investments and CharterMac retained Legg Mason to act as their
financial advisors. From June 1999 to November 1999, there were discussions of
the business combination terms in numerous telephone conversations among Related
AMI and CharterMac and their financial advisors. The structuring and drafting
sessions continued through November 2, 1999, the date the merger agreement was
executed.
On October 20, 1999, the CharterMac board of trustees met to discuss
the acquisition of American Tax. The CharterMac board of trustees received the
oral opinion of Legg Mason, that the merger was fair, from a financial point of
view, to CharterMac shareholders. On October 26, 1999, Legg Mason delivered its
written opinion, which is materially consistent with Legg Mason's oral opinion
delivered on October 20, 1999. The opinion of Legg Mason is attached to this
consent statement-prospectus as Appendix B. At this meeting, Related Charter
management and CharterMac's legal advisors made presentations to the CharterMac
board of trustees concerning the merger and assisted in the CharterMac board of
trustees's review of the proposed merger agreement.
On October 26, 1999, the CharterMac board of trustees reconvened and
approved the purchase and the proposed merger agreement and related
transactions. The board of trustees also authorized the execution of the merger
agreement in substantially the form presented to the CharterMac board of
trustees, giving Related Charter the discretion to make immaterial changes to
these agreements without the board of trustees's express approval.
On October 22, 1999 and October 28, 1999, the Related AMI board of
directors held special meetings to review, with the assistance of Battle Fowler
and McDonald Investments, the proposed merger and the merger agreement. At the
meetings, Related AMI's management and American Tax's legal advisors made
presentations to the Related AMI board of directors concerning the merger. In
addition, at each of these meetings, McDonald Investments reviewed with the
Related AMI board of directors the financial analysis performed by McDonald
Investments in connection with the
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<PAGE>
proposed merger. On November 1, 1999, McDonald Investments finalized their
financial analysis. On November 1, 1999, McDonald Investments delivered to the
board of directors their written opinion to the effect that the exchange ratio
was fair, from a financial point of view, to you, which is materially consistent
to McDonald Investments' previous oral presentations. On November 1, 1999,
McDonald Investments also delivered their written valuation of American Tax's
net assets to the Related AMI board of directors. The opinion of McDonald
Investments is attached to this consent statement-prospectus as Appendix C and
the related valuation letter is attached to this consent statement-prospectus as
Appendix F. You are urged to read the full text of that opinion and valuation.
On November 2, 1999, the Related AMI board of directors by unanimous
written consent approved the proposed merger and the merger agreement. The board
of directors also authorized the execution of the merger agreement in
substantially the form presented to the Related AMI board of directors, giving
Related AMI management the discretion to make immaterial changes to these
agreements without the board of directors's express approval. The board of
directors determined that the merger agreement and the related transactions be
voted on by you, and that the Related AMI board of directors recommend that
American Tax's shareholders approve the merger agreement and the amendments to
the American Tax trust agreement.
On November 2, 1999, CharterMac, CM Holding and American Tax signed the
merger agreement.
On November 3, 1999, CharterMac and American Tax issued a joint press
release announcing the execution of the merger agreement.
How the Merger Consideration Was Determined
Conversion Ratio. The merger consideration was determined by taking
American Tax's net asset value as of June 30, 1999 ($26,767,092) and adding back
the liabilities for accounts payable to Related AMI ($766,747) and subtracting
the estimated cost to American Tax of the merger as of October 15, 1999
($427,421) and dividing that result ($27,106,418) by the sum of the number of
shares outstanding as of June 30, 1999 plus the number of American Tax shares
allocable to Related AMI in respect of its 1% interest in American Tax. The
resulting adjusted value per American Tax share ($18.3362) was then divided by
the June 30, 1999 closing price of CharterMac, $12.8125, to equal the conversion
ratio of 1.43112.
Fair Market Value. The net asset value of American Tax was determined
by taking the fair market value of American Tax's assets and subtracting its
liabilities. The assets are comprised of investments in bonds, cash and cash
equivalents and accrued interest receivable. Its liabilities include amounts
which are due to affiliates and accounts payable. The fair market value of the
American Tax assets was determined as follows:
o Fair Market Value of Bonds -The fair market value of each of
American Tax's investment in bonds was computed by determining the
present value of the principal and interest income stream to
American Tax at rates determined by market interest rates of
similar investments and the risk associated with collecting the
principal and interest income stream. Base interest paid over the
analysis period, up to the last day of the year upon which
prepayment is permitted, prepayment premiums and the face amount
of the bonds were discounted using a 7.5% rate. Participating
interest was discounted at 12%.
The underlying property net operating income was used to determine
the amounts of participating interest payable from excess cash
flow and from excess sales proceeds. The underlying properties'
net operating income was assumed to increase by 3% annually and
the underlying properties were assumed to be sold or refinanced
with a value computed by capitalizing the net operating income
using a capitalization rate of 9%, which Related AMI believes is
comparable to capitalization rates for sales of similar property
types.
o Fair Market Value of Cash and Cash Equivalents - actual amounts
----------------------------------------------
o Fair Market Value of Accrued Interest Receivable - actual amounts
/293812.1
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<PAGE>
Recommendation of Related AMI and American Tax's Reasons for the Merger
Related AMI reasonably believes that the merger is fair to and in the
best interests of American Tax shareholders. In reaching this determination that
the merger is fair to and in the best interests of American Tax shareholders,
American Tax consulted with its management, financial advisor and legal counsel.
Related AMI did not assign any relative or specific weights to any of the
factors set forth below.
Factors Weighing Against the Merger: Set forth below are material factors
that Related AMI considered in reaching its determination which weighed against
Related AMI's support of the merger:
o Fixed Exchange Ratio. That the exchange ratio of 1.43112 CharterMac
common shares for each American Tax share is a fixed number and will
not be adjusted in the event of an increase or decrease in the price of
CharterMac common shares between the date of the merger agreement and
the completion of the merger.
o Ongoing Business. That you may have originally invested in American Tax
because it was a finite-life entity and may not want to own an interest
in an ongoing business.
o Elimination of Protections. That the shareholder protections included
in the American Tax trust agreement with regard to roll-up transactions
such as the merger must be eliminated in order to complete the merger
on the terms agreed to between American Tax and CharterMac. These
protections include the option to receive cash in lieu of shares and a
prohibition on the sale of American Tax assets to an affiliate of
Related AMI.
o Conflicts of Interest. The perceived inherent conflict of interest of
Related AMI since it is owned by the same entities that own Related
Charter.
o Recognition of Taxable Income. That you will recognize taxable income
in the merger without the benefit of a special cash distribution for
its payment.
Factors Weighing In Favor Of The Merger: Set forth below are all of the
material factors that Related AMI considered to be important in reaching its
determination to approve the merger:
o Reduction in Distribution Under Existing Business Plan. That if
American Tax continued to operate under its existing business plan, the
distribution payable to American Tax shareholders would have to be
reduced.
o Pre and Post Merger Distribution Comparisons. As shown below, based on
CharterMac's most recent annualized quarterly distribution and the
exchange ratio of 1.43112 CharterMac common shares for each American
Tax share, American Tax shareholders can expect to receive an annual
distribution of $1.52 per American Tax share which, although less than
the current annualized American Tax distribution of $1.60 per American
Tax share, is significantly greater than the annual distribution that
could be supported under American Tax's new distribution policy.
The following table shows the consideration you will receive for your
American Tax shares in the merger and its effect on the distributions
payable with respect to those shares. By way of illustration, the table
uses 125 American Tax common shares because this was the minimum amount
you were allowed to purchase in American Tax's original offering.
/293812.1
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<PAGE>
<TABLE>
<CAPTION>
Post-Merger
Annual
Distribution on
Total CharterMac
American Tax Common Shares
Number 1999 American Tax Received for
of Distribution 1999 Distribution American Tax
American Based on Adjusted Base Shares Based on
Tax Number of CharterMac Number of on Number of current
Shares Common Shares to be American Tax American Tax CharterMac
Owned Received in Merger shares owned(2) shares owned(3) distribution(4)
----- ------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
125 179.00000(1) $200.00 $178.75 $189.74
1 1.43112 $1.60 $1.43 $1.52
</TABLE>
(1) Rounded to eliminate fractional shares.
(2) Amounts reflect the impact of Related AMI's deferral of fees and
reimbursement expenses.
(3) Reflects the historical 1999 distributions ($1.60 per share) as adjusted
for the current payment of the 1999 unpaid fees, reimbursements and
expenses due to Related AMI. However, the distribution during the first
twelve-month period, assuming payment in the first twelve-month period of
all the deferred and unpaid fees, reimbursements and expenses due to
Related AMI totaling $893,240 as of December 31, 1999 (which includes the
$766,747 owed through June 30, 1999 which is to be forgiven if the merger
is consummated), would result in a distribution equal to $0.99 per American
Tax share ($123.75 per 125 American Tax shares). No assurance can be given
that future distributions will be $1.43 per share and such amount was
calculated solely to illustrate the impact on the historical distribution
rate of the current payment of fees to Related AMI.
(4) Assumes distributions on each CharterMac common share is $1.06 based on
CharterMac's distribution payable for the quarter ended March 31, 2000 of
$0.265, annualized by multiplying $0.265 by four. This annualized amount
was then multiplied by the conversion ratio (1.43112); the
product ($1.5169872) was then multiplied by the number of shares presented
in the chart (1 or 125, as applicable).
o Comparison of Rate of Distributions to Shareholders divided by Net
Income and Distribution Rate . As shown below, CharterMac's
distributions have historically been paid, and are expected to continue
to be paid, from collections of interest on bond investments and are
not supported by the return of capital or accrual of fees.
The following table depicts the percentage amount of (1) distributions
that were actually distributed by CharterMac and American Tax to their
respective shareholders divided by (2) each entity's net income.
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<PAGE>
[GRAPHIC OMITTED]
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<PAGE>
*CharterMac was formed on October 1, 1997 and
therefore does not have a full year of operations to
report for 1997.
**The 1999 numbers for American Tax exclude the one
time merger related costs.
American Tax. The following table depicts the per share distribution
amount distributed to the American Tax shareholders.
[GRAPHIC OMITTED]
*CharterMac was formed on October 1, 1997.
/293812.1
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<PAGE>
CharterMac. The following table depicts the per share distribution
amount distributed to CharterMac shareholders.
[GRAPHIC OMITTED]
*CharterMac was formed on October 1, 1997.
o Greater Liquidity. That the merger consideration to be paid by
CharterMac to you would provide greater liquidity for your
investments by converting your illiquid ownership of American
Tax common shares into ownership of CharterMac's common shares
which are listed on the American Stock Exchange.
o Ability to Sell CharterMac Shares. That even though as
structured, the merger requires you to give up protections
contained in the trust agreement which would have allowed you
to receive cash instead of CharterMac common shares, you will
still have the ability to "cash out" of your investment by
selling the CharterMac common shares on the American Stock
Exchange.
o Transaction Cost Comparison. American Tax will be able to
maximize the net proceeds from the sale of its assets because
by selling to an affiliate, American Tax will be able to avoid
the significant transaction costs which are otherwise
generally incurred in third- party transactions such as
selling commissions and costs associated with representations,
warranties, and indemnifications that purchasers generally
require and which may result in additional escrow costs.
As shown below, because Related Charter is familiar with
American Tax's assets, the transaction costs associated with
the merger should be lower than if American Tax were merged
with a third party.
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<PAGE>
Related AMI estimates that a third party would incur
additional costs totaling approximately $891,000 as follows:
Environmental Reports $ 10,000
Engineering Reports 18,000
Increased cost of appraisal (1) 40,000
Due diligence 20,000
Transaction Advisor (2) 803,000
--------
Total additional costs $ 891,000
========
(1) Additional cost assuming appraisal cost is not
shared with purchaser.
(2) Investment banker and/or broker fees - estimated
at approximately 3% of total purchase price based
on the net asset value of $26,767,092.
o Merger Consideration Exceeds Value of American Tax Assets.
Based upon CharterMac's share price on June 30, 1999, the date
the exchange ratio was determined, the merger consideration to
be received by the American Tax shareholders is above the
current fair market value of American Tax's net assets after
taking into account the fact that Related AMI is willing to
waive deferred and unpaid expenses, reimbursements and fees.
o Diversification. That American Tax shareholders would own
shares in a company which has significantly greater
diversification.
o McDonald Investments Fairness Opinion. The presentation of
McDonald Investments, and its written opinion dated as of
November 1, 1999 as to the fairness, from a financial point of
view, of the consideration to be received by holders of
American Tax shares pursuant to the merger as discussed in
"--Opinion of American Tax's Financial Advisor".
o Valuation of American Tax Assets. The written appraisal of
Cushman and Wakefield as to the value of the properties which
secure the bonds owned by American Tax, and the valuation
letter of McDonald Investments as to value of the net assets
of American Tax.
o Growth Potential. That, after the merger, you will be able to
participate in the potential growth of CharterMac, which is an
open ended, infinite life company which has the ability to
acquire additional bond investments from the proceeds of
periodic debt and equity offerings.
The foregoing discussion of the information and factors considered by
American Tax is not intended to be exhaustive. In view of the wide variety of
factors that Related AMI considered when it evaluated the proposed merger,
American Tax did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, American Tax
made its recommendation based on all of the information presented to and
considered by it.
Opinion and Valuation of American Tax's Financial Advisor
On October 19, 1999, Related AMI engaged McDonald Investments to render
an opinion as to the fairness to you of the consideration to be received by you
in the merger. Related AMI also engaged McDonald Investments at that time to
render a valuation of American Tax's net assets in the aggregate based on the
value that the net assets would not reasonably be expected to exceed.
On November 1, 1999, McDonald Investments rendered its opinion that, as
of that date, the exchange ratio of 1.43112 CharterMac common shares for each
American Tax share was fair, from a financial point of view, to you, the
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<PAGE>
shareholders of American Tax. On November 1, 1999, McDonald Investments also
rendered its valuation that, as of that date, McDonald Investments had assessed
the value of American Tax's net assets in the aggregate to be not more than
$26,560,000. This valuation was based on the value that the net assets of
American Tax would not reasonably be expected to exceed, under the basis of
valuation described below, and is sometimes referred to as the highest
reasonably expected value of American Tax's net assets. In addition, this
valuation reflects a reduction of $766,747 for Related AMI's accrued fees and
expenses, which would be waived if the merger occurred.
Related AMI did not engage McDonald Investments to assess the tax
consequences of the merger to American Tax or you, whether as a result of the
merger itself or any future dividend distributions. In addition, Related AMI did
not engage McDonald Investments to evaluate American Tax's strategic
alternatives to the merger or any structures for the transaction that might be
an alternative to the structure of the merger. Accordingly, in rendering its
opinion and valuation, McDonald Investments did not consider or analyze the tax
consequences of the merger to American Tax or you or the effect of any
alternative structure for or strategic alternative to the merger.
The full texts of the written opinion and valuation of McDonald
Investments are attached as Appendices C and F. This description is only a
summary of the complete McDonald Investments opinion and valuation. You are
urged to read those documents in their entirety for a description of the
procedures followed, assumptions made, matters considered, and qualifications
and limitations on the review undertaken by McDonald Investments.
The McDonald Investments opinion is directed to Related AMI's board and
addresses only the fairness from a financial point of view of the exchange ratio
to you. The McDonald Investments valuation is also directed to Related AMI's
board and addresses only the value that the net assets of American Tax would not
reasonably be expected to exceed. Neither the opinion nor the valuation
addresses the merits of the underlying decision by American Tax to engage in the
merger. In addition, neither the opinion nor the valuation constitutes a
recommendation to you as to how you should vote on the merger or any other
matter at any meeting of American Tax shareholders held for the purpose of
considering the merger or in any related proxy or consent.
McDonald Investments performed a variety of financial analyses to
render its opinion and valuation. Preparing opinions like these involves
subjective judgment about which analyses are appropriate and how to apply them
to specific situations. The need to make these kinds of judgments makes it
inappropriate to look at each particular analysis in isolation, or to ascribe
relative weights to each analysis. McDonald Investments did not do that, and you
should not either. There is one exception to this general statement that you
should know about. Due to the absence of an established trading market for the
American Tax shares, McDonald Investments gave little weight to the trading
prices of American Tax's shares in its analyses. Accordingly, although McDonald
Investments summarizes separate analyses below, McDonald Investments believes
that its analyses must be considered as a whole. Some of the summaries of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses performed by McDonald Investments, the
tables must be read together with the text of each summary.
McDonald Investments made many assumptions about general business and
economic conditions and other matters. Many of these matters are beyond the
control of American Tax or CharterMac. Actual values or actual future results
may be much better or much worse than those suggested by McDonald Investments'
analyses. The public company used as a comparison in the comparable companies
analysis summarized below is not identical to American Tax or CharterMac.Rather,
it involves complex considerations and judgments concerning the differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading values of American Tax, CharterMac and the
company to which they were compared.
The analyses do not reflect the prices at which American Tax's shares
might actually be sold or the prices at which any securities may trade at any
time. In addition, as described above, McDonald Investments' opinion and
valuation were just one of many factors taken into consideration by Related
AMI's board.
Related Charter furnished to McDonald Investments the estimate that the
annual distribution on CharterMac's shares following the merger would be $0.98
per CharterMac common share. McDonald Investments assumed that this estimate had
been reasonably prepared and reflected the best currently available estimate and
judgment of Related
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<PAGE>
Charter as to the expected future financial performance of the combined
company's assets. Since furnishing this estimate to McDonald Investments,
CharterMac has raised its quarterly distribution to $0.265, which on an
annualized basis would result in the annual distribution on CharterMac's shares
being $1.06. This information was not available at the time McDonald rendered
its opinion.
It should also be noted that McDonald Investments' valuation and
opinion are based on economic and market conditions and other circumstances
existing on, and information made available as of, November 1, 1999 and do not
address any matters after that date. McDonald Investments has no obligation to
update or revise its valuation or opinion based on events arising or information
made available after that date.
McDonald Investments reviewed the most recent publicly available
financial and other information and the most recent financial and other
information that was provided by American Tax or Related AMI. McDonald
Investments was not hired to verify any of that information and did not do so.
Because it was not possible to update all this information to November 1, 1999,
some of the information relied on by McDonald Investments in rendering its
opinion and valuation was dated as of an earlier date. Accordingly, McDonald
Investments' analyses refer in many cases to information dated earlier than
November 1, 1999. McDonald Investments generally assumed that there had been no
material change in this information as of November 1, 1999. In some cases where
McDonald Investments thought it appropriate, McDonald Investments asked American
Tax or Related AMI to certify the continued accuracy of earlier information.
McDonald Investments was engaged only to render its opinion and
valuation. McDonald Investments was not authorized by American Tax or Related
AMI's board to solicit, nor did it solicit, third party indications of interest
for the acquisition of all or any part of American Tax.
The McDonald Investments Valuation
For purposes of the valuation, McDonald Investments based the value of
American Tax's net assets on the value that the net assets of American Tax would
not reasonably be expected to exceed. McDonald Investments defined this as the
sum of:
o the price that it is reasonable to assume would be unlikely to
be exceeded in a competitive sale process for each individual
tax-exempt first mortgage bond in American Tax's portfolio,
assuming that neither the buyer nor American Tax were
compelled to engage in the transaction and that both parties
had full knowledge of all operative facts; and
o cash less the liabilities of American Tax as reported in the
balance sheet contained in American Tax's Quarterly Report on
Form 10-Q for the period ended June 30, 1999.
McDonald Investments first assumed an orderly liquidation of the bonds
held by American Tax to arrive at the highest reasonably expected value of the
bonds. An "orderly liquidation" basically means that the owner disposes of its
assets over a period of time in order to establish purchaser interest and avoid
downward sales price pressure resulting from a lack of purchaser demand or a
desire to sell at a lower price due to a need to receive sales proceeds before
purchaser interest is established. McDonald Investments then added cash and
subtracted liabilities, each in the amount shown in the balance sheet contained
in American Tax's Quarterly Report on Form 10-Q for the period ended June 30,
1999. McDonald Investments calculated the highest reasonably expected value of
American Tax's net assets by adding this cash and subtracting these liabilities
from the highest reasonably expected value of the bonds. Related AMI confirmed
to McDonald Investments before it rendered its opinion on November 1, 1999 that
the amount of American Tax cash and liabilities had not changed materially since
the period ended June 30, 1999.
McDonald Investments' Considerations. In rendering its valuation,
McDonald Investments considered the following in addition to the methodology
described below:
1. McDonald Investments did not render a value on American Tax
shares, which are not a listed security and lack any
significant market liquidity. Although subject to special
redemption features in accordance with the American Tax trust
agreement provisions, American Tax shares had been trading
/293812.1
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<PAGE>
only to the extent of purchaser interest for shares tendered
for redemption, and then only at prices established by the
Trust's terms through November 1, 1999, and after that time to
trade at "market prices" as determined by Related AMI. These
shares offered for redemption were backlogged at the time
McDonald Investments rendered its valuation. Had there been a
liquid trading market for American Tax shares, which McDonald
Investments considered not to be a viable alternative, the
value of American Tax shares may have deviated from the
underlying value of American Tax net assets.
2. Related AMI has indicated, should the merger be consummated,
that it would waive the $766,747 in fees and expenses accrued
by Related AMI through June 30, 1999. Should the merger not
take place, Related AMI has indicated it would no longer defer
payment of these accrued fees and expenses and would charge
American Tax for them over time or immediately. McDonald
Investments reduced its valuation for the whole amount of
Related AMI's accrued fees and expenses.
3. McDonald Investments, with the consent of Cushman & Wakefield,
materially relied on the four appraisals that Cushman &
Wakefield had prepared for the underlying properties acting as
the first mortgage collateral for the American Tax bonds.
These appraisals were material to the value that McDonald
Investments assessed for the bonds and all the provisions and
limitations expressed in these appraisals are provisions and
limitations of McDonald Investments' valuation.
4. Related AMI provided McDonald Investments with several legal
documents supporting, among other things, the first mortgage
interest in the collateral property and providing for the
tax-exempt status of the bonds. McDonald Investments' review
of all these documents was limited solely to a review from a
financial perspective. McDonald Investments assumed all legal
matters to be in good standing. In addition, McDonald
Investments assumed that all documentation supporting the
bonds was executed appropriately, and that no material adverse
event had happened up to November 1, 1999, nor was anticipated
to occur in the future, that would otherwise have a material
impact on McDonald Investments' valuation of the bonds.
5. The value of the American Tax bond assets will fluctuate daily
based upon several factors, including without limitation:
o the general market interest rate environment,
o the assessment of financial risk, including the
financial health of the underlying collateral assets
and the real estate markets in which those assets are
situated,
o the collateral's continuing compliance with tax laws
and regulatory agreements in maintaining the bonds'
tax-exempt status, and
o changes in the federal, state and local tax laws.
McDonald Investments' assessment of value for the American Tax
bonds considered only the prevailing market conditions as of
November 1, 1999, and McDonald Investments used its
professional judgment. The valuation that McDonald Investments
assigned was subject to several assumptions and estimates. Had
the bonds been sold in an open market auction, actual sale
conditions may have deviated from these assumptions and
estimates. Accordingly, due to changes in these factors, the
bonds may have sold for a value differing from those values
that McDonald Investments assessed had the bonds actually been
put up for sale. In addition, McDonald Investments did not
consider the costs of sales of the bonds in the valuation.
6. McDonald Investments assumed that:
o There was no material litigation or event with
respect to any party materially influencing the
ownership or management of the underlying collateral
assets supporting the bonds;
/293812.1
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<PAGE>
o The collateral was not subject to any material
lawsuit or event which may have impaired its value;
and
o American Tax was not subject to any material lawsuits
or events affecting its value generally.
7. McDonald Investments also materially relied on a certification
of Related AMI, dated October 20, 1999, indicating that, to
the best knowledge and belief of Related AMI:
o Neither Related AMI nor American Tax had received
notice of any existing or threatened materially
adverse litigation with respect to the property
managers or owners of the developments to which the
American Tax bonds relate;
o There was no existing or threatened materially
adverse litigation with respect to American Tax or
Related AMI as the manager of American Tax;
o Neither Related AMI nor American Tax had received
notice that any events had occurred that may have
caused the American Tax bonds to become taxable and
that the validity of the bonds' tax-exempt status had
not been challenged; and
o No other matters had otherwise come to Related AMI's
attention that would impair the value of the assets
of American Tax or would give rise to liabilities not
otherwise disclosed to McDonald Investments in
writing.
McDonald Investments' Procedures. In rendering its valuation, McDonald
Investments performed the following procedures:
1. McDonald Investments reviewed what it considered to be the
material financial provisions of the following documents:
a. The latest available "asset management reports"
prepared by Related AMI in its ongoing monitoring of
the first mortgage collateral assets of the American
Tax bonds.
b. The latest available rent rolls for the collateral
properties dated for rents not earlier than June 30,
1999.
c. The latest internal net operating income reports of
the collateral properties dated not earlier than June
30, 1999.
d. The appraisals of Cushman & Wakefield, all dated as
of September 1, 1999.
e. The appropriate trust indentures, loan agreements,
land use restriction agreements, and mortgage and
security agreements supporting the bonds.
f. In the case of the High Pointe Club Apartments
project, an Intercreditor Agreement.
g. American Tax's Annual Report on Form 10-K for the
year ending December 31, 1998 and American Tax's
Quarterly Reports on Form 10-Q for the periods ending
March 31 and June 30, 1999.
h. Certifications made by Related AMI to McDonald.
2. McDonald Investments visited each of the four first mortgage
collateral security property sites to evaluate the potential
for immediately visible signs of impairment in the value of
each property and the potential for collateral impairment to
impair the value of the bonds. McDonald Investments did not
walk all the units and did not walk every angle of the
exterior of the site. McDonald Investments is not a real
estate appraiser and materially relied on Cushman &
Wakefield's expertise with respect to the value of the
collateral assets.
/293812.1
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<PAGE>
3. McDonald Investments prepared a quantitative analysis of the
cash flows of each bond's underlying collateral asset.
4. McDonald Investments assessed normal financial ratio
characteristics of risk measurement with respect to the bonds,
such as potential ranges of loan to value and debt service
coverage ratios.
5. McDonald Investments assessed the likelihood of borrower bond
prepayment, and the ability for American Tax to direct a
mandatory redemption.
6. McDonald Investments assessed the likelihood of the
realization of the participating interest component of the
bonds, which is the interest that is payable only to the
extent the underlying properties provide cash flow to pay this
level of interest, including participating interest arising
from the sale or refinance of the underlying property or the
bond.
7. Where applicable, McDonald Investments discounted cash flows
anticipated from the bonds whether from normal operating
conditions, under foreclosure, sale or refinance, and assessed
the resulting value, comparing various potential outcomes on
the valuation of the American Tax bond assets.
8. McDonald Investments accepted as true the liabilities and cash
holdings represented in American Tax's Quarterly Report on
Form 10-Q for the period ended June 30, 1999.
In expressing the valuation, McDonald Investments was not engaged to,
and did not independently attempt to, verify any of the information that
American Tax or American Tax's manager, Related AMI, provided to it or any of
the publicly available information that it relied on.
The following is a summary of the analyses presented by McDonald
Investments to Related AMI's board when McDonald Investments expressed its
valuation.
Methodology to Arrive at Highest Reasonably Expected Value of the
Bonds.
The bond portfolio held by American Tax makes up all of American Tax's
assets other than cash. McDonald Investments assumed an orderly liquidation of
these bonds in a competitive sale process to arrive at the highest reasonably
expected value of American Tax's aggregate bond portfolio. The following
summarizes McDonald Investments' methodology in analyzing the highest reasonably
expected value that American Tax would receive for the bonds in this kind of
competitive sale process.
McDonald Investments analyzed the value of the American Tax bonds based
upon the net operating income of the property underlying each bond. McDonald
Investments compared four alternative measures of the net operating income of
the property underlying each bond:
o the net operating income derived by Cushman & Wakefield in
their appraisal of the property;
o net operating income as shown in the borrower entity's 1998
audited financial statements;
o annualized net operating income based on the borrower entity's
1999 unaudited year-to-date financial statements; and
o net operating income based on McDonald Investments' judgment.
The first three measures of net operating income listed above were
based on documents provided to McDonald Investments. McDonald Investments also
analyzed the documents as it considered appropriate to determine whether the
bonds meet commercially reasonable underwriting standards. McDonald Investments
noted that none of the bonds analyzed were of the nature typically found in
current tax-exempt multifamily housing bond transactions. Accordingly, McDonald
Investments also made its own assessment, based upon its experience in
underwriting and dealing in securities of this type, as to how the net operating
income might be analyzed by buyers of unrated, unenhanced bonds, or under Fannie
Mae standards if the bonds, in McDonald Investments' judgment, met Fannie Mae
criteria.
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<PAGE>
Based on the various net operating incomes, McDonald Investments looked
at the potential ranges of loan-to-values and debt service coverage ratios for
each bond. McDonald Investments determined what level and type of market
acceptance may be available if the bonds had been sold as of November 1, 1999
based on like terms and conditions.
Based on McDonald Investments' own judgment of the credit quality,
familiarity with Fannie Mae standard underwriting procedures and criteria, and
experience in underwriting and dealing in unrated, unenhanced bonds, and various
other factors, McDonald Investments also undertook, where appropriate, an
analysis of the borrower's potential to prepay a bond and American Tax's ability
to direct a mandatory redemption. Based upon the ability to prepay the bonds,
McDonald Investments assessed the value of the bonds as either the value at the
borrower's prepayment or the value without the borrower's prepayment but
assuming where applicable the desirability of the bond owner's direction of a
mandatory redemption. In the case of a borrower prepayment, McDonald Investments
assessed the value of the bonds to include the borrower's payment of a
prepayment premium, if applicable.
When necessary, McDonald Investments assessed the value of
participating interest to be received on an American Tax bond assuming a
refinancing, sale or foreclosure on the first mortgage collateral property
underlying the bond.
Where applicable, McDonald Investments discounted cash flows
anticipated from the bonds and assessed the resulting value, comparing various
potential outcomes on the valuation of the American Tax bond assets.
Where possible, McDonald Investments assumed the best and highest value
of the bonds owned by American Tax based on the highest of the four alternative
measures of an underlying property's net operating income when, in the judgment
of McDonald Investments, use of that alternative measure was reasonable.
McDonald Investments did not necessarily base its value of a bond on the most
probable measure of net operating income or appraisal capitalization rates and,
accordingly, it did not necessarily assume the most probable value of a bond.
Summary of Net Value of American Tax Assets. McDonald Investments'
analysis and performance of the above considerations and procedures yielded
$26,560,000 as the value that the net assets of American Tax would not
reasonably be expected to exceed under its methodology described above. In its
valuation, McDonald Investments assessed the approximate value of American Tax's
bond portfolio in the aggregate. McDonald Investments then added to this value
that cash and subtracted those liabilities shown on American Tax's June 30, 1999
balance sheet. Those liabilities included accrued fees and expenses of Related
AMI in the amount of $766,747. McDonald Investments' analysis showed:
Highest Reasonably Expected Value of All Bonds $26,583,000
Cash as of June 30, 1999 761,430
Liabilities as of June 30, 1999 (780,098)
-----------
Highest Reasonably Expected Value of Net Assets $26,564,332
Value Rounded/Used $26,560,000
The McDonald Investments Opinion
In arriving at the McDonald Investments opinion, McDonald Investments
reviewed and analyzed, among other things:
o The most recent draft of the merger agreement, provided to
McDonald Investments as of November 1, 1999, including its
exhibits and schedules;
o A draft of the preliminary proxy statement dated October 29,
1999 prepared by American Tax for use in soliciting the
consent of shareholders to the merger;
/293812.1
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<PAGE>
o Publicly available information concerning CharterMac,
including its Annual Report on Form 10-K for the year ended
December 31, 1998, and its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1999 and June 30, 1999;
o Publicly available information concerning American Tax,
including its Annual Report on Form 10-K for the year ended
December 31, 1998, and its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1999 and June 30, 1999;
o With respect to the tax-exempt bonds secured by first
mortgages owned by American Tax:
a. The latest available "asset management reports"
prepared by Related AMI in its ongoing monitoring of
the first mortgage collateral assets of the bonds;
b. The latest available rent rolls for the collateral
properties dated not earlier than June 30, 1999;
c. The latest internal net operating income reports of
the collateral properties underlying the bonds dated
not earlier than June 30, 1999;
d. The appraisals of Cushman & Wakefield all dated as of
September 1, 1999;
e. The appropriate trust indentures, loan agreements,
land use restriction agreements, and mortgage and
security agreements supporting the bonds; and
f. In the case of the High Pointe Club Apartments bond,
also an intercreditor agreement and related
supplements and correspondence;
o Information with respect to the trading volumes and trading
price ranges of the common shares of CharterMac's stock;
o Publicly available information with respect to the trading of
and markets for securities that in McDonald Investments'
judgment have credit and other characteristics comparable to
the American Tax bonds;
o Publicly available information with respect to the trading of
and markets for securities that in McDonald Investments'
judgment have credit and other characteristics comparable to
the stock of CharterMac for purposes of evaluating the value
of the merger consideration;
o Publicly available information with respect to other
transactions that, in McDonald Investments' judgment, have
credit and other characteristics comparable to the merger; and
o Other financial studies and analyses and other matters as
McDonald Investments deemed necessary, including McDonald
Investments' assessment of general economic, market and
monetary conditions.
McDonald Investments also met with officers and employees of the
managers of the two companies to discuss various matters relating to their
portfolios, litigation and other issues that could affect the value of the
American Tax assets as well as other matters McDonald Investments believed
relevant to its inquiry.
In its review and analysis and in arriving at its opinion, McDonald
Investments assumed and relied upon the accuracy and completeness of all the
financial and other information provided to it or publicly available and assumed
and relied upon the representations and warranties of CharterMac and Related AMI
contained in the merger agreement. McDonald Investments was not engaged to, and
did not independently attempt to, verify any of that information. In addition
McDonald Investments did not conduct a physical inspection or appraisal of any
assets, properties or facilities of CharterMac. With respect to the real estate
securing the bonds, McDonald Investments materially relied on the appraisal
reports of Cushman & Wakefield. McDonald Investments also assumed:
/293812.1
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<PAGE>
o That there had been no material changes in cash and
liabilities reflected on American Tax's unaudited
balance sheet included in its Quarterly Report on
Form 10-Q for the period ended June 30, 1999;
o The accuracy and completeness of all representations
contained in all instruments relating to the collateral
and the bonds. These included representations
concerning the tax-exempt status of the bonds;
o That all documentation supporting the collateral and
the bonds had been duly authorized, executed and
delivered and constituted enforceable obligations of
the parties;
o That the conditions to the merger set forth in the draft
of the merger agreement would be satisfied;
o That the merger would be consummated on a timely basis
in the manner contemplated by the merger agreement; and
o That the final form of the merger agreement would be
substantially similar to the last draft of the
agreement reviewed by McDonald Investments.
The McDonald Investments opinion was necessarily based on economic and
market conditions and other circumstances existing on, and information made
available as of, November 1, 1999. The opinion does not address any matters
subsequent to that date, including the value of the CharterMac common shares on
the date of issuance to the holders of American Tax common shares. In addition,
the McDonald Investments opinion is, in any event, limited to the fairness, as
of November 1, 1999, from a financial point of view, of the exchange ratio and
does not address American Tax's or CharterMac's underlying business decision to
effect the merger or any other terms of the merger.
The following is a summary of the analyses presented by McDonald
Investments to Related AMI's board when McDonald Investments rendered its
opinion.
Summary of American Tax Net Asset Value and the Merger Consideration.
McDonald Investments:
o reviewed the total number of American Tax shares outstanding
as of June 30, 1999, assuming that the shares allocable to
Related AMI for its 1% interest in American Tax were issued
and outstanding;
o reviewed the exchange ratio; and
o calculated the rounded total number of CharterMac equivalent
shares that would be issued to American Tax shareholders in
the merger.
This analysis showed:
American Tax Shares Outstanding (assuming that the shares
allocable to Related AMI were issued and outstanding) 1,478,304
Multiplied by Exchange Ratio 1.43112
----------
Rounded Total CharterMac Equivalent Shares 2,115,630
McDonald Investments then reviewed the highest reasonably expected
value of the net assets of American Tax, as expressed in its valuation, and
divided this number by the total number of CharterMac equivalent shares that
would be issued to American Tax shareholders in the merger. This analysis
yielded the highest reasonably expected value of the American Tax net assets to
be surrendered by American Tax shareholders in exchange for each CharterMac
share that they would receive in the merger, and showed:
Highest Reasonably Expected Value of American Tax Net Assets $26,560,000
Divided by CharterMac Equivalent Shares 2,115,630
-----------
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<PAGE>
Highest Reasonably Expected Value of American Tax Net Assets to be $12.554
Surrendered by American Tax Shareholders per CharterMac Equivalent
Share in the Merger
For purposes of its opinion, McDonald Investments determined that it
was appropriate to assess the fairness of the exchange ratio by reference to the
highest reasonably expected value of the American Tax net assets established in
the valuation. McDonald Investments made this decision based on its conclusion
that American Tax's value as an independent business would not exceed the
aggregate value of its individual assets. McDonald Investments' based this
conclusion primarily on the fact that American Tax is a pass-through entity
whose business consists primarily of holding the American Tax bond portfolio. As
such, American Tax has no other assets that were likely to generate synergies or
cost savings from the perspective of a strategic buyer or otherwise enhance the
competitive position of a strategic buyer. In addition, the financial terms and
other characteristics of the securities in American Tax's bond portfolio made it
unlikely that a buyer would be able to generate returns on those securities in
excess of those implied by McDonald Investments' valuation. In McDonald
Investments' judgment, these factors combined to make it unlikely that American
Tax's value as an independent business would exceed the highest reasonably
expected value of the American Tax net assets established in the valuation.
Historical Trading Prices of CharterMac common shares. McDonald
Investments reviewed the following historical trading prices for CharterMac
common shares from October 1, 1997, the time CharterMac became publicly traded,
to October 29, 1999:
o The lowest trading price during this period;
o The highest trading price during this period;
o The closing price as of the end of each quarter during this
period;
o The average quarter-end closing price during this period; and
o The Friday closing prices as of the five weeks immediately
preceding the date of the opinion.
This analysis showed:
Pricing Period Price
-------------- -----
Lowest Price in Period $11.13 (during the 4th quarter of 1997)
Highest Price in Period $14.50 (during the 1st quarter of 1998)
Closing Price, December 1997 $12.75
Closing Price, March 1998 $13.50
Closing Price, June 1998 $14.06
Closing Price, September 1998 $12.69
Closing Price, December 1998 $12.13
Closing Price, March 1999 $13.38
Closing Price, June 1999 $12.81
Closing Price, September 1999 $13.06
Average Quarter-End Closing Price $13.05
Closing Price, October 1, 1999 $13.00
Closing Price, October 8, 1999 $13.13
Closing Price, October 15, 1999 $12.94
Closing Price, October 22, 1999 $12.69
Closing Price, October 29, 1999 $12.38
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<PAGE>
McDonald Investments' analysis of the historical trading prices for
CharterMac common shares indicated a bias, based upon the latest five Friday
closing prices, toward the $12.38 to $13.13 per share range and averaging $12.83
per share over that five-Friday period. McDonald Investments relied on publicly
available sources for the information listed above. The above prices are rounded
to the nearest cent.
Implied Value of CharterMac common shares Based on Tax-Adjusted
Dividend Yield. In addition to analyzing the historical trading prices for
CharterMac common shares, McDonald Investments also evaluated the economic value
of CharterMac common shares based on an average historical dividend yield of
Municipal Mortgage and Equity, LLC, also known as MuniMae. This evaluation
allowed McDonald Investments to compare the historical trading prices for
CharterMac common shares to the value of the CharterMac common shares suggested
by this analysis. To the extent that historical trading prices differed from the
underlying economic value, McDonald Investments also sought to determine whether
the CharterMac common shares were trading above or below this value. McDonald
Investments considered this analysis to be important to its fairness opinion
because you will be receiving CharterMac common shares in the merger. McDonald
Investments selected MuniMae for this analysis because MuniMae was the only
company that McDonald Investments thought was comparable to CharterMac and
American Tax.
McDonald Investments refers to the economic value derived under this
methodology as the "implied value" of CharterMac common shares because it is not
based on actual trading prices for CharterMac common shares but rather on
average dividends paid by MuniMae, adjusted to reflect CharterMac's somewhat
different tax attributes. Because significant but different portions of both
MuniMae's and CharterMac's dividends are tax-exempt for federal income tax
purposes, McDonald Investments considered the impact of federal income taxes on
the economic value of MuniMae and CharterMac dividends. McDonald Investments
based the implied value of CharterMac common shares on the economic value of the
average MuniMae dividend yield to a hypothetical investor with a marginal,
personal federal income tax rate of 39.6%. McDonald Investments refers to this
value, which reflects a reduction for the payment of federal income taxes on the
taxable portion of MuniMae dividend, as the tax-adjusted dividend yield. When
McDonald Investments refers below to the pre-tax dividend yield, it means the
actual dividend yield, without any reduction for the payment of taxes.
As the first step in this evaluation, McDonald Investments asked
representatives of management of Related AMI what companies might be comparable
to CharterMac and American Tax and what transactions might be comparable to the
merger. McDonald Investments also searched publicly available resources for
information relating to comparable companies and comparable transactions.
McDonald Investments identified a single comparable company which is primarily
engaged, like American Tax and CharterMac, in the purchase and ownership of
tax-exempt multifamily housing revenue bonds. This company is MuniMae. No
publicly available information came to McDonald Investments' attention
concerning similar merger transactions.
McDonald Investments then compared the pre-tax dividend yield on
MuniMae shares to the pre- tax yield on CharterMac common shares based on
publicly available information. To calculate the pre- tax dividend yield for
each quarterly period, McDonald Investments divided the dividend for that period
by the closing price of the shares at the end of the quarter. McDonald
Investments calculated yields for the 4th quarter of 1997 to the 3rd quarter of
1999 for CharterMac common shares, yields for the 1st quarter of 1997 to the 3rd
quarter of 1999 for MuniMae shares, and averages for these quarterly periods.
This analysis showed:
<TABLE>
<CAPTION>
CharterMac Muni Muni MuniMae
Quarter CharterMac CharterMac Pre-Tax Mae Mae Pre-Tax
Ended Price Dividend Yield Price Dividend Yield
---------------- ----------- ----------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mar - 97 $16.63 $1.38 8.30%
Jun - 97 16.75 1.40 8.36%
Sep - 97 19.75 1.46 7.39%
Dec - 97 $12.75 $0.92 7.22% 19.63 1.48 7.54%
Mar - 98 13.50 0.92 6.81% 21.75 1.50 6.90%
</TABLE>
/293812.1
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<PAGE>
<TABLE>
<CAPTION>
CharterMac Muni Muni MuniMae
Quarter CharterMac CharterMac Pre-Tax Mae Mae Pre-Tax
Ended Price Dividend Yield Price Dividend Yield
---------------- ----------- ----------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jun - 98 14.06 0.92 6.54% 22.13 1.52 6.87%
Sep - 98 12.69 0.92 7.25% 19.69 1.54 7.82%
Dec - 98 12.13 0.96 7.92% 16.75 1.54 9.19%
Mar - 99 13.38 0.96 7.17% 18.63 1.56 8.37%
Jun - 99 12.81 0.98 7.65% 20.75 1.58 7.61%
Sep - 99 13.06 0.98 7.50% 20.38 1.60 7.85%
CharterMac
Average for
CharterMac
Data Periods 13. 5 0. 5 7.26%
MuniMae
Average for
Quarterly
Periods
Shown 19.35 1.51 7.84%
MuniMae
Average
Taken Over
the
Comparable
CharterMac
Data Periods 19.96 1.54 7.77%
</TABLE>
Based on the average MuniMae return for these quarterly periods and
McDonald Investments' judgment, McDonald Investments determined that 7.85% was
likely to approximate the longer-term average pre-tax yield that is required by
investors for the stock of MuniMae. McDonald Investments further determined that
the tax-adjusted yield of MuniMae was likely to approximate the longer-term
average tax-adjusted yield that is required by investors for the stock of
companies like CharterMac and American Tax. McDonald Investments also noted that
MuniMae shares trade at an approximate price- to-book ratio of 1x, which also
tends to indicate that this yield was the current market yield.
McDonald Investments then analyzed the tax-adjusted dividend yield of
MuniMae. Based on publicly available information, McDonald Investments
determined that MuniMae's 3rd quarter 1999 dividend was 87% tax exempt and 13%
taxable for federal income tax purposes. In addition, McDonald Investments
noted, based on publicly available information, that MuniMae had assumed a
marginal, personal federal income tax rate of 39.6%. Based on this information
and 7.85% as the longer-term average pre-tax yield on MuniMae shares, McDonald
Investments calculated the longer-term average tax-adjusted yield on MuniMae
shares. This analysis showed the following:
Longer-Term Average Pre-Tax Yield on MuniMae Shares 7.85%
Percent of Dividend that is Tax-Exempt 87.00%
-------------
Subtotal: Tax-Adjusted Yield of Tax-Exempt Portion of Dividend 6.83%
Percent of Dividend that is Taxable 13.00%
----------------
Total Pre-Tax Yield of Taxable Portion of Dividend 1.02%
Assumed Marginal, Personal Federal Tax Rate 39.60%
Taxes on Taxable Portion of Dividend 0.40%
----------------
/293812.1
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<PAGE>
Subtotal: Tax-Adjusted Yield of Taxable Portion of Dividend 0.62%
----------------
Total Longer-Term Average Tax-Adjusted Yield on MuniMae Shares 7.45%
(Sum of Subtotals)
McDonald Investments then calculated the pre-tax dividend yield on
CharterMac common shares that would be worth the same to the hypothetical
investor as MuniMae's 7.45% average tax- adjusted dividend yield. McDonald
Investments calculated this yield to be 7.51%, based on:
o 7.45% as the longer-term average tax-adjusted yield required
by investors for the stock of companies like CharterMac and
American Tax,
o CharterMac's anticipation that 98% of its post-merger
dividend will be tax exempt and only 2% taxable for federal
income tax purposes, and
o an assumed marginal, personal federal income tax rate of
39.6%.
/293812.1
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<PAGE>
The following table shows how McDonald Investments used this information to
calculate 7.51% to be the pre-tax dividend yield on CharterMac common shares
that would be equivalent to MuniMae's 7.45% average tax-adjusted dividend yield.
<TABLE>
<S> <C>
Equivalent Pre-Tax Yield on CharterMac common shares 7.51%
Percent of Dividend that is Tax-Exempt 98.00%
----------------------
Subtotal: Tax-Adjusted Yield of Tax-Exempt Portion of Dividend 7.36%
Percent of Dividend that is Taxable 2.00%
----------------------
Total Pre-Tax Yield of Taxable Portion of Dividend 0.15%
Assumed Marginal, Personal Federal Tax Rate 39.60%
Taxes on Taxable Portion of Dividend 0.06%
----------------------
Subtotal: Tax-Adjusted Yield of Taxable Portion of Dividend 0.09%
----------------------
Total Tax-Adjusted Yield on CharterMac common shares (Sum of 7.45%
Subtotals)
</TABLE>
Because the dividend yield of a company is expressed as that percentage
of the company's share price that is paid in dividends, McDonald Investments was
able to calculate CharterMac share prices that would give rise to a pre-tax
dividend yield of 7.51% at various dividend levels. McDonald Investments
calculated the CharterMac share prices that would have corresponded to the pro
forma dividend levels which would have existed historically for the combined
company had the merger taken place prior to the periods indicated below. In
addition, based on the same yield, McDonald Investments calculated the
CharterMac share price associated with the pro forma dividend level which is
anticipated for the combined company in the future. This analysis showed:
<TABLE>
<CAPTION>
CharterMac
Anticipated Pro- Pre-Tax Associated
forma Dividend CharterMac
Dividend Yield Share Price
--------------------------------------------------------
<S> <C> <C> <C>
Pro-forma 1998 $0.95 7.51% $12.6498
Pro-forma Annualized First 6 Months of 1999 0.98 7.51% 13.0493
Anticipated Pro-forma in Future Periods 0.98 7.51% 13.0493
</TABLE>
McDonald Investments based the above share prices on historical pro
forma dividend information and pro forma future dividend projections supplied by
Related Charter. Because this historical pro forma dividend information and
these pro forma future dividend projections are based on the combined company
after the merger, they do not reflect the reductions in American Tax's future
distributions that Related AMI believes will take place if American Tax
continues as an independent company.
Based on an equivalent pre-tax dividend yield of 7.51%, anticipated
post-merger dividends of $0.98 and McDonald Investments' judgment, McDonald
Investments calculated the implied value of CharterMac common shares to be
approximately $13.00 per share. As indicated above, by implied value of
CharterMac common shares McDonald Investments means the economic value of
CharterMac common shares based on an average historical dividend yield of
MuniMae, adjusted to reflect CharterMac's somewhat different tax attributes. The
implied value of CharterMac common shares is not based on actual trading prices
for these shares but rather on the tax-adjusted economic value of the average
MuniMae dividend yield to an investor with a marginal, personal federal income
tax rate of 39.6%.
/293812.1
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<PAGE>
This analysis does not take into account the potential dilutive effect
on the CharterMac post- merger share price of higher trading volumes and
sell-side pressures that might occur after the merger. However, McDonald
Investments considered there to be some protection for American Tax shareholders
should some sell-side pressures occur and result in a depression in the
CharterMac share prices. This view was based on the implied value of $13.00 per
CharterMac common share, which is higher than $12.554, the highest reasonably
expected value of the American Tax net assets to be given up by American Tax
shareholders in exchange for each CharterMac common share that they would
receive in the merger.
McDonald Investments also considered the impact on the price-to-book
ratio of CharterMac common shares that would result from an implied value of
$13.00 per CharterMac common share based on a pre-tax dividend yield of 7.51%.
McDonald Investments compared:
o The price-to-book ratio based on:
- the average of the closing prices of CharterMac
common shares on the five Fridays ending on
October 29, 1999, and
- the book value of CharterMac on June 30, 1999; and
o The price-to-book ratio based on:
- the implied price of CharterMac common shares at the
$0.98 future dividend level anticipated by Related
Charter and a dividend yield of 7.51%, and
- the book value of CharterMac on June 30, 1999.
This analysis showed:
<TABLE>
<S> <C>
Average of Closing Prices - Five Fridays Ending on October 29, 1999 $12.8250
Weighted Average CharterMac common shares Outstanding for the six 20,580,533
months ended June 30, 1999
-----------------------
Approximate Market Capitalization $263,945,336
June 30, 1999 Book Value $328,515,768
Price-to-Book Value 80.34%
Implied Price at a Dividend Yield of 7.51% and $0.98 Dividend $13.0000
Weighted Average CharterMac common shares Outstanding for the six 20,580,533
months ended June 30, 1999
-----------------------
Approximate Implied Market Capitalization $267,546,929
June 30, 1999 Book Value $328,515,768
Price-to-Book Value 81.44%
</TABLE>
McDonald Investments observed that the approximate price-to-book ratio
at the higher share price associated with a 7.51% return is close to the
price-to-book ratio associated with CharterMac's shares at the time of its
opinion. McDonald Investments noted that this analysis, which shows a
correlation between the price-to-book ratios derived from average market prices
and from the prices implied by the dividend yield methodology, supports the use
of the tax-adjusted dividend yield methodology in calculating the value of
CharterMac common shares.
Based on the above analyses and McDonald Investments' judgment,
McDonald Investments determined that CharterMac common shares' then current
market price was lower than its anticipated market price based on dividend
yield. This suggested that the underlying long-term economic value of CharterMac
common shares based on an average historical dividend yield of MuniMae was
greater than the then current market price for CharterMac common shares.
/293812.1
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<PAGE>
Pro Forma Diluted Value of CharterMac common shares. McDonald
Investments also analyzed the potential diluted value of CharterMac common
shares after giving effect to the merger. As part of this analysis, McDonald
Investments calculated the approximate total number of shares of CharterMac
after giving effect to the merger based on
o The total weighted average number of CharterMac common shares
outstanding for the six months ended June 30, 1999 and
o The number of CharterMac common shares that would be issued to
American Tax shareholders in the merger.
This calculation showed:
Weighted average CharterMac common shares outstanding 20,580,533
for the six months ended June 30, 1999
CharterMac common shares issued to American Tax
shareholders 2,115,630
-------------------
Approximate Total Post-Merger CharterMac common shares 22,696,163
===================
McDonald Investments considered the extent to which the value of
CharterMac common shares could be diluted in the merger as a result of
CharterMac's acquisition of the American Tax net assets and other costs and
benefits of the merger. McDonald Investments had determined that $12.554 was the
highest reasonably expected value of the American Tax net assets to be given up
by American Tax shareholders in exchange for each CharterMac common share that
they would receive in the merger. Because this value represents what American
Tax shareholders are giving up in the merger, McDonald Investments analyzed the
lowest level at which the American Tax net assets could be valued following the
merger in order for the post-merger diluted CharterMac common share value to be
no less than $12.554. McDonald Investments' analysis consisted of a calculation
of the potential market capitalization of CharterMac giving effect to the
merger, which was based on:
o An implied CharterMac common share value equal to $13.00
immediately before the merger;
o The number of CharterMac common shares before the merger;
o The costs CharterMac disclosed that it would incur in the merger;
o Related AMI's waiver of accrued fees and expenses in the amount of
$766,747 if the merger occurs; and
o The levels at which CharterMac shareholders could value the
American Tax net assets following the merger.
McDonald Investments then divided this potential CharterMac market
capitalization by the approximate total number of CharterMac common shares after
the merger, as calculated above, to arrive at a potential diluted CharterMac
share value giving effect to the merger.
CharterMac's costs of completing the merger include the acquisition fee
of Related Charter and CharterMac's other merger costs, and McDonald Investments
assumed that these costs result in a reduction, dollar for dollar, in the market
capitalization of CharterMac. Related AMI's fee and expense waiver results in an
increase, dollar for dollar, in the market capitalization of CharterMac.
Although these fees and expenses are liabilities of American Tax, they will be
waived upon occurrence of the merger and will not be liabilities of CharterMac.
Accordingly, McDonald Investments added them to CharterMac's assets in
calculating CharterMac's post-merger market capitalization to reflect this
waiver because McDonald Investments had included them as a liability in
calculating the value of the American Tax net assets.
Based on this analysis and McDonald Investments' judgment, McDonald
Investments determined that, if the post-merger CharterMac shareholders valued
American Tax's net assets at 66.37% or higher of McDonald Investments'
/293812.1
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<PAGE>
valuation of the highest reasonably expected value of the net assets of American
Tax, $26,560,000, then the American Tax shareholders would receive CharterMac
common shares equal in value to at least $12.554, the highest reasonably
expected value of the American Tax net assets to be surrendered by American Tax
shareholders in exchange for each CharterMac equivalent share that they would
receive in the merger. Moreover, even if the CharterMac shareholders valued the
American Tax net assets below this level, the CharterMac and American Tax
shareholders would share the resulting dilution in CharterMac share value in
proportion to the number of CharterMac common shares held by each group.
Accordingly, the American Tax shareholders would bear less than all of the
dilution resulting from a lower market valuation of the American Tax net assets.
Other Considerations
In formulating its opinion, McDonald Investments also considered the
following additional factors:
o In the merger, American Tax shareholders would receive shares
of stock representing a more diversified portfolio.
CharterMac common shares represent a significantly more
diversified portfolio of similar bonds than those held by
American Tax.
o CharterMac common shares, which are listed on the American
Stock Exchange, have a significantly larger volume of trading
than American Tax shares, which are not listed on an
exchange. The difference in the way in which these two
securities trade may result in additional liquidity benefits
to the American Tax shareholders should the merger occur.
Qualifications, Relationships and Compensation of McDonald Investments
McDonald Investments is customarily engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. In addition, McDonald Investments is familiar with
and has been engaged in originating, buying, selling and exchanging assets
similar in nature to the assets held by American Tax. McDonald Investments is
otherwise generally familiar with underwriting standards and procedures employed
by Fannie Mae and purchasers of unrated, unenhanced tax-exempt multifamily
housing revenue bonds.
In the ordinary course of its business, McDonald Investments and its
affiliates may actively trade securities of both American Tax and CharterMac.
These trades may be for its own account and the account of its customers.
Accordingly, McDonald Investments may at any time hold a long or short position
in these securities.
American Tax and McDonald Investments entered into an engagement letter
dated October 19, 1999. That letter covers the services to be provided by
McDonald Investments in connection with the merger, which were limited to
rendering the opinion and valuation and assisting American Tax in its
description of the assumptions underlying the opinion and valuation. The
engagement letter requires American Tax to pay to McDonald Investments a fee for
its services in the amount of $150,000 promptly upon delivery of an oral summary
of the opinion and valuation to Related AMI's board. Although as of December 31,
1999 this fee had not yet been paid, it has been paid as of March 31, 2000. This
fee is not contingent on the approval or completion of the merger. In addition,
American Tax agreed to reimburse McDonald Investments for its reasonable
out-of-pocket expenses incurred in connection with its services under the
engagement letter, including the reasonable fees and expenses of its legal
counsel. These out-of-pocket expenses may not exceed $25,000 without American
Tax's approval. American Tax also agreed to indemnify McDonald Investments
against liabilities related to or arising out of the merger, including
liabilities arising under the federal securities laws.
Prior Compensation to McDonald Investments
McDonald Investments is a wholly owned subsidiary of KeyCorp. KeyCorp
also wholly owns KeyBank National Association. In June 1999, McDonald
Investments participated as a co-manager in a $90 million private placement of
preferred stock for CharterMac for which McDonald Investments received $139,500.
KeyBank has also had relationships with various entities affiliated with Related
AMI and Related Charter, who are the managers of American Tax and CharterMac,
respectively. These KeyBank relationships have included direct lending,
participation
/293812.1
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<PAGE>
in credit lines or other forms of credit extension to these entities. As of
October 31, 1999, KeyBank's actual participation in extended commitments and
outstanding loans to these entities approximated $160 million.
Appraisal and Valuation Delivered to American Tax
Pursuant to American Tax's trust agreement, an appraisal of all of
American Tax's assets must be obtained from an independent expert in connection
with a proposed roll-up. The merger qualifies as a roll-up under American Tax's
trust agreement.
The American Tax trust agreement specifies that the appraisal will:
o be based on an evaluation of all relevant information;
o indicate the value of American Tax's assets as of the date
immediately prior to the announcement of the proposed
roll-up; and
o assume an orderly liquidation of American Tax's assets over a
12-month period.
In connection with the merger, American Tax obtained the appraisal of
Cushman & Wakefield as to the value of the underlying properties which secure
the bonds owned by American Tax, and the valuation letter of McDonald
Investments as to American Tax's net assets. The full text of Cushman &
Wakefield's summarization letter, which sets forth the assumptions made,
procedures followed, matters considered and limits on the review undertaken, is
attached in Appendix E and is incorporated by reference into this consent
statement-prospectus. The full text of McDonald Investments' valuation letter,
which sets forth the assumptions made, procedures followed, matters considered
and limits on the review undertaken, is attached in Appendix F and is
incorporated by reference into this consent statement-prospectus.
Appraisal of Underlying Properties by Cushman & Wakefield
Cushman & Wakefield was engaged by Related AMI on behalf of American
Tax on August 5, 1999 to prepare four individual limited appraisals utilizing a
summary report format for each of the properties underlying American Tax's first
mortgage bonds as of September 1, 1999. The appraisals were prepared in
connection with the valuation of the underlying properties for use by American
Tax and McDonald Investments in the determination of the fair market value of
American Tax's net assets in connection with the merger and its fairness. You
should note that Cushman & Wakefield did not appraise the value of American
Tax's assets, just the value of the properties which secure the repayment of
American Tax's assets, which are primarily comprised of its investment in bonds.
The Cushman & Wakefield appraisals were certified by an MAI appraiser.
Cushman & Wakefield's appraisals were based on the market values and physical
condition of the underlying properties as of September 1, 1999. Cushman &
Wakefield has not updated the appraisals since September 1, 1999 and has not
rendered any opinion as to events or conditions arising subsequent to September
1, 1999. Related AMI has determined not to obtain new appraisals or update the
appraisals based on its belief that the appraised values of the underlying
properties securing the American Tax's first mortgage bonds have not changed
materially since September 1, 1999 as well as the additional cost that would be
incurred in obtaining new appraisals or updating the appraisals.
Related AMI selected Cushman & Wakefield to provide the appraisals
because of its experience and reputation in connection with real estate assets,
particularly multifamily properties. Cushman & Wakefield has substantial
experience and expertise in assessing the value of real estate and preparing
real estate appraisals, having prepared real estate appraisals for over 20
years. In addition to valuation, Cushman & Wakefield provides services to the
investment community that include investment research and consulting, property
management, leasing, investment sales and acquisitions as well as hospitality
and leisure consulting services.
Methodology Used by Cushman & Wakefield. Cushman & Wakefield prepared a
summarization letter dated October 20, 1999 which addresses the common methods
utilized in each appraisal. For purposes of its appraisals, Cushman & Wakefield
has defined "market value" pursuant to Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation guidelines as the most probable
price which a property should bring in a competitive and
/293812.1
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<PAGE>
open market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently and knowledgeably and assuming the price is not affected
by any undue stimulus. Implicit in this definition is the consummation of a sale
as of a date and the passing of title from seller to buyer under conditions
whereby:
o buyer and seller are typically motivated;
o both parties are well informed or well advised and are acting
in what they consider their best interest;
o a reasonable time is allowed for exposure in the open market;
o payment is made in terms of cash in U.S. dollars or on
financial arrangements comparable thereto; and
o the price represents the normal consideration for the
property sold unaffected by special or creative financing or
sales concessions granted by anyone associated with the sale.
Summary of Cushman & Wakefield's Analysis. As noted in the
summarization letter prepared by Cushman & Wakefield, in conducting the
appraisals, representatives of Cushman & Wakefield performed site inspections
for each underlying property during the period between August and September
1999. At that time, it also reviewed historical financial information provided
by, and made other inquiries of, Related AMI as it deemed appropriate. Cushman &
Wakefield representatives analyzed each underlying property's rent roll, income
and expense statements and respective capital budget. Cushman & Wakefield then
estimated stabilized annual income for each underlying property by estimating
appropriate rental rates by unit type and other income generated from sources
other than apartment rentals. It then estimated appropriate vacancy and
collection loss, based on the respective underlying property's history and
surveys of other comparable competitive projects, in order to arrive at an
estimate of effective gross income. A forecast of each property's stabilized
annual operating expenses and reserves for replacements was then prepared after
review of each underlying property's historical performance and operating
statements and the experience of similar complexes familiar to Cushman &
Wakefield. Each item of expense was analyzed and Cushman & Wakefield compared
each such expense item to its estimate of the amounts that a typical informed
investor would consider reasonable. Net stabilized operating income was
estimated by subtracting estimated stabilized expenses from estimated effective
gross income. Below is a summary of the mathematical formula utilized in the
appraisals:
stabilized annual income
Less: vacancy and collection loss
-----------------------------------
effective gross income
Less: stabilized annual operating expense
Less: reserves for replacements
-----------------------------------
stabilized net operating income
Cushman & Wakefield estimated the value of the underlying properties
based on the income capitalization approach using:
o the direct capitalization methodology applied against
Cushman & Wakefield's estimate of net stabilized
operating income as of September 1, 1999; and
o the discounted cash flow methodology and supported this
methodology, where possible, by using direct sales
comparisons.
A summary of the mathematical formula utilized in the direct
capitalization methodology is as follows:
/293812.1
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<PAGE>
stabilized net operating income
Divided by: overall capitalization rate
-------------------------------
value estimate
In general, the applied overall capitalization rate is supported by
computed overall rates from sales of comparable improved properties:
net operating income of comparable property
Divided by: purchase price of comparable property
-------------------------------------------
overall capitalization rate
The discounted cash flow methodology utilized by Cushman & Wakefield
measures the present value of projected income flows and the reversion value of
a property sale at the end of a 10-year holding period. The estimated income and
expenses over the 10-year forecast period and the estimated property value at
the time of reversion are discounted at an appropriate rate to estimate present
market value of the underlying property. Essentially, the applied discount rate,
which is the rate applied to a series of anticipated future installments of cash
flows to determine their present value, converts the estimated 10-year cash flow
into a present value. For example, if an individual accepted a current payment
of $90.00 for something worth $100.00 one year in the future, a discount rate of
10 percent is indicated:
($100 - $90) / $100 = 10%.
The same basic principle applies in discounting the projected income flows and
the reversion value of a property sale at the end of a 10-year holding period.
In general, as noted in the summarization letter the steps taken to determine
value based on this methodology were as follows:
o a 10-year income and expense pro-forma was prepared
based on a 10-year holding period, beginning September
1, 1999;
o all revenue and expense items were estimated based on
Cushman & Wakefield's September 1999 estimates;
o based on Cushman & Wakefield's assessment of the
particular rental markets, an estimate was made as to
annual percentage growth rates for rents and other
income over the 10-year holding period;
o general operating expenses were estimated to increase
at appropriate inflationary levels;
o the reversion estimate was based on a sale in the tenth
year of the analysis and was formulated by applying a
terminal capitalization rate, which is the rate which
when applied to the final year's cash flow for the
projected holding period is believed to ascertain the
value of the real estate, to the estimate of the net
operating income for the eleventh year net operating
income and subtracting estimated selling costs
appropriate for each property and each market; and
o the net cash flows and reversion estimate were then
discounted to net present value using an appropriate
market-supported discount rate to arrive at the
indicated "as is" value.
The selected discount and capitalization rates reflect the qualitative
factors relating to each underlying property as of September 1999, including
strength of the property and tenancy, September 1999 market conditions,
historical operating performance and future potential of the property as well as
other relevant economic and demographic considerations.
/293812.1
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<PAGE>
Cushman & Wakefield's Conclusions as to Value. Based on the valuation
methodology described above, Cushman & Wakefield assigned an individual market
value to each of the four underlying properties, as of September 1, 1999.
Set forth below for each underlying property are:
o the discount rate;
o the first year direct capitalization rate, which is the
interest rate that is divided into current net income
to determine the value of the underlying properties
securing the bonds; and
o the "as is" value, which is the highest price a buyer
would pay a seller for the real estate with no capital
repairs, capital improvements or other set-offs that
may result in a higher or lower value, estimated by
Cushman & Wakefield as of September 1, 1999.
First Year
Direct 9/1/99
Discount Capitalization "As Is"
Property Rate Rate Value
-------- ---- ---- -----
Reflections 11.50% 9.07% $15,000,000
Lexington Trails 11.75% 9.75% $ 5,200,000(1)
High Pointe 1.00% 8.75% $ 9,800,000
Rolling Ridge 11.00% 8.00% $ 7,100,000
------------
Total $37,100,000
===========
-----------------------------
(1) Cushman & Wakefield appraised the leased fee estate of all the above
properties with the exception of Lexington Trails. The fee simple
estate of Lexington Trails was appraised. A leased fee estate is the
property interest that is subject to the lease(s) in place as of the
date of value. For example, if a private home were sold with a tenant
in place, the purchaser of the real estate would be buying the property
subject to the lease. Therefore, the existing leases in place as of the
date of value were considered for all the properties, except Lexington
Trails. For Lexington Trails, the fee simple estate was appraised by
Cushman & Wakefield. Using the same example as described above, the
purchaser of the home would be buying the property free and clear of
the tenant. Therefore, in the case of the appraisal of Lexington
Trails, the existing leases in place as of the date of value were not
considered. Rather, market based leases were utilized in the appraisal
of Lexington Trails. Consequently, leases above or below market rental
rates are not considered in a fee simple estate appraisal. It should be
noted that fee simple estate and leased fee estate are the same when a
lease is equal to market rental rates.
Valuation of American Tax's Net Assets by McDonald Investments
For a summary of the valuation of American Tax's net assets conducted
by McDonald Investments, see "The Merger -- Opinion and Valuation of American
Tax's Financial Advisor -- The McDonald Investments Valuation" above.
Recommendation of the CharterMac Board of Trustees and CharterMac's Reasons for
the Merger
The CharterMac board of trustees believes that the merger presents a
unique opportunity to improve efficiency in order to reduce fees and other
payables to the managers of CharterMac and American Tax and increase profit
potential and create greater potential overall value than each of the companies
have separately.
In reaching its decision to approve the merger agreement, the
CharterMac board of trustees consulted with its manager, Related Charter, as
well as with its financial, accounting and legal advisors, and considered a
variety of factors, including the following:
o CharterMac's familiarity with and review of American Tax's assets;
/293812.1
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<PAGE>
o The consistency of the merger with CharterMac's long-term business
strategy;
o The anticipated effectiveness of the merger in allowing CharterMac
to enhance shareholder value by achieving efficiencies and
expanding market opportunities;
o The ability to acquire additional investments utilizing its common
shares rather than cash;
o The opinion of Legg Mason, dated October 26, 1999, that the merger
consideration to be paid to American Tax was fair from a financial
point of view to CharterMac's shareholders; and
o The appraisal of Cushman & Wakefield, dated October 20, 1999, as
to the value of the properties which secure the bonds owned by
American Tax.
In reaching its decision to approve the merger, the CharterMac board of
trustees also considered the following potentially negative factors:
o The fact that Legg Mason's opinion dated October 26, 1999 is based
on market values of CharterMac common shares that may be subject
to fluctuation between the date of its opinion and the time of the
merger; and
o The fact that Cushman & Wakefield's appraisals are based on the
market values and prices of the properties underlying American
Tax's assets that may be subject to fluctuation between the date
of the appraisal and the time of merger.
The CharterMac board of trustees chose to approve the merger because,
in the opinion of the board of trustees, the strategic nature and results of the
merger outweighed the risks of completing the transaction.
Although the CharterMac board of trustees considered other information,
the above discussion lists all material factors considered by the CharterMac
board of trustees. In reaching its determination to approve the merger, the
CharterMac board of trustees did not assign any relative or specific weights to
the foregoing factors, and individual trustees may have given differing weights
to different factors.
Opinion of CharterMac's Financial Advisor
The CharterMac board of trustees retained Legg Mason to provide an
opinion as to the fairness to CharterMac from a financial point of view, of the
amount of consideration to be paid by CharterMac to the shareholders of American
Tax in the merger of American Tax with and into CM Holding, in which each
shareholder of American Tax will receive 1.43112 newly issued CharterMac common
shares for each share of beneficial interest in American Tax owned by the
shareholder on terms and conditions more fully set forth in the merger
agreement. Legg Mason is regularly engaged in the valuation of businesses, their
properties and their securities in connection with mergers and acquisitions and
other transactions. The CharterMac board of trustees retained Legg Mason based
upon Legg Mason's prominence as an investment banking and financial advisory
firm with experience in the valuation of businesses, their properties and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
On October 20, 1999, Legg Mason delivered its oral opinion, which was
later confirmed in writing on October 26, 1999, to the CharterMac board of
trustees that, as of the date of the opinion, based on Legg Mason's review and
subject to the limitations described below and in the Legg Mason fairness
opinion, the amount of consideration to be paid by CharterMac to the American
Tax shareholders in the merger is fair to CharterMac from a financial point of
view.
The full text of Legg Mason's opinion, which sets forth the assumptions
made, procedures followed, matters considered and limits on the review
undertaken, is attached as Appendix B and is incorporated by reference into this
consent statement-prospectus.
The Legg Mason fairness opinion addresses only the share consideration
to be paid by CharterMac in the merger and does not constitute a recommendation
of the merger over any alternative transactions which may be
/293812.1
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<PAGE>
available to CharterMac and does not address the underlying business decision of
CharterMac to proceed with or effect the merger. Legg Mason was not requested
to, and did not participate in the structuring or negotiating of the merger and
did not make any recommendation to the CharterMac board of trustees or
CharterMac as to the form or amount of consideration to be paid in the merger.
Furthermore, Legg Mason expressed no opinion and made no recommendation to
CharterMac as to how the CharterMac board of trustees should vote on the merger.
In rendering its fairness opinion, Legg Mason among other things:
o reviewed and analyzed draft copies of the merger
agreement;
o reviewed and analyzed the audited and unaudited
financial statements and the related filings on forms
10-K and 10-Q of CharterMac for the year ended December
31, 1998 and for the six months ended June 30, 1999;
o reviewed and analyzed the audited and unaudited
financial statements and the related filings on forms
10-K and 10-Q of American Tax for the year ended
December 31, 1998 and for the six months ended June 30,
1999;
o reviewed and analyzed internal information, primarily
financial in nature, concerning the business and
operations of American Tax prepared by the management
of American Tax, including cash flow projections and
operating budgets;
o reviewed and analyzed internal information, primarily
financial in nature, concerning the business and
operations of CharterMac prepared by the management of
CharterMac, including cash flow projections and
operating budgets;
o reviewed and analyzed publicly available information
concerning CharterMac and American Tax;
o reviewed and analyzed financial and market data and
operating statistics relating to American Tax and
compared them with similar information of CharterMac
and publicly available selected public companies that
were deemed by Legg Mason to be relevant to its
inquiry;
o reviewed documents describing each of American Tax's
first mortgage bonds and documents describing the
details of any bond modifications, if applicable;
o reviewed the appraisals prepared by Cushman & Wakefield
and dated October 20, 1999, for each underlying
property secured by a mortgage loan financed by a first
mortgage bond held by American Tax;
o held meetings and discussions with the directors,
officers and employees of Related AMI and CharterMac
concerning the past and current operations, financial
condition and prospects of American Tax and CharterMac;
and
o conducted other financial studies, analysis and
investigations and considered other information as Legg
Mason deemed appropriate.
In connection with its review, Legg Mason relied, without independent
verification, on the accuracy and completeness of all information that was
publicly available, supplied or otherwise communicated to Legg Mason by or on
behalf of the CharterMac board of trustees or CharterMac or any other party or
potential party to the merger and it further relied upon the assurances of
management that they are unaware of any facts that would make the information
provided to Legg Mason incomplete or misleading. Legg Mason assumed that the
financial forecasts, and the assumptions and bases thereof, examined by it were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of the management of both CharterMac and American Tax as to
the future performance of CharterMac and American Tax. Legg Mason relied on
these forecasts and did not in any respect assume any responsibility for the
accuracy or completeness of any of the foregoing kinds of information. Legg
Mason also
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assumed, with the consent of the CharterMac board of trustees and CharterMac,
that any material liabilities of CharterMac and American Tax are as set forth in
the respective financial statements of CharterMac and American Tax. Legg Mason
did not make an independent evaluation or appraisal of the assets or liabilities
of CharterMac or American Tax nor was Legg Mason furnished with any such
evaluations or appraisals, with the exception of the Cushman & Wakefield
appraisals. The Legg Mason fairness opinion is based upon financial, economic,
market and other conditions and circumstances existing and disclosed to Legg
Mason as of the date of its opinion. This opinion does not address, and will not
be updated to address, any matters after the date of the opinion.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant quantitative methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or amenable to summary description. Accordingly, Legg Mason believes that its
analysis must be considered as a whole and that considering any portion of the
analysis and of the factors considered, without considering all analysis and
factors, could create a misleading or incomplete picture of the process
underlying the Legg Mason fairness opinion. Any estimates contained in these
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analysis relating to the values of real estate
properties are not appraisals and may not reflect the prices at which the
properties may actually be sold. Accordingly, these analysis and estimates are
inherently subject to substantial uncertainty and Legg Mason did not assume
responsibility for the accuracy of these analysis or estimates. The following
paragraphs summarize the primary quantitative and qualitative analysis performed
by Legg Mason in arriving at its fairness opinion.
Legg Mason's Analysis and Conclusions
As background for its analysis, Legg Mason held extensive discussions
with the senior management of both CharterMac and Related AMI regarding the
history, current business operations, financial condition, future prospects and
strategic objectives of CharterMac and American Tax.
In connection with rendering its fairness opinion, Legg Mason
considered a variety of valuation methodologies, including:
o a book value analysis;
o a dividend yield analysis;
o a discounted cash flow analysis assuming bond
prepayment in the first year following each first
mortgage bond's lockout period, a time during which the
bonds cannot be prepaid;
o a discounted cash flow analysis assuming bond
prepayment in the first year following the expiration
of any early redemption penalties; and
o an accretion/dilution analysis of the anticipated
effects of the merger on CharterMac's year 2000 net
income available to common shareholders and year 2000
cash available for distribution available to common
shareholders;
o a relative contribution analysis.
Legg Mason's opinion is directed only to the fairness to CharterMac,
from a financial point of view, of the share consideration to be paid by
CharterMac in the merger. The summary set forth below does not purport to be a
complete description of the analysis used and the factors considered by Legg
Mason in rendering its fairness opinion.
Share Consideration. For purposes of its financial analysis, Legg Mason
used a dollar value range of the share consideration to be paid by CharterMac in
the merger of approximately $26.6 million to $28.1 million with a mean of
approximately $27.3 million. The following table illustrates the calculation of
this range using share prices based upon the low, high and mean, as weighted by
daily trading volume) closing stock prices of CharterMac as reported on the
American Stock Exchange for the 45 day period ending October 18, 1999.
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Shares Consideration
Share Price To Be Issued* Value
------------- ------------- ----------------
High $ 13.13 2,136,786 $ 28,056,000
Mean $ 12.78 2,136,786 $ 27,308,125
Low $ 12.44 2,136,786 $ 26,581,618
-------------
* Includes 21,156 fractional shares
Book Value Analysis. Legg Mason performed a valuation analysis based
upon the book value of American Tax's first mortgage bonds which were obtained
from American Tax's Quarterly Statement on Form 10-Q dated June 30, 1999. The
book value of American Tax's first mortgage bonds was calculated by American Tax
in accordance with the Financial Accounting Board's Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Legg Mason adjusted the book value of American Tax's first
mortgage bonds by adding the net assets of American Tax which include the
addition of cash, cash equivalents, and accounts receivable as well as the
subtraction of all liabilities, excluding $766,747 in special distributions and
payables waived by Related AMI in the merger, bond acquisition fees, merger
expenses, and the net present value of on- going expenses related to American
Tax's first mortgage bonds. Adjusting the book value of American Tax's first
mortgage bonds by its net assets resulted in a total firm valuation and dividing
that valuation by the number of CharterMac common shares to be issued resulted
in a per share price. The following table summarizes these results:
Total Firm
Share Value*
------------------ ------------------
Book Value $ 12.41 $ 26,510,718
----------
* Total of 2,136,786 Shares includes 21,156 fractional shares.
Legg Mason noted that the $26.5 million value for the total net assets
of American Tax calculated in the book value analysis was below the $27.3
million mean value of the share consideration to be paid by CharterMac in the
merger. Legg Mason also noted that the book value analysis did not fully reflect
the expected effects of internal cost savings and synergies between American Tax
and CharterMac and potential effect of leveraging American Tax's first mortgage
bonds. Therefore, Legg Mason did not believe that the book value analysis, when
taken within the context of the other analysis performed and the conclusions
reached, would in any way prevent it from arriving at its fairness opinion.
Dividend Yield Analysis. As of the date of its fairness opinion, Legg
Mason calculated CharterMac's annualized after tax dividend yield to be a range
of values of 7.38% to 7.78% with a mean of 7.58% based upon the movement in
CharterMac's share price and indicated annual dividend.
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The calculation is summarized in the table below:
<TABLE>
<CAPTION>
High Mean Low
---------- ---------- ----------
<S> <C> <C> <C>
CharterMac Share Price $ 13.13 $ 12.78 $ 12.44
CharterMac Annual Dividend $ 0.98 $ 0.98 $ 0.98
---------- ---------- ----------
Annual Dividend Yield 7.46% 7.67% 7.88%
Percentage of Dividend that is Tax Exempt 97.00% 97.00% 97.00%
---------- ---------- ----------
Subtotal: Tax Adjusted Yield of Tax Exempt Portion of
Dividend 7.24% 7.44% 7.64%
Percentage of Dividend that is Taxable 3.00% 3.00% 3.00%
---------- ---------- ----------
0.22% 0.23% 0.24%
Assumed Tax Rate 39.60% 39.60% 39.60%
Taxes on Taxable Portion of Dividend 0.09% 0.09% 0.09%
Subtotal: Tax-Adjusted Yield of Taxable Portion of Dividend 0.14% 0.14% 0.14%
Total CharterMac After Tax Dividend Yield 7.38% 7.58% 7.78%
</TABLE>
Legg Mason noted that approximately 97% of American Tax's projected
year 2000 net income is forecasted to be tax-exempt, which is approximately the
tax-exempt percentage of CharterMac's current annualized dividend. The range of
CharterMac's annualized after-tax dividend yields were then divided into
American Tax's projected year 2000 total dividends to arrive at range for the
total equity value for American Tax's first mortgage bonds. American Tax's
projected year 2000 total dividends were derived by taking the product of
American Tax's projected net income and CharterMac's assumed payout ratio of
92.3%, which represents the proportion of American Tax's expected income paid
out as dividends. Legg Mason adjusted this total equity value by the other
assets and liabilities of American Tax to arrive at a range of valuations for
American Tax and dividing these valuations by the number of CharterMac common
shares to be issued resulted in a range of per share prices. The following table
summarizes these results:
Total Firm
Share Value*
---------------- ---------------
High $ 12.46 $ 26,623,126
Mean $ 12.13 $ 25,928,342
Low $ 11.83 $ 25,269,187
-------------
* Total of 2,136,786 Shares includes 21,156 fractional shares
Discounted Cash Flow Analysis. Legg Mason also analyzed the financial
terms of the merger using a discounted cash flow analysis. The discounted cash
flow approach assumes, as a basic premise, that the intrinsic value of any
business is the current value of the future cash flow that the business, in this
case, bond investments, will generate for its owners. This analysis was based
solely upon information, including forecasted income statement and balance sheet
data, provided by CharterMac and American Tax. Because of a concern that the
existing American Tax first mortgage bonds may be sold or refinanced prior to
their call dates and that this might result in decreased compensation for
CharterMac, Legg Mason conducted two separate discounted cash flow analysis on
American Tax's first mortgage bonds, each of which is analyzed below.
Discounted Cash Flow assuming bond prepayment in the first year
following the lockout period. Under this analysis, Legg Mason determined a range
of values for the first mortgage bonds of American Tax by adding:
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o the present value of the base interest and any
participation in cash flow, if applicable, on the first
mortgage bonds;
o the present value of the return of principal and
participation in sale proceeds, if applicable, for each
bond; and
o the present value of any redemption premium, if
applicable.
The return of principal and sale proceeds were determined by applying a
range of capitalization rates from 8.0% to 10.0% to the net operating income of
the property underlying the respective first mortgage bonds at the end of each
underlying bond's lockout period, a time during which the bond cannot be
prepaid, if applicable. The base interest, prepayment premium, and return of
principal were discounted to present values using discount rates from 7.4% to
7.8%. The participation in cash flow and the sale proceeds were discounted to
present values using discount rates that ranged from 11% to 13%. The discount
rates reflect Legg Mason's assessment of CharterMac's annualized dividend yield
and the specific risks of CharterMac. The discounted cash flow model for the
first mortgage bonds was then adjusted for the other American Tax assets and
liabilities to arrive at a range of firm values for American Tax, and dividing
these values by the number of CharterMac common shares to be issued resulted in
a range of per share prices. The following table summarizes these results:
Total Firm
Share Value*
---------------- ---------------
High $ 12.70 $ 27,139,442
Mean $ 12.34 $ 26,367,159
Low $ 11.99 $ 25,629,081
-------------
* Total of 2,136,786 Shares includes 21,156 fractional shares
Discounted Cash Flow assuming bond prepayment in the first year
following the expiration of any early redemption penalties. Under this analysis,
Legg Mason determined a range of values for the first mortgage bonds of American
Tax by adding:
o the present value of the base interest and any
participation in cash flow, if applicable, on the first
mortgage bonds; and
o the present value of the return of principal and
participation in sale proceeds, if applicable, for each
bond.
The return of principal and sale proceeds were determined by applying a
range of capitalization rates from 8.0% to 10.0% to the net operating income of
the property underlying the respective first mortgage bonds at the call date.
The base interest, participation cash flow, sale proceeds and return of
principal were discounted to present values using discount rates that ranged
from 7.4% to 7.8%. The discount rates reflect Legg Mason's assessment of
CharterMac's annualized dividend yield and the specific risks of CharterMac. The
discounted cash flow model for the first mortgage bonds was thenadjusted for the
other American Tax assets and liabilities to arrive at a range of firm values
for American Tax, and dividing these values by the number of CharterMac common
shares to be issued resulted in a range of per share prices. The following table
summarizes these results:
Total Firm
Share Value*
---------------- ---------------
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High $ 12.61 $ 27,951,960
Mean $ 12.15 $ 25,964,415
Low $ 11.76 $ 25,129,818
-------------
* Total of 2,136,786 Shares includes 21,156 fractional shares
o for CharterMac without giving effect to the merger;
o for American Tax without giving effect to the merger;
o for CharterMac and American Tax after giving effect to
the merger; and
o for CharterMac and American Tax after giving effect to
the merger assuming new cost savings and internal
synergies as well as the potential leverage effect
created in the acquisition of American Tax.
The analysis of all scenarios was based on financial statements and
projections prepared by the managements of both CharterMac and American Tax.
Legg Mason observed that prior to expected synergies and leverage effects, the
merger could be expected to be slightly dilutive to CharterMac's forecasted net
income per share available to common shareholders and cash available for
distribution per share available to common shareholders in the year 2000. Legg
Mason observed that after accounting for expected synergies and leverage, net
income per share available to common shareholders for the combined company would
be the same as CharterMac's projected net income per share available to common
shareholders without giving effect to the merger, while cash available for
distribution per share available to common shareholders for the combined company
was slightly diluted relative to CharterMac's projected cash available for
distribution per share available to common shareholders without giving effect to
the merger.
Relative Contribution Analysis. Legg Mason compared the combination of
CharterMac and American Tax to the total CharterMac and American Tax combined
projected net income available to common shareholders and cash available for
distribution to common shareholders for the year 2000 based on financial
projections provided by CharterMac. Legg Mason considered both net income
available to common shareholders and cash available for distribution available
to common shareholders to be relevant contribution statistics in part because of
the equity markets' reliance upon these measures in analyzing the performance of
CharterMac.
Legg Mason noted that American Tax was projected to contribute
approximately 7.9% of the combined company's net income available to common
shareholders and 7.7% of the combined company's cash available for distribution
available to common shareholders in the year 2000 as compared to the
approximately 9.3% ownership that the American Tax shareholders would obtain in
the combined company. Legg Mason also noted that potential internal cost savings
as well as the potential effect of leveraging American Tax's first mortgage
bonds would enhance the contribution of American Tax to the projected net income
and cash available for distribution of the combined company. Accounting for
these synergies and leverage in the year 2000, Legg Mason noted that American
Tax contributed 8.8% of the combined company's net income available to common
shareholders and 8.6% of the combined company's cash available for distribution
available to common shareholders.
A summary of the analysis of CharterMac and American Tax, giving effect
to expected synergies and leverage, is shown below:
<TABLE>
<CAPTION>
2000 Estimated Pre-Merger Percentage 2000 Estimated Post-Merger Percentage
Net Income of Total Net Income of Total
------------------------- ---------- -------------------------- ----------
<S> <C> <C> <C> <C>
CharterMac $24,765,000 92.1% $24,765,000 91.2%
American Tax $2,136,000 7.9% $2,403,000 8.8%
------------------------- ---------- -------------------------- ----------
Total $26,901,000 100.0% $27,168,000 100.0%
</TABLE>
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<TABLE>
<CAPTION>
2000 Estimated Pre-Merger Percentage 2000 Estimated Post-Merger Percentage
Cash Available for Distribution of Total Cash Available for Distribution of Total
------------------------------- ---------- ------------------------------- ----------
<S> <C> <C> <C> <C>
CharterMac $25,542,000 94.9% $25,542,000 91.4%
American Tax $2,136,000 7.9% $2,403,000 8.6%
Total $26,678,000 102.9% $27,945,000 100.0%
</TABLE>
Legg Mason considered this analysis relevant to the fairness from a
financial point of view of the share consideration paid by CharterMac in the
merger because, to the extent that the percentage ownership of American Tax in
the combined company was lower than the projected contribution by American Tax
to the combined operating results, the proportionate return to CharterMac would
be beneficial and could be expected to improve per share results of operations.
This would generally support a conclusion that the transaction is fair. In this
case, while the percentage ownership of American Tax was marginally greater than
its adjusted contribution, taking into account the effects of expected synergies
and leverage, Legg Mason did not feel that the results of the relative
contribution analysis, when taken within the context of the other analysis
performed would in any way prevent it from arriving at its fairness opinion.
Supplemental Leverage Analysis. Legg Mason recognized that, at present,
American Tax is not permitted to incur debt in connection with its investment
activities. CharterMac, however, can incur debt in an amount up to 50% of its
total asset value as part of its investment strategy. As a result, American
Tax's first mortgage bonds , which are currently unlevered, could be used to
incur debt in CharterMac after the merger and increase its asset contribution to
CharterMac. To determine this additional value, Legg Mason multiplied the book
value of American Tax's first mortgage bonds by CharterMac's current leverage
ratio of 41.3% to arrive at an estimated dollar value for the additional first
mortgage bonds that could be purchased by CharterMac as a result of leveraging
the first mortgage bonds acquired in the merger. Legg Mason then utilized a
methodology similar to the Dividend Yield Analysis to calculate the additional
dividend projected to be generated by the new first mortgage bonds. This
dividend was then divided by the range of CharterMac's after tax yields to
arrive at an estimated range for the additional value between $3.1 million to
$3.3 million with a mean value of approximately $3.2 million. Legg Mason also
noted that the Supplemental Leverage Analysis did not consider the additional
value beyond the $3.2 million that could be attained by using CharterMac's
maximum leverage ratio of 50.0%. Therefore, Legg Mason felt that the
Supplemental Leverage Analysis, when taken within the context of the other
analysis performed and the conclusions reached, demonstrated substantial
additional value could be achieved by CharterMac in the merger.
Based upon and subject to the foregoing, Legg Mason rendered its
opinion that, as of the date of the fairness opinion, the stock consideration to
be paid by CharterMac to the American Tax shareholders in the merger pursuant to
the merger agreement is fair, from a financial point of view, to CharterMac.
Projection of Revenues and Expenses
During Legg Mason's due diligence process, American Tax and CharterMac
provided to Legg Mason, projections of future financial performance. These
financial projections included estimates of revenues and expenses of each of
American Tax and CharterMac for their fiscal year ended 2000, which are set
forth below.
American Tax CharterMac
Revenues $2,285,000 $48,923,000
Expenses $215,000 $15,310,000
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These projections were not prepared with a view to public disclosure or
compliance with published guidelines established by the Securities and Exchange
Commission or the American Institute of Certified Public Accountants regarding
projections. Neither the auditors of American Tax or CharterMac nor any other
independent accountants have compiled, examined or performed any procedures with
respect to these projections, nor have they expressed any opinion or any other
form of assurance on such information or its achievability. Neither the auditors
of American Tax or CharterMac nor any other independent accountants assume
responsibility for, and disclaim any association with, the aforementioned
projections. These projections are included in this joint proxy
statement-prospectus solely because this information was provided to Legg Mason.
Except as required under the federal securities laws, American Tax and
CharterMac disclaim any duty to update these projections. In addition, because
the projections are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of each company, there can be
no assurance that the projections will be realized. Actual results may be either
higher or lower than the projections.
Compensation Arrangements
Pursuant to an engagement letter, dated October 8, 1999, Legg Mason
will receive $150,000 for its services in rendering its fairness opinion. This
fee is not contingent on approval or consummation of the merger. Legg Mason will
also be reimbursed for its out-of-pocket expenses, in an amount not to exceed
$25,000 without the prior consent of the CharterMac board of trustees.
CharterMac agreed to indemnify Legg Mason, its affiliates and each of its
directors, officers, employees, agents, consultants and attorneys, and each
person or firm, if any, controlling Legg Mason or any of the foregoing, against
any liabilities, including liabilities under federal securities law, arising out
of, or related to Legg Mason's engagement.
Prior Compensation of Legg Mason
In June 1999, Legg Mason was co-manager of a private placement of
CharterMac securities, for which Legg Mason received a fee equal to $167,400.
Appraisal Delivered to CharterMac
In connection with the merger, CharterMac relied on the appraisals of
Cushman & Wakefield. See discussion above.
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COMPARISON OF BENEFITS AND DETRIMENTS OF
ALTERNATIVES TO MERGER
General
Prior to concluding that the merger should be presented to you, Related
AMI examined the estimated values which could be derived from alternatives to
the merger. The alternatives examined by Related AMI were:
o continuation of American Tax under its current trust agreement;
o the liquidation of American Tax;
o listing American Tax's shares on a national stock exchange and
continuing American Tax under its current trust agreement; or
o listing American Tax's shares on a national stock exchange and
changing American Tax's structure and investment policy to be a
publicly listed, open-ended, infinite-life operating company.
In order to determine whether the merger or one of these alternatives
would be more beneficial to you, Related AMI compared the potential benefits and
detriments of the merger with the potential benefits and detriments of each of
the alternatives. Each of the merger and its alternatives have potential
benefits and detriments not present in the other alternatives. Related AMI did
not give any specific weight to any one factor but viewed the factors in the
aggregate in supporting its fairness determination. For the reasons set forth
below, Related AMI determined that the merger is more beneficial to the
shareholders than any of the alternatives available to American Tax. Please note
that the estimated values and the discussion of the alternatives was prepared by
Related AMI and has not been reviewed or verified by any independent third
party.
Summary of the Alternatives
Continuation of American Tax Under its Current Trust Agreement
An alternative to the merger would be to continue American Tax in
accordance with its current trust agreement and to hold its first mortgage bonds
for the originally contemplated time periods.
Advantages to Continuation Under Current Trust Agreement: The principal
advantages of continuing American Tax as an unlisted finite-life company under
the current first mortgage bonds are that American Tax shareholders:
o would not be subject to the risks associated with an ongoing
operating company such as CharterMac;
o would not bear the market risks arising from fluctuations of share
prices for public companies generally; and
o could continue to utilize American Tax's redemption plan, although
historically there has been a backlog of shares, 30,129 as of
October 1, 1999, which limits the liquidity otherwise available
under the redemption plan.
American Tax could follow its original investment strategy and dispose
of its first mortgage bonds in the next eight to ten years and the net
liquidation proceeds would be distributed to shareholders in the liquidation of
their investments.
Disadvantages to Continuation Under Current Trust Agreement: The
primary disadvantages with continuing American Tax as an unlisted finite-life
company are that:
o as a result of American Tax's new distribution policy, initial
distributions to American Tax shareholders for the first twelve
months are expected to decrease 54% from the current level of an
annualized return of 8% to an annualized return of 3.7%, based on
the original purchase price of American Tax shares ($20.00));
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o American Tax would not be able to raise additional funds and take
advantage of favorable investment opportunities that may exist in
the market for first mortgage bonds; and
o American Tax's shareholders would not obtain the potential
liquidity that might be afforded through the ownership of
CharterMac common shares which is listed for trading on the
American Stock Exchange.
Liquidation
Liquidation is not currently considered to be a viable option by
Related AMI. However, for comparison purposes, Related AMI has analyzed this
alternative and concluded that a liquidation would not be as beneficial to you
as the merger because participation interest in the bonds have not yet resulted
in increases in value to a level sufficient to allow you to obtain a return of
your original investment if you bought your American Tax shares in the original
American Tax offering. Because Related AMI believes the value of the bonds may
improve over time, it believes that liquidation of the assets at this time is
premature and would not provide you with the best alternative to realize the
optimum return on your investment.
If American Tax were to liquidate, such liquidation would involve
significant transaction costs at the asset level such as selling commissions,
legal fees, and other closing costs associated with the disposition of such
assets. In addition, there may be additional costs associated with
representations, warranties, and indemnifications that purchasers generally
require and which may result in additional escrow costs. Further there would be
potentially significant administration and overhead costs in the winding down of
American Tax that are largely independent of asset size and which could over an
extended liquidation period, reach disproportionately high levels in relation to
revenues, thereby reducing the portion of the proceeds available for
distribution to you.
Liquidation would, however, provide for the final liquidation of your
investment and a likely substantial distribution of cash equal to net
liquidation proceeds, though not at a level that would allow you to recoup your
original investment.
List American Tax On A National Exchange
An alternative to the merger would be to list American Tax's shares on
a national stock exchange and continue American Tax under its current trust
agreement.
Advantages to Listing American Tax On A National Exchange: The
principal advantages of such a plan would be that American Tax shareholders:
o would not be subject to the risks associated with an ongoing
operating company such as CharterMac; and
o would obtain the liquidity that might be afforded through the
ownership of American Tax shares which are listed for trading on a
nationally recognized stock exchange.
Disadvantages to Listing American Tax On A National Exchange: The
primary disadvantages with listing American Tax shares are that:
o American Tax shareholders would bear the market risks arising from
fluctuations of share prices for public companies generally;
o American Tax's publicly listed shares would have a small market
capitalization and therefore few investors may be willing to
invest in the American Tax shares;
o as a result of American Tax's new distribution policy,
initial distributions to American Tax shareholders for
the first twelve months are expected to decrease 54%
from the current level of an annualized return of 8% to
an annualized return of 3.7%, based on the original
purchase price of American Tax shares ($20.00); and
o American Tax would not be able to raise additional
funds and take advantage of favorable investment
opportunities that may exist in the market for first
mortgage bonds.
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Restructure American Tax To Be A Publicly Listed Infinite-Life Company
An alternative to the merger would be to change American Tax's
structure and investment policy to be a publicly listed, open-ended,
infinite-life operating company.
Advantages to Restructuring into a Publicly Listed Infinite-Life
Company: The principal advantages of such a plan would be that:
o American Tax's shareholders would obtain the liquidity that might
be afforded through the ownership of American Tax shares which are
listed for trading on a nationally recognized stock exchange; and
o American Tax may be able to raise additional funds and may take
advantage of favorable investment opportunities that may exist in
the market for first mortgage bonds.
Disadvantages to Restructuring into a Publicly Listed Infinite-Life
Company: The primary disadvantages with changing American Tax's structure and
investment policy to be a publicly listed, open-ended, infinite-life operating
company are that:
o as a result of American Tax's new distribution policy,
initial distributions to American Tax shareholders for
the first twelve months are expected to decrease 54%
from the current level of an annualized return of 8% to
an annualized return of 3.7%, based on the original
purchase price of American Tax shares ($20.00);
o American Tax shareholders would bear the market risks arising from
fluctuations of share prices for public companies generally.
o American Tax shareholders would be subject to the risks associated
with an ongoing operating company; and
o American Tax's publicly listed shares would at least initially
have a small market capitalization and therefore few investors may
be willing to invest in the American Tax shares.
Comparison of Alternatives to the Proposals
General
To assist you in evaluating the fairness of the merger, Related AMI has
compared the market value of the CharterMac common shares you will receive in
the merger, assuming such merger took place on June 30, 1999, with:
o Liquidation: Estimates of the value of the American Tax shares
under a "liquidation" scenario, assuming that American Tax's
assets were sold at an assumed value based on discounted cash flow
analysis and followed by a distribution of net proceeds to Related
AMI and you in accordance with American Tax's trust agreement;
o Going Concern: Estimates of the value of the American Tax shares
on a "going concern" basis, assuming that American Tax's assets
would be operated until December 31, 2006, followed by the
immediate liquidation of all assets for cash and the immediate
distribution of the proceeds in accordance with American Tax's
trust agreement. Although, considering the current interest rate
environment, the analysis assumes the borrowers will prepay the
loans at the end of the year when prepayment is permitted; and
o Stand Alone: Estimates of the value of the American Tax shares as
a "stand-alone" company listed on a national exchange either as
currently structured or as an infinite-life company with its
existing assets.
The valuation estimates are subject to significant uncertainties
because the comparative estimated values are based upon a number of estimates,
variables, assumptions and varying market conditions. Therefore, no assurance
can be given that the estimated values indicated could be realized and actual
realized values may be higher or lower than the estimates of such values.
/293812.1
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<PAGE>
Neither American Tax's nor CharterMac's independent auditors, nor any
other independent accountants have compiled, examined, or performed any
procedures with respect to the valuation information contained herein, nor have
they expressed any opinion or any other form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the valuation information.
The results of this comparative analysis are set forth below. You
should bear in mind that the estimated values assigned to the American Tax
shares under the various alternatives are based on a variety of assumptions that
have been made by Related AMI. These assumptions, which are described in the
"Liquidation" and "Going Concern" sections that follow, relate, among other
things, to:
o projections as to American Tax's future income, expenses, cash
flow and other significant financial matters;
o the capitalization rates that would likely be used by prospective
buyers if American Tax's assets were liquidated;
o appropriate discount rates applied to expected cash flows in
computing the present value of the cash flows that may be received
with respect to the American Tax shares; and
o selling costs and other expenses, costs, offsets and contingencies
attributable to the sale of assets and liquidation of American
Tax.
In addition, these estimates are based upon the information available
to Related AMI at the time the estimates were computed, and American Tax can
give no assurance that the same conditions analyzed by Related AMI in arriving
at the estimates of value would exist at the time that the merger is
implemented. The assumptions used have been determined by Related AMI and, where
appropriate, are based upon current historical information regarding American
Tax and current real estate markets, and have been highlighted below to the
extent critical to Related AMI's conclusions. While Related AMI believes it has
a reasonable basis for the assumptions made, it is unlikely that all of the
assumptions employed by Related AMI will prove to be accurate in all material
respects and some assumptions used by Related AMI as to future events have been
selected to simplify the analysis and may not approximate the actual experience
of American Tax. The estimated values assigned to the American Tax shares under
the various alternatives would have been different had Related AMI made
different assumptions. No assurance can be given that such value would have been
realized through any of the alternatives described.
Summary of Per Share Comparative Valuation Alternatives (1)
Net Asset Value (2) $ 18.11
Liquidation Value (3) $ 17.45
Going Concern Value (4) $ 17.04
Value Based on the Merger Consideration (5)(6)
o Related AMI's valuation $ 18.34
o McDonald Investments' valuation (8) $ 13.00
o Legg Mason's valuation (9) $ 13.13
Estimated Trading Price (7) $ 16.63
------------------
(1) Assumes that the shares allocable to Related AMI in respect of its 1%
interest in American Tax were issued and outstanding.
(2) As of June 30, 1999 Net asset value" is determined by taking the fair
market value of American Tax's assets and subtracting its liabilities.
American Tax's assets are comprised of investments in bonds, cash and
cash equivalents, and accrued interest receivables. Its liabilities
include amounts which are due to affiliates and accounts payable.
American Tax determines the fair market value of its assets by
calculating the present value of the anticipated income stream
generated by the assets using a discount rate equal to the market
interest rate of comparable assets. However, there is no assurance that
American Tax would actually be able to sell its assets for the amount
being attributed to its fair market value.
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<PAGE>
(3) Figure represents the amount that would be distributed if American Tax
sold its assets in a bulk sale on June 30, 1999. This amount assumes
that American Tax's first mortgage bonds were sold at prices which
reflect their carrying values as of June 30, 1999.
(4) Derived from discounted cash flows from the operation and sale or
refinancing of the underlying property and respective prepayment of the
bonds during the first year permitted in the bond indenture.
(5) The conversion ratio was determined by taking American Tax's net asset
value as of June 30, 1999 ($26,787,092) and adding back the liabilities
for accounts payable to Related AMI ($766,747) and subtracting the
estimated cost to American Tax of the merger as of October 15, 1999
($427,421) and dividing that result ($27,126,418) by the sum of the
number of American Tax shares outstanding as of June 30, 1999 plus the
number of American Tax shares allocable to Related AMI in respect of
its 1% interest in American Tax. The resulting adjusted value per
American Tax share ($18.3362) was then divided by the June 30, 1999
closing price of CharterMac, $12.8125, to equal the conversion ratio of
1.43112. The value of each of American Tax's assets, the bonds, was
computed by determining the present value of the interest income stream
to American Tax at rates between 7.5% and 12%, depending on the
analysis of risk associated with collecting the interest income stream.
(6) The market value of the merger consideration derived by applying the 52
week high price for CharterMac common shares for the period ending
August 1, 2000, $13.375, and the 52 week low price for CharterMac
common shares for the same period, $11.250, to the conversion factor
would be $19.141 and $16.100, respectively.
(7) Assumes American Tax is listed on a national stock exchange and would
trade at share prices which would yield similar distribution yields to
those of CharterMac and MuniMae, the two publicly traded entities most
comparable to American Tax. The average of the March 31, 2000 dividend
yields for CharterMac (8.74%) and MuniMae (8.46%), was 8.6%. Applying
this average dividend yield to the $1.43 adjusted cash distribution
that American Tax would pay after an initial reduction to $0.99 for a
twelve month period while Related AMI is paid the accrued expense
reimbursements and fees currently payable ($893,420 as of December 31,
1999), provides the estimated trading price for the American Tax
shares. The initial trading price, based on the initial reduced
distribution of $0.99 and applying the same average dividend yield,
would be $11.51 per share. The $1.43 adjusted cash distribution
reflects the historical 1999 American Tax distributions ($1.60 per
share) as adjusted for the current payment of the 1999 unpaid fees,
reimbursements and expenses due to Related AMI. However, the
distribution during the first twelve-month period, assuming payment in
the first twelve-month period of all the deferred and unpaid fees,
reimbursements and expenses due to Related AMI totaling $893,240 as of
December 31, 1999 (which includes the $766,747 owed through June 30,
1999 which is to be forgiven if the merger is consummated), would
result in a distribution equal to $0.99 per American Tax share. No
assurance can be given that future distributions will be $1.43 per
share and such amount was calculated solely to illustrate the impact on
the historical distribution rate of the current payment of fees to
Related AMI.
(8) Implied value of CharterMac common shares based on tax-adjusted
dividend yield as contained in the analysis of McDonald Investments.
(9) CharterMac common share prices used to determine the total cost of the
merger based on the number of shares issued in the fairness opinion
issued by Legg Mason.
The operation and sale of American Tax's assets does not take account
of market conditions or other factors that may affect liquidation strategies,
and it is unlikely that the operations of American Tax as a going concern would
in fact follow such a format. An attempt has been made to estimate a specific
value, although Related AMI believes that there is a potential for a wide
variance from this value based on future developments in the economy generally,
conditions in the real estate markets and performance of individual assets. The
value of American Tax's assets will increase with declining tax exempt interest
rates and decrease in the event interest rates increase. Also, with the increase
and decline in interest rates, the likelihood of the borrower's desire to prepay
decreases and increases, respectively. With increasing inflation, the value of
the underlying properties increase, not necessarily proportionally, as the
income levels of the properties increase and strengthen. During economically
"tighter" periods, the underlying properties value will diminish due to the
offering of concessions and/or increasing amounts of bad debt write-offs.
Accordingly, there can be no assurance that actual value under these
alternatives would not substantially exceed, or be less than, the value
indicated in the table.
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<PAGE>
Conclusion
Related AMI reached the following conclusions when comparing the
estimated potential value of the CharterMac common shares with the estimated
potential values of the alternatives to the merger:
o it is not possible to assign a specific value to the
American Tax shares or to predict accurately the prices
at which the CharterMac common shares will trade in the
market following the merger;
o there are similar difficulties in establishing the
value to you of the alternatives to the merger, with
such values also dependent upon a number of market
conditions not susceptible to precise determination;
and
o the assumptions used by Related AMI in establishing
values for the alternatives to the merger may not prove
to be accurate, and such consideration may have a value
higher or lower than the values estimated by Related
AMI.
Furthermore, aside from the assumed value of the CharterMac common
shares, approval of the merger may provide additional benefits to you because:
o the merger entails other potential benefits to you such
as liquidity and the potential impact on distributions
besides the market value of the CharterMac common
shares which in Related AMI's opinion could outweigh
the possibility that the value of the CharterMac common
shares at the time of the merger might be less than the
value attributable to the other alternatives; and
o as market conditions change over time, the range of
possible values for the CharterMac common shares may
improve in relation to the potential values for the
alternatives to the merger.
As the cash flow from operations of the underlying properties improves,
the value of American Tax's assets, the mortgage bonds, improves due to
increased debt service coverage, an indicator of the property's ability to pay
its interest, and allows for increased amounts of contingent interest, which is
limited to cash flow in excess of its stated base interest rate. Also, as the
property increases in value, the amount to be received in the event of a sale or
refinance is more secure, and in the event there are participation features in
the bond, the amount expected to be paid is increased with increased value.
Notwithstanding the uncertainties in estimating the value of the
American Tax and CharterMac common shares, Related AMI believes the available
information suggests that the approval of the merger is the more attractive
alternative for you.
Liquidation
Although not considered to be a viable option at this time, an
alternative available to American Tax is to proceed with an immediate
liquidation of American Tax's assets with a corresponding distribution of the
net liquidation proceeds to you in accordance with American Tax's trust
agreement. Related AMI believes that liquidation is not economically viable
because the costs to liquidate would be too high, which would cause the return
per share to American Tax shareholders to be $17.45 as of June 30, 1999, which
is lower than the per share net asset value of $18.11 as of June 30, 1999.
In order to estimate the liquidation value of the American Tax shares,
Related AMI assumed that American Tax's assets were sold in a bulk sale as of
June 30, 1999 at the present values of American Tax's first mortgage bonds. The
liquidation was assumed to be in a bulk sale for simplification and presentation
purposes. Also, if the assets were to be sold over time, American Tax would
incur full costs to perform the day-to-day operations of American Tax, and the
income stream would decrease over the period with each asset sale. If the
analysis were to have assumed a liquidation over a period of time, the following
difficulties would have been encountered:
/293812.1
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<PAGE>
o the need to include a greater number and variety of assumptions
which Related AMI believed would be no more meaningful than
assuming an immediate bulk liquidation of the assets;
o the fact that the analysis and assumptions to determine how, when,
and for what price and at what cost to sell assets while
continuing to operate American Tax as each asset is sold, is
subject to almost infinite methodologies, and presenting each
method could be confusing to shareholders.
In order to determine the current value of the bonds, Related AMI
utilized a discounted cash flow methodology. This methodology measures the
present value of projected income streams of interest from monthly interest
payments and income from net sale or refinancing proceeds payable at the time of
bond repayment. For each bond it was assumed that it would be held until the end
of the calendar year in which prepayment is first permitted pursuant to its
terms. The interest income streams were capitalized using a discount rate of
7.5% on base interest payments, 12% on participating interest payments and a 9%
termination rate on the underlying property's terminal cash flow. These discount
rates were used to determine the amount of bond principal and participating
interest that would be payable to American Tax upon a sale of the property
and/or a refinancing and repayment of the mortgage bonds. Discount rates are
determined based on a number of risk factors. These discount rates were
determined based upon a review of the risks deemed to be involved in the
collectability of projected interest payments and repayment of principal from
the relevant bonds.
The discount rates used for determining the present value of the
interest income generated from each bond is based on the current market rates of
interest on similar investments. Typically, the discount rates are comparable to
interest earned on similar assets at current market rates. Because Related AMI
does not believe that liquidation is currently a viable alternative, and the
liquidation value is disclosed in order to provide a valuation for comparative
purposes only, a single value rather than a range of liquidation values was
considered to be sufficient and less confusing to shareholders.
Related AMI believes that the resulting values reasonably indicate the
selling prices or values of the first mortgage bonds held by American Tax. From
these values, selling commissions and expenses and liquidation expenses were
subtracted. Mortgage selling commissions and expenses and liquidation expenses
were estimated to be approximately 3% of the indicated value of the assets. All
of American Tax's other assets, including accounts receivable, undistributed
cash and other assets or collateral that may exist and be relevant to
determining realization value in a liquidation, were added to the net proceeds
from the sale of the assets. Liabilities were then subtracted, including
accounts payable, amounts due Related AMI and affiliates and other liabilities.
The resulting net liquidation proceeds were then assumed to be distributed to
you in accordance with the trust agreement. The total amount distributed to you
is the indicated liquidation value for the American Tax shares.
The following chart summarizes Related AMI's analysis of the estimated
liquidation value of American Tax as of June 30, 1999 and March 31, 2000.
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<PAGE>
<TABLE>
<CAPTION>
Assets Liquidation Value
------ -----------------
June 30, 1999 March 31, 2000
------------- --------------
<S> <C> <C>
Reflections $12,285,391 $11,733,649
Rolling Ridge 5,553,058 5,685,978
Lexington Trails 5,329,632 5,278,782
High Pointe 3,439,874 3,343,969
------------- -------------
Total Liquidation Value $26,607,955 $26,042,378
Less: Cost of Liquidation 3% $(798,239) $(781,271)
Net Liquidation Value 25,809,216 25,261,107
Cash and Cash Equivalents 761,430 602,328
Liabilities (1) (780,098) (972,272)
------------- -------------
Liquidation Value $25,791,046 $24,891,163
American Tax Shares Outstanding (1) (2) 1,478,304 1,478,304
Liquidation Value Per American Tax Share $17.45 $16.84
</TABLE>
-----------------------
1. Does not include liabilities accrued in connection with the merger.
2. Assumes that the shares allocable to Related AMI in respect of its 1%
interest in American Tax were issued and outstanding.
Going-Concern Value
Related AMI has estimated the going concern value of the American Tax
shares by analyzing projected cash distributions generated by American Tax's
assets, assuming American Tax's assets would be held until the end of the
calendar year in which prepayment is permitted pursuant to the bond indenture,
on a bond by bond basis. The assumption that assets will be held until the end
of the calendar year is due to the aggregate decline in interest rates since the
purchase of the bonds by American Tax which has pushed tax exempt bond interest
rates anywhere from 6.75% to 7.25%. The bonds in American Tax's portfolio have
interest rates of 9.0%, and two of the four mortgage bonds have contingent
interest features in place. Therefore, Related AMI has assumed that the
borrowers will start to prepay and refinance their bonds at the earliest date
allowable.
In order to analyze the projected cash distributions with respect to
the American Tax assets, Related AMI discounted the amount of interest that
would be generated by each of American Tax's first mortgage bond utilizing a
7.5% discount rate and participating interest utilizing a 12% discount rate
together with a 9% terminal capitalization rate at the underlying property level
to determine the amount of mortgage and participation proceeds that would be due
and payable to American Tax upon a sale or refinancing of the underlying
properties. The 12% participating interest rate was determined based upon a
review of the risk involved with each asset. For each asset, it was assumed that
it would be held until the end of the calendar year in which prepayment of the
bond is permitted pursuant to the bond indenture, on a bond by bond basis. The
resulting cash flows were then adjusted for administrative expenses, which were
increased annually at 4% and then discounted back to present value utilizing a
7.5% discount rate.
The value of the American Tax shares on a going-concern basis is not
intended to be indicative of the prices at which American Tax shares could be
sold by you in the currently illiquid secondary market, nor are such estimates
intended to reflect the distributions payable with respect to the American Tax
shares if American Tax's assets were to be sold at their current fair market
values.
The following chart sets forth a summary of the results of Related
AMI's analysis with respect to the estimate of the going concern value of
American Tax as of June 30, 1999 and March 31, 2000.
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<PAGE>
<TABLE>
<CAPTION>
Going Concern Value
June 30, 1999 March 31, 2000
------------- --------------
<S> <C> <C>
Present Value of Income $26,607,955 $26,042,378
Present Value of Expenses (1,399,359) (1,399,359)
--------------- ---------------
Net Income Present Value $25,208,596 $24,643,019
Cash and Cash Equivalents 761,430 602,328
Liabilities (1) (780,098) (972,272)
--------------- ---------------
Going Concern Value $25,189,928 $24,273,075
American Tax Shares Outstanding 1,478,304 1,478,304
Going Concern Value Per American Tax Share (2) $17.04 $16.42
</TABLE>
-----------------------------
1. Does not include liabilities accrued in connection with the merger.
2. Assumes that the shares allocable to Related AMI in respect of its 1%
interest in American Tax were issued and outstanding.
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<PAGE>
"Stand-Alone" Value
-------------------
An alternative to the merger could be to list American Tax on a
national exchange although this is not considered to be viable option. Related
AMI believes that listing American Tax on a national exchange is not
economically feasible for an entity as small as American Tax due to the high
cost associated with listing and operating a publicly listed company. This is
true whether American Tax maintains its present finite-life structure or is
reorganized into an infinite-life entity.
In order to estimate the stabilized price at which the shares would
initially trade on a national exchange, Related AMI analyzed the distribution
yields of the two most comparable publicly listed companies, whose primary
business is similarly investing in tax exempt bonds, CharterMac and MuniMae. The
chart below outlines the variables in determining the current average
distribution yield of these companies:
<TABLE>
<CAPTION>
Closing Share Distribution to Effective
------------- --------------- ---------
Price of Shareholders Annualized
-------- ------------ ----------
Comparable Company March 31, 2000 March 31, 2000 Yield
------------------ -------------- -------------- -----
<S> <C> <C> <C>
CharterMac $12.125 $0.265 8.74%
MuniMae $19.50 $0.4125 8.46%
Average Dividend 8.60%
Yield
</TABLE>
Based on the foregoing, Related AMI applied the Average Dividend Yield
to an adjusted cash distribution of $1.43. Dividing the $1.43 distribution by
the Average Dividend Yield of CharterMac and MuniMae, above, produces an
estimated trading value for American Tax of $16.63, which is substantially less
than the consideration proposed under the merger alternative.
No assurance can be given that future distributions will be $1.43 per
share and such amount was calculated solely to illustrate the impact on the
historical distribution rate of the current payment of fees to Related AMI. The
$1.43 adjusted cash distribution reflects the historical 1999 American Tax
distributions ($1.60 per share) as adjusted for the current payment of the 1999
unpaid fees, reimbursements and expenses due to Related AMI.
In the first twelve months after listing, if you assume that American
Tax would have to pay all accrued and unpaid fees to Related AMI due as of
December 31, 1999, the distribution to American Tax shareholders would be $0.99
per share for that year. Based on the $0.99 distribution and applying the
Average Dividend Yield in the chart, the estimated value of American Tax shares
during the initial year after listing would be only $11.51 per share.
The prices at which the American Tax Shares would trade would most
likely be affected by, among other things (1) the potential pent-up selling
pressures as a result of the historic illiquidity of investments in American
Tax; (2) American Tax's lack of history as a publicly listed operating company;
(3) the unfamiliarity of institutional investors, financial analysts, and
broker-dealers with American Tax, and its prospect as an investment when
compared with other equity securities, (4) the small relative size of American
Tax relative to other similar alternative and comparable investments that are
significantly larger and more diversified, and (5) the historical financial
performance of American Tax, which could be viewed by some analysts as static
and disappointing. The estimated share price, assuming American Tax is listed on
a national exchange as determined above, is designed to facilitate an analysis
of possible alternatives to the proposed merger, and not to predict the future
trading price of American Tax shares.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material terms and provisions of the
merger agreement. To understand the merger agreement fully, Related AMI urges
you to carefully read the merger agreement which is attached as Appendix A to
this consent statement-prospectus.
Conversion of Shares
Under the merger agreement, at the time of the merger the shares of the
companies will be converted as follows:
o Each American Tax share will be converted into and
exchanged for the right to receive 1.43112 CharterMac
common shares, rounded to the nearest whole CharterMac
common share;
o Related AMI's one percent (1%) interest in American Tax
will be converted and exchanged into the right to
receive 21,156 CharterMac common shares;
o Each CharterMac common share will remain outstanding;
and
o Each CM Holding share will remain outstanding.
Exchange of Certificates; Fractional Shares
EquiServe will act as exchange agent in the merger and will exchange
your American Tax share certificates for CharterMac common share certificates.
Promptly following the merger, CharterMac will cause EquiServe to mail
to each American Tax shareholder who requested and possesses a certificate or
certificates which before the merger represented outstanding American Tax
shares, materials which will specify that EquiServe will only deliver CharterMac
common shares upon the delivery of the American Tax share certificates to
EquiServe. Instructions for use in surrendering the American Tax share
certificates in exchange for the CharterMac common shares will also be included.
After the merger, each American Tax shareholder holding American Tax share
certificates must surrender their certificates to EquiServe and in order to
receive the CharterMac common shares in the merger. The American Tax share
certificate surrendered must be transferable as EquiServe may reasonably
require. Neither CharterMac nor EquiServe will be liable to any former American
Tax shareholder for any amount properly delivered to a public official under
applicable abandoned property, escheat or similar laws.
Most American Tax shareholders never requested certificates
representing their American Tax shares. If you never requested a certificate and
you do not possess a certificate for your American Tax shares, then you do not
have to surrender any certificate to obtain your CharterMac common shares.
Each American Tax shareholder who would otherwise have been entitled to
receive a fraction of a share of CharterMac common shares will receive one
CharterMac common share for each fractional share of 0.5 or greater. No
CharterMac common shares will be issued for fractional shares of less than 0.5
and no cash will be paid for such fractional share.
American Tax share certificates should not be returned with the
enclosed consent and should not be forwarded to EquiServe unless and until the
American Tax shareholder receives a letter from EquiServe following the merger
which explains how you are to surrender your share certificates.
For those of you who hold American Tax share certificates, until the
American Tax share certificates are surrendered after the merger, holders of
American Tax share certificates will earn but will not be paid dividends or
other
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<PAGE>
distributions declared after the merger on CharterMac common shares into which
their shares have been converted. When the American Tax share certificates are
surrendered, any unpaid dividends or other distributions will be paid, without
interest. After the merger, there will be no transfers on the share transfer
books of American Tax of American Tax shares outstanding immediately before the
merger. If the American Tax share certificates are presented after the merger,
they will be canceled and exchanged for the a certificate representing the
applicable CharterMac common shares.
If an American Tax share certificate has been lost, stolen or
destroyed, EquiServe will issue the CharterMac common shares after they receive
appropriate evidence as to its loss, theft or destruction and appropriate
evidence as to its ownership by the claimant. EquiServe may require an American
Tax shareholder who lost his or her American Tax share certificate to post bond
as insurance against any claim that may be made against CharterMac with respect
to the certificate.
CharterMac shareholders will not be required to exchange certificates
representing their CharterMac common shares or otherwise take any action as a
result of the completion of the merger.
Time of the Merger
The merger will become effective on the date and at the time the
certificate of merger reflecting the merger becomes effective with the Secretary
of State of the State of Delaware.
Waiver of Deferred and Unpaid Fees
Related AMI agreed to waive at the effective time of the merger, all
deferred and unpaid fees, reimbursements and expenses owed to Related AMI by
American Tax through June 30, 1999. However, if the merger is consummated,
Related Charter will be paid an acquisition fee by CharterMac in the amount of
$475,500 in connection with CharterMac's acquisition of the first mortgage bonds
from American Tax as part of the merger. Since American Tax shareholders will
own 9.3% CharterMac's shares following the merger, American Tax shareholders
will, in effect, be paying 9.3% of this $475,500 fee which equals $44,200 due to
Related Charter.
Representations and Warranties
The merger agreement contains representations and warranties of
CharterMac, CM Holding, American Tax and Related AMI as to:
o the corporate organization and existence of each party
and its subsidiaries; and
o the undertaking of all action necessary such that the
performance and completion of the merger agreement will
not result in any impairment or restriction on or of
the rights of CharterMac or American Tax shareholders.
Because Related AMI and Related Charter are affiliated companies,
CharterMac did not require American Tax to make any substantive representations
and warranties with respect to American Tax's assets or otherwise.
Conditions to Completion of the Merger
Each party's obligation to complete the merger is subject to the
satisfaction or waiver, where permissible under the merger agreement, of the
following conditions at or prior to the time of the merger:
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<PAGE>
Shareholder Approval. American Tax shareholders will have approved the
merger agreement and the amendments to the American Tax trust agreement, and the
consummation of the transactions contemplated by the merger agreement.
No Injunctions or Restraints. No statute, rule, regulation, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court or other legal restraint or prohibition preventing the consummation of
the merger will be in effect.
Registration Statement. A registration statement on Form S-4 under the
Securities Act will have been declared effective by the Securities and Exchange
Commission, no stop orders suspending the effectiveness of the registration
statement will have been issued, no action, suit, proceeding or investigation by
the Securities and Exchange Commission to suspend the effectiveness thereof will
have been initiated and be continuing, and all necessary approvals under state
securities laws, or the Securities Act or Exchange Act relating to the issuance
or trading of the shares of CharterMac common shares issuable under the merger
will have been received.
Exchange Listing. The CharterMac common shares to be issued in the
merger will have been approved for listing on the American Stock Exchange.
Representations. The representations and warranties of CharterMac, CM
Holding and American Tax will be true and correct as of the date of the merger
agreement and as of the merger as though made at the time of the merger.
Performance of Obligations. CharterMac, CM Holding, American Tax and
Related AMI will have performed all obligations required to be performed by them
under the merger agreement at or prior to the time of the merger.
Certificates. CharterMac and American Tax will have delivered to the
other certificates regarding:
o satisfaction of the conditions related to the accuracy
of the representations and warranties of each party;
and
o the performance of agreements and covenants under the
merger agreement.
No Material Adverse Effect. From and after the date of the merger
agreement, there will have been no changes or events which, individually or in
the aggregate, have had or reasonably would be expected to have a material
adverse effect on the business, financial condition or results of operations of
CharterMac or American Tax.
Fairness opinion. American Tax will have received from McDonald
Investments, a letter to the effect that, in the opinion of such firm, the
consideration to be received by American Tax shareholders in connection with the
merger is fair, from a financial point of view, to such shareholders. CharterMac
will have received from Legg Mason, a letter to the effect that, in the opinion
of such firm, the consideration to be paid to the American Tax shareholders in
connection with the merger is fair, from a financial point of view, to
CharterMac.
Appraisal. American Tax will have received an appraisal from Cushman &
Wakefield and a valuation from McDonald Investments as to the value of the
properties underlying American Tax's bonds and the value of American Tax's net
assets, respectively.
Amendment to American Tax's trust agreement. Immediately prior to the
effective time of the merger, American Tax will have amended its trust agreement
to delete Sections 23.2, 23.3(a) through (d) and 15.4.9.
Solicitation
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American Tax may not solicit or encourage, including by way of
furnishing information, the initiation of any inquiries or proposals regarding
any merger, amalgamation, take-over bid, reorganization, sale of substantial
assets, sale of American Tax shares or similar transaction involving American
Tax. However, the board of directors of Related AMI, in its capacity as American
Tax's manager, after consultation with its financial advisors, and after
receiving advice from outside counsel to the effect that the board of directors
of Related AMI is required to do so in order to discharge properly its fiduciary
duties, is not precluded from considering, negotiating, approving and
recommending to the holders of American Tax shares an unsolicited bona fide
acquisition proposal which the Board of Directors of Related AMI, in its
capacity as American Tax's manager, determines in good faith would result in a
transaction more favorable to the holders of American Tax shares than the merger
transaction with CharterMac.
American Tax must immediately notify CharterMac after receipt of any
acquisition proposal or any request for nonpublic information relating to
American Tax in connection with an acquisition proposal or for access to the
properties, books or records of American Tax by any person or entity that
informs the board of directors of Related AMI that it is considering making, or
has made, an acquisition proposal.
If the board of directors of Related AMI, in its capacity as American
Tax's manager, receives a request for material nonpublic information by a person
who makes a bona fide acquisition proposal and the board of directors of Related
AMI, in its capacity as American Tax's manager, determines that such proposal is
a proposal superior to the merger, then, and only in such case, American Tax
may, subject to the execution of a confidentiality agreement, provide such party
with access to information regarding American Tax.
Termination of the Merger Agreement
The merger agreement may be terminated and the merger abandoned at any
time prior to the time of the merger without American Tax or CharterMac having
to pay a break-up or termination fee:
o upon mutual written consent of CharterMac and American
Tax;
o if the shareholders of American Tax fail to adopt or
approve the merger agreement and the transactions
contemplated thereby;
o if any law prohibits or restricts the merger;
o if the other party fails to comply in any material
respect with any of the covenants and agreements
contained in the merger agreement, and the failure
continues for 30 days, or a representation or warranty
of the other party contained in the merger agreement is
untrue in any material respect;
o if any of the conditions to the merger have become
incapable of being fulfilled and have not been waived;
o if, during the 30 consecutive trading days ending with
and including the trading date that is one trading day
immediately preceding the closing date of the merger,
the average closing price of the CharterMac common
shares, as reported on the American Stock Exchange, is
less than $11.18 or greater than $14.50;
o by American Tax, if the board of directors of Related
AMI withdraws or modifies its approval or
recommendation of the merger because it approves a more
favorable transaction.
Extension, Waiver and Amendment of the Merger Agreement
Extension and Waiver. At any time prior to the merger, CharterMac and
American Tax may:
o extend the time for the performance of any of the
obligations or other acts of the other party;
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o waive any inaccuracies in the representations and
warranties contained in the merger agreement or in any
document delivered under the merger agreement; and
o waive compliance with any of the agreements or
conditions contained in the merger agreement that are
permitted to be waived.
Amendment. The merger agreement may be amended or provisions of the
merger agreement may be waived by CharterMac and American Tax at any time prior
to the effective time of the merger. However, American Tax may not do so after
shareholder approval of the merger, if the amendment or waiver materially
reduces or changes the merger consideration that will be received by American
Tax, unless American Tax's shareholders approve such amendment or waiver. For
example, a material decline in the amount per unit that American Tax
shareholders will receive or a material decrease in the value of American Tax's
assets, or a material decrease in the value of CharterMac's assets, would
necessitate resolicitation of the approval of the American Tax shareholders. As
of the date of this consent statement-prospectus, CharterMac and American Tax do
not intend to waive any of the conditions to completion of the merger.
Expenses
If the merger agreement is terminated because the American Tax
shareholders do not approve the merger and the amendments to American Tax's
trust agreement, CharterMac will pay its own fees and expenses and Related AMI,
or one of its affiliates, will pay all fees and expenses incurred by American
Tax. If the merger agreement is terminated for any reason other than the failure
of the American Tax shareholders to approve the merger and the amendments to
American Tax's trust agreement, CharterMac and American Tax will pay their own
fees and expenses. If the merger is completed, CharterMac and American Tax will
pay their own fees and expenses.
Accounting Treatment
The merger will be treated as a purchase of American Tax by CharterMac
for accounting purposes.
Stock Exchange Listing
CharterMac has agreed to list the CharterMac common shares to be issued
in the merger on the American Stock Exchange.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences of the merger. This summary discusses only the United States
federal income tax rules of general application, and may not be applicable to
every investor, or every category of investors, some of which may be subject to
special rules in light of their own particular circumstances, including personal
holding companies, financial institutions and dealers in securities. This
summary does not address alternative minimum taxes or state, local or foreign
taxes. You should consult with your own tax adviser as to the specific
consequences to you, including the application and effect of state, local or
foreign tax laws.
This summary applies only to an investor that is a "United States
person" for federal income tax purposes. A United States person is a person that
is:
o an individual citizen or resident of the United States
for United States federal income tax purposes;
o an estate or trust treated as a domestic estate or
trust for United States federal income tax purposes; or
o a corporation or partnership created or organized in or
under the laws of the United States, any state thereof
or the District of Columbia.
This summary is based upon the Internal Revenue Code, current and
proposed Treasury Regulations, administrative rulings and pronouncements and
court decisions in effect as of the date hereof, all of which may change at any
time, possibly with retroactive effect. These authorities are subject to various
interpretations. Therefore, it is possible that the federal income tax
consequences may differ from those described below.
In connection with the filing of the registration statement, Paul,
Hastings, Janofsky & Walker LLP has delivered an opinion, dated the date of the
registration statement, addressing the United States federal income tax
consequences of the merger. Such opinion has been rendered on the basis of the
facts, representations and assumptions set forth or referred to in the opinion
and in reliance upon factual representations contained in certificates of
officers of CharterMac and American Tax. The opinion is to the effect that, for
United States federal income tax purposes, any gain, but not any loss, realized
by the American Tax shareholders as a result of the exchange of American Tax
shares for CharterMac common shares pursuant to the merger, will be recognized,
with the gain generally constituting capital gain if the American Tax
shareholders held their American Tax shares as a capital asset.
Paul, Hastings, Janofsky & Walker LLP is expected to confirm such
opinion in writing as of the date of the merger. The tax opinion delivered or to
be confirmed is not binding on the Internal Revenue Service or courts of law.
The parties do not intend to request a ruling from the IRS with respect to the
merger.
The Merger
General. The American Tax shareholders are expected to recognize
taxable income in an amount equal to any gain realized on the merger, but will
not recognize the benefit of any tax loss realized on the merger.
Discussion. CM Holding Trust is a wholly owned unincorporated
subsidiary of CharterMac and is disregarded as a separate entity for federal
income tax purposes. Accordingly, the merger of American Tax into CM Holding
Trust is expected to be treated, for federal income tax purposes, as a transfer
by the American Tax shareholders of their shares in American Tax in return for
shares of CharterMac. Both American Tax and CharterMac are treated as
partnerships for federal income tax purposes. The Code provides the general rule
that no gain or loss will be recognized to a partnership or to any of its
partners in the case of a contribution of property to the partnership in
exchange for an interest in the partnership. The Code, however, provides an
exception to this nonrecognition rule in the case of a transfer of
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property to a partnership which would be treated, for tax purposes, as an
investment company if the partnership were incorporated.
A transfer of property to a partnership will be considered, for tax
purposes, to be a transfer to an investment company if:
o the transfer results, directly or indirectly, in
diversification of the seller's interests, and
o more than 80% of the value of the partnership's assets
is held for investment and consists of the following
types of investment company assets:
1. money;
2. stocks and other equity interests in a corporation,
evidences of indebtedness, options, forward or futures
contracts, notional principal contracts and
derivatives;
3. any foreign currency;
4. any interest in a real estate investment trust, a
common trust fund, a regulated investment company, a
publicly traded partnership or any other equity
interest, other than in a corporation, which pursuant
to its terms or any other arrangement is readily
convertible into, or exchangeable for, any asset
described in clause 1, 2, 3, 4, 5 or clause 8 below;
5. any interest in a precious metal, unless such metal is
used or held in the active conduct of a trade or
business after the contribution;
6. interests in any entity if substantially all of the
assets of such entity consist of any assets described
in any preceding clause or clause 8;
7. any interest in any entity not described in clause 6,
but only to the extent of the value of such interest
that is attributable to assets listed in clauses 1
through 5 or clause 8; or
8. any other asset specified in Treasury Regulations to be
prescribed.
For purposes of clause 6, until Treasury Regulations are issued,
"substantially all" is defined as 90% or more, by value, of an entity's total
assets. For purposes of clause 7, an interest in an entity 20% or more, but less
than 90%, of the assets of which consist of investment company assets will
itself be treated as an investment company asset to the extent that the value of
such interest is attributable to the lower-tier entity's investment company
assets.
A transfer ordinarily results in the diversification of the seller's
interests if two or more persons sell nonidentical assets in the exchange unless
the assets are an insignificant portion of the total value of the sold
properties, or if a transfer is part of a plan to achieve diversification
without recognition of gain. A transfer of stocks and securities will not be
treated as resulting in a diversification of the seller's interests if each
seller sells a diversified portfolio of stocks and securities. A portfolio of
stocks and securities is diversified if not more than 25% of the value of the
portfolio is invested in the stock and securities of any one issuer and not more
than 50% of the value of the portfolio is invested in the stock and securities
of 5 or fewer issuers. For purposes of the 25% and 50% tests government
securities are included in the denominator but not the numerator of the tests.
The transfer of all of the shares of American Tax to CharterMac by the
American Tax shareholders in exchange for CharterMac common shares will result
in diversification of the American Tax shareholders' interests under the
Treasury Regulations and, for these purposes, CharterMac will be classified, for
tax purposes, as an "investment
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company" immediately following the merger. Therefore, the American Tax
shareholders will recognize any gain, but not any loss, realized upon the
contribution of their shares to CharterMac.
The American Tax shareholders' gain or loss on the transfer of each of
their shares to CharterMac is calculated as the value of the interest
attributable to the American Tax shares, which will be the closing price of the
CharterMac common shares as of the closing date of the merger multiplied by the
number of CharterMac common shares received in the merger, over the American Tax
shareholders' adjusted basis in their American Tax shares. In other words, your
tax liability with respect to the gain will be the difference between the value
of the CharterMac common shares you will receive at the closing of the merger
over your adjusted basis in your exchanged American Tax shares.
Related AMI presents the following example to assist American Tax
shareholders estimate possible federal income tax consequences of the merger.
Shareholders should consult their own tax advisor to determine their specific
tax consequences.
The example assumes that American Tax shares were acquired in the
initial offering at $20 per share. The example also assumes that the tax basis
has been adjusted for all reported income allocations and cash distributions
through March 31, 2000. The example further assumes that the tax basis has been
adjusted for $766,747 of fees and other payables due to Related AMI through June
30, 1999 that will be waived by Related AMI upon completion of the merger. The
estimated fair market value is calculated based upon the number of CharterMac
common shares to be received in the merger for each American Tax share, 1.43112,
multiplied by the closing CharterMac common share price, assumed for purposes of
this example to be the June 30, 1999 price of $12.8125. However, as noted above,
each American Tax shareholder's tax liability with respect to any gain on the
merger will be determined based upon the difference between the value, at the
date of the merger, of the CharterMac common shares received over the tax basis,
at the date of the merger, of the American Tax shares surrendered.
Estimated per share fair market value (as of 6/30/99): $18.34
Estimated per share tax basis (as of 3/31/00): $18.23
Estimated per share gain: $ 0.11
The character of the American Tax shareholders' gain or loss, if any,
should be capital in nature. Whether any such capital gain or loss will be long
term or short term is determined by the American Tax shareholders' holding
period in the American Tax shares transferred to CharterMac.
The American Tax shareholders' basis in their CharterMac common shares
received upon the merger will be equal to the American Tax shareholders'
adjusted basis in their American Tax shares transferred to CharterMac plus any
gain recognized by the American Tax shareholders on the merger.
The American Tax shareholders' holding period in the CharterMac common
shares may be split depending on whether or not gain or loss was realized on the
merger. To the extent the American Tax shareholders recognized any gain on the
merger, the CharterMac common shares received by the American Tax shareholders
will have a new holding period beginning on the date of closing. If the American
Tax shareholders realize loss on the merger, although the loss is not
recognized, the American Tax shareholders should be able to tack the holding
period for its shares onto the CharterMac common shares received by the American
Tax shareholders.
The Waiver
Upon completion of the merger of American Tax's assets and liabilities
to CharterMac, Related AMI will waive payment of fees and other payables
currently due to Related AMI from American Tax through June 30, 1999. Upon the
waiver of these fees, American Tax will recognize income in an amount equal to
any portion of the payment due Related AMI from American Tax that has previously
been deducted for income tax purposes. This is not expected to
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cause American Tax to recognize a significant amount of taxable income, because
the tax-exempt nature of most of American Tax's income prevents most of the fees
due to Related AMI and other expenses from being deductible.
Merger Expenses
If the merger agreement is terminated because the American Tax
shareholders do not approve the merger and the amendments to American Tax's
trust agreement, Related AMI or one of its affiliates will pay all fees and
expenses relating to the merger incurred by American Tax. Upon the payment of
these fees and expenses, American Tax will recognize income in an amount equal
to the amount equal to its fees and expenses paid by that third party. As
American Tax is taxed as a partnership for federal income tax purposes, each
American Tax shareholder will be responsible for its pro rata share of the tax
due from the payment of American Tax's merger expenses by a third party.
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INFORMATION ABOUT CHARTERMAC
CharterMac is an open ended, infinite life Delaware business trust that
invests in tax-exempt, participating and non-participating first mortgage bonds
issued by various state or local governments or other agencies or authorities. A
participating first mortgage bond enables the Owner of the bond to receive a
participation in net cash flow from the property after property operating
expenses and debt service has been paid. Non-participating bonds enables the
Owner to receive only a fixed interest rate payment.
History of CharterMac
CharterMac began operations on October 1, 1997. CharterMac was formed
as a result of a consolidation of three publicly registered, finite life, closed
end limited partnerships, Summit Tax Exempt Bond Fund, L.P., Summit Tax Exempt
Bond Fund L.P. II and Summit Tax Exempt Bond Fund, L.P. III. The consolidated
partnerships owned a portfolio of 31 participating tax-exempt bonds with an
aggregate principal amount of $348 million. Pursuant to the consolidation,
CharterMac issued common shares to each of the partners in the three
partnerships in exchange for their partnership interest.
Management
CharterMac is governed by a five-member board of trustees, two of which
are independent trustees and three of which are employees of affiliates of
Related Charter. CharterMac's board of trustees delegates day to day management
to its manager, Related Charter. Related Charter provides services to CharterMac
such as acquisitions, portfolio management, loan servicing and administration
pursuant to a four- year non-terminable management contract. CharterMac has no
employees.
Business Plan
CharterMac is in the business of investing in tax-exempt first mortgage
bonds secured by first mortgages on underlying multifamily properties. Each of
the bonds in CharterMac's current portfolio is secured by a first mortgage on an
affordable housing multifamily property. CharterMac has focused its efforts
primarily on affordable housing because Related Charter believes that there is a
demand for affordable housing in the marketplace. According to the United States
Department of Housing and Urban Development, 5.3 million households, one out of
every four renters in the United States, is in need of affordable housing.
CharterMac has designed a direct purchase program for developers of
affordable housing. In general, these properties are smaller than traditional
multifamily housing properties, averaging 150 units. The traditional method of
financing tax-exempt properties requires the involvement of credit enhancement,
rating agencies and investment bankers. Therefore, the up-front cost of such
financing is generally much higher than traditional multifamily financing.
Through its direct purchase program, CharterMac will originate and acquire
tax-exempt bonds without the cost associated with credit enhancement, rating
agencies and investment bankers. CharterMac believes that the up-front cost
savings to the developer will translate into a higher than market interest rate
on the bonds acquired by CharterMac.
CharterMac believes that it is well positioned to market its direct
purchase program as a result of Related Charter's affiliation with Related.
Related Charter is a single purpose affiliate of Related which is owned by the
same individuals and entities which own Related. Related Charter benefits from
its affiliation with Related because Related Charter is able to utilize
Related's resources and relationships in the multifamily affordable housing
finance industry. Related and its predecessor companies have specialized in
offering debt and equity products to mid-market multifamily owners and
developers for over 25 years. Related has provided debt and equity financing to
properties valued at over $9.0 billion. According to the a 1999 National
Multihousing Council survey, Related is the third largest owner of apartments in
the United States.
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CharterMac's Portfolio
As of September 30, 1999, CharterMac has direct or indirect ownership
interest in 67 first mortgage bonds secured by first mortgages on 67 properties
located in 16 states and the District of Columbia.
The underlying properties securing the bonds are garden apartments
located in nineteen metropolitan markets in sixteen states and the District of
Columbia. The properties range in size from 70 units to 550 units with an
average size of 231 units. Eighteen of the underlying properties range in age
from one to four years, twenty-four of the underlying properties range in age
from ten to fourteen years old, two properties are over fifteen years old and
sixteen underlying properties are over ten years old and are undergoing major
rehabilitation. All of the properties have an amenity package, competitive for
their respective markets, with many including swimming pools, clubhouse,
exercise rooms and tennis courts. There are 36 first mortgage bonds, which were
acquired after CharterMac's initial formation in October 1997. Of those 36 first
mortgage bonds, construction of five of the underlying properties has been
completed and the rest of the underlying properties are either under
construction or undergoing major rehabilitation. The remaining 31 properties in
the portfolio average 9-13 years in age. The portfolio reports an average
occupancy of 94.1% as of September 30, 1999. Net operating income, in the
aggregate, at the underlying properties securing bonds owned by CharterMac and
its predecessors has increased an average of approximately 3% per annum since
1992.
Further information about CharterMac's policies with respect to
CharterMac's ability to issue securities and borrow money, its investment
policies and the tax treatment of CharterMac and its shareholders can be found
in CharterMac's Registration Statement on Form 10, filed on August 1, 1997, and
subsequently amended on September 23, 1997. For a further description of the
underlying properties which secure CharterMac's real estate investments and
operating data with respect to such underlying properties, please see
CharterMac's Annual Report on Form 10-K/A-1 for the year ended December 31, 1999
(SEC File No. 0-28340), which is incorporated by reference into this consent
statement-prospectus and has been included in the materials sent to you with
this consent statement- prospectus.
Policies
CharterMac has the following investment policies which allow it to:
o incur debt up to but not exceeding 50% of its total
market value.
o repurchase or otherwise reacquire shares or any other
securities. As of December 31, 1999, pursuant to
CharterMac's previously amended share repurchase
program, CharterMac has repurchased 8,400 shares for a
total purchase price of $103,359.
o offer its shares or other equity or debt securities in
exchange for assets
o enter into joint ventures and make loans to such joint
ventures in which it may participate in the future.
o invest up to 15% of its total market value in first
mortgage bonds in which affiliates of Related Charter
have a controlling interest.
o invest up to 15% of its total market value in first
mortgage bonds in which Related Charter hold a minority
interest.
o operate its business in a manner that will not require
it to register under the Investment Company Act of
1940.
Although CharterMac's board of trustees has no present intention of
amending any of the above mentioned policies, they may do so at any time without
the vote of CharterMac shareholders, except with respect to (1) the debt
limitation of 50% of total market value, (2) the minority position limitation of
15% of total market value, and (3) the limitation of 15% of total market value
on investments secured by underlying properties owned by affiliates of Related
Charter LP.
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Structure of CharterMac
The following diagram depicts the structure of CharterMac and its
subsidiaries, each of which is a pass-through entity which means, unlike a
corporation, it does not pay income tax. Instead, only the owners of such entity
pay income taxes. CharterMac's multi-tiered structure arose as a result of
various programs used to raise capital for CharterMac to grow its portfolio
through the acquisition of additional first mortgage bonds and other related
investments. If the merger is approved American Tax will be merged into CM
Holding Trust.
[GRAPHIC OMITTED]
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Managing Trustees And Executive Officers
The CharterMac board of trustees directs the management of the business
and affairs of CharterMac, but retains Related Charter to manage CharterMac's
day-to-day affairs. The CharterMac board of trustees delegates to Related
Charter responsibilities with respect to, among other things, overseeing the
portfolio of assets of CharterMac and the acquisition or disposition of
investments.
The managing trustees and executive officers of CharterMac are as
follows:
<TABLE>
<CAPTION>
Year First Became
Name Age Office Held Officer/Trustee Term Expires
------------------------ ----------- ------------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Stephen M. Ross 59 Chairman 1999 2003
Peter T. Allen 53 Managing Trustee 1997 2001
Arthur P. Fisch 57 Managing Trustee 1997 2001
Stuart J. Boesky 43 Managing Trustee, President 1997 2003
and Chief Executive Officer
Alan P. Hirmes 44 Managing Trustee, Executive 1997 2002
Vice President, Secretary,
Interim Chief Financial
Officer and Chief
Accounting Officer
Michael B. Brenner 54 Managing Trustee 2000 2001
Thomas White 63 Managing Trustee 2000 2002
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stephen M. Ross is the Chairman of the Board of Trustees and is a
Member of the sole general partner of Related Charter. Mr. Ross is the founder,
Chairman, CEO and Managing General Partner of The Related Companies, L.P. Mr.
Ross began his career working for the accounting firm of Coopers & Lybrand in
Detroit as a tax attorney. Later, he moved to New York, where he worked for two
large Wall Street investment banking firms in their real estate and corporate
finance departments before founding The Related Companies, L.P. in 1972. Mr.
Ross graduated from the University of Michigan School of Business Administration
with a Bachelor of Science degree and from Wayne State School of Law with a
Juris Doctor degree. He then received a Master of Law degree in Taxation from
New York University School of Law. Mr. Ross recently endowed the Stephen M. Ross
Professor of Real Estate at the University of Michigan.
Stuart J. Boesky is a Managing Trustee and the President and Chief
Executive Officer CharterMac and is the President, the Chief Executive Officer
and a Member of the sole general partner of Related Charter. Mr. Boesky
practiced real estate and tax law in New York City with the law firm of Shipley
& Rothstein from 1984 until February 1986 when he joined The Related Companies,
L.P. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of
Kaye, Fialkow, Richmond & Rothstein and from 1978 to 1980 was a consultant
specializing in real estate at the accounting firm of Laventhol & Horwath. Mr.
Boesky is the sole shareholder of one of the general partners of The Related
Companies, L.P.. Mr. Boesky graduated from Michigan State University with a
Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor
degree. He then received a Master of Laws degree in Taxation from Boston
University School of Law. Mr. Boesky also serves on the Board of Directors of
Aegis.
Alan P. Hirmes is a Managing Trustee, the Executive Vice President, and
Interim Chief Financial Officer and Chief Accounting Officer, Secretary of
CharterMac and is a Senior Vice President and a Member of the sole general
partner of Related Charter. Mr. Hirmes has been a Certified Public Accountant in
New York since 1978. Prior to joining The Related Companies, L.P. in October
1983, Mr. Hirmes was employed by Weiner & Co., certified public
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accountants. Mr. Hirmes is also the sole shareholder of one of the general
partners of The Related Companies, L.P.. Mr. Hirmes graduated from Hofstra
University with a Bachelor of Arts degree. Mr. Hirmes also serves on the Board
of Directors of Aegis.
Peter T. Allen is President of Peter Allen & Associates, Inc., a real
estate development and management firm, in which capacity he has been
responsible for the leasing, refinancing and development of major commercial
properties. Mr. Allen has also been an Adjunct Professor of the Graduate School
of Business at the University of Michigan since 1981. Mr. Allen received a
Bachelor of Arts Degree in history/economics from DePaul University and a
Masters Degree in Business Administration with Distinction from the University
of Michigan. Mr. Allen has been an Independent Trustee since 1997 and is a
member of the Audit and Compensation Committees. Mr. Allen also serves on the
Board of Directors of Aegis and on the Board of Trustees of American Mortgage
Acceptance Company.
Arthur P. Fisch is an attorney in private practice specializing in real
property and securities law since October 1987, with Arthur P. Fisch, P.C. and
Fisch & Kaufman. From 1975-1987, Mr. Fisch was employed by E.F. Hutton &
Company, serving as First Vice President in the Direct Investment Department
from 1981-1987 and associate general counsel from 1975-1980 in the legal
department. As First Vice President, he was responsible for the syndication and
acquisition of residential real estate. Mr. Fisch received a B.B.A. from Bernard
Baruch College of the City University of New York and a Juris Doctor degree from
New York Law School. Mr. Fisch is admitted to practice law in New York and
Pennsylvania. Mr. Fisch has been an Independent Trustee since 1997 and is a
member of the Audit and Compensation Committees. Mr. Fisch also serves on the
Board of Directors of Aegis and the Board of Trustees of American Mortgage
Acceptance Company.
Michael B. Brenner is a Director of Related AMI Associates, Inc. Mr.
Brenner is the Executive Vice President and Chief Financial Officer of The
Related Companies, L.P. Prior to joining Related in 1996, Mr. Brenner was a
partner with Coopers & Lybrand, having served as managing partner of its
Industry Programs and Client Satisfaction initiatives from 1993-1996, managing
partner of the Detroit group of offices from 1986-1993 and Chairman of its
National Real Estate Industry Group from 1984- 1986. Mr. Brenner graduated summa
cum laude from the University of Detroit with a Bachelors degree in Business
Administration and from the University of Michigan with a Masters of Business
Administration, with distinction.
Thomas White, was a Senior Vice President of Fannie Mae in the
multifamily activities department, where he was responsible for the development
and implementation of policies and procedures for all Fannie Mae multifamily
programs including the delegated underwriting and servicing program, prior
approval program and negotiated swap and negotiated cash purchases product
lines. He was also responsible for asset management of multifamily loans in
portfolio or Mortgage-Backed Securities. Mr. White joined Fannie Mae in November
1987 as director of multifamily product management. He was elected Vice
President for multifamily asset acquisition in November of 1988 and became a
Senior Vice President in November 1990. Prior to joining Fannie Mae, he served
as an investment banker with Bear Stearns, Inc. He also was the executive vice
president of the National Council of State Housing Agencies; chief underwriter
for Michigan State Housing Development Authority, and served as a state
legislator in the of Michigan.
Newly Appointed Chief Financial Officer and Chief Accounting Officer
Michael I. Wirth, age 42, has been elected to the positions of Chief
Financial Officer and Chief Accounting Officer of CharterMac, as well as to the
positions of Senior Vice President and Chief Financial Officer of the general
partner of Related Charter L.P., effective August 16, 2000. Mr. Wirth was
formerly a Vice President in the Real Estate Group at CGA Investment Management
where he was responsible for the underwriting, investment and management of all
commercial real estate debt investments made by the company. Prior to CGA, Mr.
Wirth spent 4 years as a senior manager at Deloitte & Touche in the Realty
Consulting Group and Technology Solutions practice and 5 years as a senior
manager and national director to the financial services industry at the Roulac
Group of Deloitte & Touche. Mr. Wirth received a Bachelors in Business
Administration from Georgia State University. He has been a Certified Public
Accountant since 1982.
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Statutory Trustee
Wilmington Trust Company, a Delaware banking corporation, acts as
CharterMac's statutory trustee.
Wilmington Trust Company has been appointed as trustee for the sole and
limited purpose of fulfilling the requirements of Delaware law, which require
all Delaware business trusts to appoint a trustee with a principal place of
business in, or who is a resident of, the State of Delaware. Wilmington Trust
Company has no other authority, duties or liabilities and does not monitor the
conduct of the CharterMac board of trustees or Related Charter.
Duties of Wilmington Trust Company: Pursuant to the CharterMac trust
agreement, Wilmington Trust Company provides only the following duties:
o executing, delivering, acknowledging and filing any
certificates of trust and any amendments required to be
filed under any applicable law;
o executing any share certificates representing shares
issued to shareholders;
o executing any duly adopted amendments to the CharterMac
trust agreement; and
o executing, delivering, acknowledging and filing any
certificates of cancellation required to be filed
pursuant to applicable law.
Committees of the CharterMac Board of Trustees
The CharterMac board of trustees has standing Audit and Compensation
Committees. The Audit Committee's duties include the review and oversight of all
transactions with affiliates of CharterMac, the periodic review of CharterMac's
financial statements and meetings with CharterMac's independent auditors. The
Audit Committee is comprised of Messrs. Allen, Fisch and Boesky.
The Compensation Committee's duties include the determination of
compensation, if any, of CharterMac's executive officers and of Related Charter
and the administration of CharterMac's option plan. The Compensation Committee
is comprised of Messrs. Allen and Fisch. The Compensation Committee must have at
least two members, each of which must be independent trustees.
Beneficial Ownership of CharterMac common shares
The information in the following table is furnished as of August 1,
2000, and shows all persons who are known to CharterMac to be the beneficial
owner of 5% or more of any Class of CharterMac's shares. The table also shows
the ownership of CharterMac common shares by its directors, officers and all of
its officers and directors as a group. As of March 31, 2000, there were
20,582,628 CharterMac common shares outstanding.
Amount of
---------
Names and Addresses Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
Stephen M. Ross
625 Madison Avenue
New York, New York 10022 208,262(1) 1.01%
Alan P. Hirmes
625 Madison Avenue
New York, New York 10022 23,447(1) *
Stuart J. Boesky
625 Madison Avenue
New York, New York 10022 31,403(1) *
Peter T. Allen
625 Madison Avenue
New York, New York 10022 1,776
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Amount of
---------
Names and Addresses Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
Arthur P. Fisch
625 Madison Avenue
New York, New York 10022 1,776 *
Michael B. Brenner
625 Madison Avenue
New York, New York 10022 0 -
Thomas White
625 Madison Avenue
New York, New York 10022 0 -
All officers and trustees of CharterMac
as a group (7 persons) 266,414(1)(2) 1.30%
-------------
* Less than 1% of CharterMac common shares.
(1) 11 of these CharterMac common shares are owned by Related Charter,
which is owned directly and indirectly by Messrs. Ross, Hirmes and
Boesky.
Related Charter
The directors and executive officers of Related Charter, LLC, the sole
general partner of Related Charter, are set forth below. Each director is
elected to hold office until the 2000 annual meeting of shareholders, and until
his successor is duly elected and qualified. These officers of the sole general
partner of Related Charter may also provide services to CharterMac on behalf of
Related Charter.
<TABLE>
<CAPTION>
Year First
Became
Name Age Office Held Officer/Trustee
--------------------- -------- ----------------------------------------------- ----------------
<S> <C> <C>
Stuart J. Boesky 42 Member, President and Chief Executive 1997
Officer
Alan P. Hirmes 44 Member, Senior Vice President, 1997
Treasurer, Interim Chief Financial
Officer and Interim Chief Accounting
Officer
Stephen M. Ross 59 Member 1997
James D. Spound 38 Senior Vice President 1998
Bruce H. Brown 45 Senior Vice President 1997
Mark J. Schlacter 48 Vice President 1997
Max E. Schlopy 62 Vice President 1998
Denise L. Kiley 39 Vice President 1997
Marc D. Schnitzer 38 Vice President 1997
John Sorel 39 Vice President 2000
Teresa Wicelinski 33 Secretary 1998
</TABLE>
Biographical information with respect to Messrs. Boesky Hirmes and Ross
is set forth above.
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James D. Spound is a Senior Vice President of the sole general partner
of Related Charter with primary responsibility for mortgage acquisitions. He
joined The Related Companies, L.P. from First Union Capital Markets, in February
1998, where he was a Vice President specializing in affordable housing finance.
From 1992 to 1996, Mr. Spound served as an investment banker in the Housing
Finance Department at Merrill Lynch & Co., where he was a Vice President at the
time of his departure. Since 1992, Mr. Spound has been responsible for the
structuring and execution of over $2.1 billion of Mortgage Revenue Bond
transactions encompassing a wide range of credit enhanced and non-credit
enhanced structures. Previously, Mr. Spound was also a Senior Consultant at
Kenneth Leventhal & Company where he focused on debt restructurings in the real
estate industry. In addition, he served for three years as a Project Manager at
New York City's Economic Development Corporation where he was responsible for
underwriting and administering incentive loans to support the City's economic
development goals. Mr. Spound received a Bachelor of Arts degree from Brown
University and a Masters of Science in Management from the Sloan School at MIT.
Bruce H. Brown is a Senior Vice President of the sole general partner
of Related Charter and The Related Companies, L.P. and is a director of The
Related Companies, L.P.'s Portfolio Management Group. He is responsible for
overseeing the administration of the firm's public registered debt and equity
affiliates encompassing the monitoring of the performance of each entity and
each investment. He is also responsible for The Related Companies, L.P.'s loan
servicing activities with respect to the firm's $600 million portfolio of tax
exempt first mortgage bonds and FNMA/GNMA insured and co-insured loan portfolio.
Prior to joining The Related Companies, L.P. in 1987, Mr. Brown was a real
estate lending officer at the United States Trust Company of New York and
previously held management positions in the hotel and resort industry with
Helmsley-Spear and Westin Hotels. Mr. Brown graduated from Colgate University
with a Bachelor of Arts degree.
Mark J. Schlacter is a Vice President of the sole general partner of
Related Charter. Mr. Schlacter is a Vice President of Retail acquisitions of The
Related Companies, L.P., and has been with The Related Companies, L.P. since
June 1989. Prior to joining The Related Companies, L.P., Mr. Schlacter garnered
16 years of direct real estate experience covering retail and residential
construction, single and multifamily mortgage origination and servicing,
commercial mortgage origination and servicing, property acquisition and
financing, and mortgage lending program underwriting and development. He was a
Vice President with Bankers Trust Company from 1986 to June 1989, and held prior
positions with Citibank, Anchor Savings Bank and the Pyramid Companies covering
the 1972-1986 period. Mr. Schlacter holds a Bachelor of Arts degree in Political
Science from Pennsylvania State University and periodically teaches multifamily
underwriting at the New York University School of Continuing Education, Real
Estate Institute.
Max E. Schlopy is a Vice President of the sole general partner of
Related Charter. An attorney, Mr. Schlopy practiced corporate and commercial
real estate law in Buffalo, New York for 20 years, where he was a partner with
the law firm of Duke, Holzman, Yeager and Schlopy. He served as Vice President -
General Counsel for Marc Equity Corporation, a diversified real estate
development company with operations in several states and later as a Vice
President of the general partner for the Summit Tax Exempt Bond Funds. More
recently, Mr. Schlopy was President of MK Industries, Inc., an Orlando,
Florida-based company involved in the research and development of high
technology military and biomedical products and processes. He presently
practices law and offers consulting services to the real estate industry from
his offices in Park City, Utah. Mr. Schlopy was educated at Cornell and San
Francisco State Universities, and received his Juris Doctor degree, cum laude,
from the School of Law, State University of New York at Buffalo.
Denise L. Kiley is a Vice President of the sole general partner of
Related Charter and is also a Managing Director for The Related Companies, L.P.
and is the Director of The Related Companies, L.P.'s underwriting and asset
management group. Ms. Kiley is responsible for overseeing the investment
underwriting and approval of all multifamily residential properties invested in
The Related Companies, L.P. sponsored corporate, public and private equity and
debt funds. Prior to joining The Related Companies, L.P. in 1990, Ms. Kiley had
experience acquiring, financing and managing the assets of multifamily
residential properties. From 1981 through 1985 she was an auditor with a
national accounting firm. Ms. Kiley holds a Bachelor of Science degree in
Accounting from Boston College and is a Member of the Affordable Housing
Roundtable.
Marc D. Schnitzer is a Vice President of the sole general partner of
Related Charter. Mr. Schnitzer is a Managing Director of The Related Companies,
L.P. and Director of The Related Companies, L.P.'s Tax Credit Acquisitions
Group. Mr. Schnitzer received a Master of Business Administration degree from
The Wharton School of The University of Pennsylvania in December 1987, and
joined The Related Companies, L.P. in January, 1988. From
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<PAGE>
1983 to 1986, Mr. Schnitzer was a Financial Analyst in the Fixed Income Research
Department of The First Boston Corporation in New York. Mr. Schnitzer received a
Bachelor of Science degree, summa cum laude, in Business Administration from the
School of Management at Boston University.
John Sorel is a Vice President of the sole general partner of the
Manager and is a Vice President of Related Capital. Mr. Sorel is responsible for
overseeing construction risk management for CharterMac. Prior to joining Related
Capital in November, 1999, Mr. Sorel was a vice president for BankBoston in
their real estate department from 1993-1999, where he originated and managed
over $150 million of corporate and construction loan facilities for the low
income housing tax credit industry. From 1991-1993, Mr. Sorel worked as an
Assistant Vice President for Recoll Management. Mr. Sorel holds a Bachelor of
Arts degree in Economics from Syracuse University.
Teresa Wicelinski is the Secretary of the sole general partner of
Related Charter. Ms. Wicelinski joined The Related Companies, L.P. in June 1992,
and prior to that date was employed by Friedman, Alprin & Green, certified
public accountants. Ms. Wicelinski graduated from Pace University with a
Bachelor of Arts Degree in Accounting.
Further information about the current CharterMac directors and
executive officers can be found in CharterMac's proxy statement, which is
incorporated by reference into CharterMac's Annual Report on Form 10-K/A for the
year ended December 31, 1999 (SEC File No. 1-13237), which is incorporated by
reference into this consent statement-prospectus.
Beneficial Ownership
Related Charter is a limited partnership whose general partner is
Related Charter L.L.C. Related Charter L.L.C., which is owned directly and
indirectly by Messrs. Ross, Hirmes and Boesky, holds a 1% general partnership
interest in Related Charter. The other limited partners of Related Charter
consist of Related Capital Company, which is owned directly and indirectly by
Messrs. Ross, Hirmes and Boesky. The address for Related Charter's general
partner and each of the limited partners is 625 Madison Avenue, New York, New
York 10022.
Certain Relationships and Related Transactions
CharterMac and Related Charter entered into a management agreement
pursuant to which Related Charter is obligated to use its best efforts to seek
out and present to CharterMac, whether through its own efforts or those of third
parties retained by it, suitable and a sufficient number of investment
opportunities which are consistent with the investment policies and objectives
of CharterMac and consistent with such investment programs as the CharterMac
board of trustees may adopt from time to time in conformity with CharterMac's
trust agreement. The managing trustees and executive officers of CharterMac own
100% of the partnership interests in Related Charter.
Duties of Related Charter: Although the CharterMac board of trustees
has continuing exclusive authority over the management of CharterMac, the
conduct of its affairs and the management and disposition of the CharterMac's
assets, the CharterMac board of trustees has initially delegated to Related
Charter, subject to the supervision and review of the CharterMac board of
trustees and consistent with the provisions of the CharterMac trust agreement,
the power and duty to:
o manage the day-to-day operations of CharterMac;
o acquire, retain or sell CharterMac's assets;
o seek out, present and recommend investment opportunities, and
negotiate on behalf of CharterMac with respect to potential
investments or the dispositions thereof;
o cause an affiliate to serve as the mortgagee of record for
mortgage investments and hold escrow on behalf of mortgagors in
connection with the servicing of mortgages;
o obtain for CharterMac such services as may be required in its
business;
o evaluate, structure and negotiate prepayments or sales of
CharterMac's mortgage investments and mortgage securities; and
o monitor operations and expenses of CharterMac.
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<PAGE>
The original term of the CharterMac management agreement will terminate
on October 1, 2001, the fourth anniversary of its effective date. Thereafter,
the CharterMac management agreement will be renewed annually by CharterMac,
subject to an evaluation of the performance of Related Charter by the CharterMac
board of trustees. The CharterMac management agreement may be terminated (1)
without cause by Related Charter or (2) for cause by a majority of the
independent trustees of CharterMac, each without penalty, and each upon 60 days'
prior written notice to the non-terminating party.
The CharterMac management agreement cannot be terminated by CharterMac
prior to October 1, 2001, other than for cause. Cause is defined as gross
negligence or willful misconduct of Related Charter. CharterMac cannot dissolve
and liquidate prior to such date except upon a recommendation of Related Charter
and the vote of a majority in interest of the CharterMac shareholders. After
October 1, 2001, the vote of the holders of 66-2/3% of CharterMac's then
outstanding shares and the recommendation of the CharterMac board of trustees is
required to approve a dissolution and liquidation of CharterMac that is not
recommended by Related Charter and the vote of a majority in interest of the
CharterMac shareholders and the recommendation of the CharterMac board of
trustees is required to approve a liquidation of CharterMac recommended by
Related Charter. If for any reason, whether prior to or after October 1, 2001,
the CharterMac management agreement is terminated in accordance with its terms,
CharterMac may dissolve and liquidate upon the vote of a majority in interest of
the CharterMac shareholders and the recommendation of the CharterMac board of
trustees.
It is anticipated that Related Charter will continue to retain
affiliates of Related to provide the services which it is required to provide to
CharterMac under the CharterMac management agreement.
Compensation, Reimbursements and Distributions to Related Charter
Pursuant to the CharterMac management agreement, Related Charter
receives:
o bond selection fees equal to 2.000% of the principal amount of
each first mortgage bond or other tax-exempt instrument acquired
or originated by CharterMac;
o special distributions equal to .375% of the total invested assets
of CharterMac;
o loan servicing fees equal to .250% of the outstanding principal
amount of first mortgage bonds;
o a liquidation fee equal to 1.500% of the gross sales price of
assets sold by CharterMac in connection with a liquidation of
CharterMac's assets;
o reimbursement of administrative costs incurred by Related Charter
and its affiliates on behalf of CharterMac in an amount not to
exceed $200,000 per year, which amount is subject to a CPI
increase; and
o incentive share options to acquire additional CharterMac common
shares but only if CharterMac's distributions in any year exceed a
set threshold.
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<PAGE>
The costs, expenses and the special distribution incurred to Related
Charter and its affiliates for the year ended December 31, 1999 and 1998 and the
three months ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
Bond Selection Fees $3,806,510 $2,351,932 $100,000
Expense Reimbursement 384,231 374,315 36,747
Loan Servicing Fees and 1,337,738 985,198 220,386
Management Fees
Special Distribution 2,018,822 1,477,797 330,580
------------- ------------ ------------
Total $7,547,301 $5,189,242 $687,713
============= ============ ============
</TABLE>
Description of CharterMac Subsidiary's Preferred Shares
June 1999 Offering. On June 29, 1999, CharterMac Equity Issuer Trust, a
subsidiary of CharterMac, completed a $90,000,000 tax exempt preferred equity
offering comprised of 45 preferred shares which were purchased by Merrill Lynch,
Legg Mason and McDonald Investments. Merrill Lynch, Legg Mason and McDonald
Investments then sold the Series A preferred shares to qualified institutional
investors.
The Series A preferred shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of
CharterMac Equity Issuer, senior to all classes or series of common shares of
CharterMac Equity Issuer.
The Series A preferred shares have an annual preferred dividend rate of
6 5/8% through June 30, 2009, payable quarterly in arrears on January 31, April
30, July 31 and October 31 of each year, commencing October 31, 1999 and payable
upon the declaration by CharterMac Equity Issuer's board of trustees, but only
to the extent of CharterMac Equity Issuer's tax-exempt income, net of expenses,
for the particular quarter. The Series A preferred shares are subject to
mandatory tender by their holders for remarketing and purchase on June 30, 2009
and each remarketing date thereafter at a price equal to the $2,000,000 per
Series A preferred share plus, to the extent of CharterMac Equity Issuer's
quarterly net income, an amount equal to all distributions accrued but unpaid on
the Series A preferred shares.
Holders of the Series A preferred shares may elect to retain their
Series A preferred shares upon a remarketing, with a distribution rate to be
determined immediately prior to the remarketing date by the remarketing agent.
Each holder of the Series A preferred shares will be required to tender its
Series A preferred shares to CharterMac Equity Issuer for mandatory repurchase
on June 30, 2049, unless CharterMac Equity Issuer decides to remarket the shares
on such date. CharterMac Equity Issuer may not redeem the Series A preferred
shares before June 30, 2009. After that date, all or a portion of the Series A
preferred shares may be redeemed. The Series A preferred shares are not
convertible into common shares of CharterMac Equity Issuer or CharterMac.
July 2000 Offering. On July 20, 1999, CharterMac Equity Issuer
completed a $79,000,000 tax exempt preferred equity offering comprised of 48
Series A-1 preferred shares and 110 Series B preferred shares which were
purchased by Merrill Lynch. Merrill Lynch then sold the Series A-1 and Series B
preferred shares to qualified institutional investors.
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<PAGE>
The Series A-1 and Series B preferred shares rank, with respect to
payment of distributions and amounts upon liquidation, dissolution or winding-up
of CharterMac Equity Issuer, senior to all classes or series of common shares of
CharterMac Equity Issuer.
The Series A-1 and Series B preferred shares have an annual preferred
dividend rate of 7.10% and 7.60%, respectively through June 30, 2009, and
November 30, respectively, payable quarterly in arrears on January 31, April 30,
July 31 and October 31 of each year, commencing October 31, 2000 and payable
upon the declaration by CharterMac Equity Issuer's board of trustees, but only
to the extent of CharterMac Equity Issuer's tax-exempt income, net of expenses,
for the particular quarter. The Series A-1 and Series B preferred shares are
subject to mandatory tender by their holders for remarketing and purchase on
June 30, 2009 and November 30, 2010, respectively, and each remarketing date
thereafter at a price equal to the $500,000 per Series A-1 and Series B
preferred share plus, to the extent of CharterMac Equity Issuer's quarterly net
income, an amount equal to all distributions accrued but unpaid on the Series
A-1 and Series B preferred shares.
Holders of the Series A-1 and Series B preferred shares may elect to
retain their Series A-1 and Series B preferred shares upon a remarketing, with a
distribution rate to be determined immediately prior to the remarketing date by
the remarketing agent. Each holder of the Series A-1 and Series B preferred
shares will be required to tender its Series A-1 and Series B preferred shares
to CharterMac Equity Issuer for mandatory repurchase on June 30, 2049 and
November 30, 2050,respectively, unless CharterMac Equity Issuer decides to
remarket the shares on such date. CharterMac Equity Issuer may not redeem the
Series A-1 and Series B preferred shares before June 30, 2009 and November 30,
2050, respectively. After that date, all or a portion of the Series A-1 and
Series B preferred shares may be redeemed. The Series A-1 and Series B preferred
shares are not convertible into common shares of CharterMac Equity Issuer or
CharterMac.
Ownership of Underlying Properties by Affiliates
From time to time, CharterMac, as an alternative to foreclosure in the
event of a default, enters into forbearance agreements and/or permanent
modifications with certain borrowers under the first mortgage bonds. The
determination as to whether it is in the best interest of CharterMac to enter
into permanent modifications or forbearance agreements on the first mortgage
bonds, advance second mortgages, or alternatively, to pursue its remedies under
the loan documents, including foreclosure, is based upon several factors. These
factors include, but are not limited to, underlying property performance, owner
cooperation and projected costs of foreclosure and litigation irrespective of
whether the obligor has an affiliation with Related Charter or not.
As of March 31, 2000, the obligors of thirty-four first mortgage bonds
are partnerships in which affiliates of Related Charter are partners that own a
controlling interest. In addition, the original owners of underlying properties
and the obligors of five first mortgage bonds have been replaced with affiliates
of Related Charter who have not made equity investments. These affiliated
entities could have interests which do not coincide with, or may be adverse to,
the interests of CharterMac and obligors who are affiliates may be affected by
these conflicts as Related Charter determines the appropriate terms and
conditions of modifications or otherwise opts for some other remedy, including
foreclosure.
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<PAGE>
INFORMATION ABOUT AMERICAN TAX
American Tax's Business
American Tax was formed on December 23, 1993 as a finite life, closed
end Delaware business trust for the purpose of investing in tax-exempt first
mortgage bonds issued by various state or local governments or their agencies or
authorities and secured by first mortgage loans on multifamily residential
apartment and retirement community projects. Related AMI, a Delaware corporation
is American Tax's manager. Related AMI manages the day to day affairs of
American Tax pursuant to the American Tax trust agreement. Wilmington Trust
Company, a Delaware banking corporation, acts as American Tax's trustee.
American Tax's principal investment objectives are to:
o preserve and protect American Tax's invested capital;
o provide quarterly distributions that are exempt from
Federal income taxation; and
o provide additional distributions in connection with
first mortgage bond investments from participating
interest payments exempt from Federal income taxation.
Description of American Tax's Investments
The following table sets forth, for each of American Tax's first
mortgage bonds, the outstanding amount, the due date, the year for which
prepayment is permitted, any delinquency information, and the lien rank which
American Tax has.
<TABLE>
<CAPTION>
Outstanding
Bond Bond Delinquency
Property Amount Maturity Prepayment Issues Lien Rank
--------------------- ------------------ -------------------------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Reflections $10,700,00 12/01/25 Permitted after None First lien
12/1/99
Rolling Ridge $4,925,000 08/01/26 Permitted after None First lien
8/1/00
Lexington $4,900,000 05/01/22 Permitted after None First lien
Trails 5/1/02
Highpointe $3,250,000 06/01/06 Not Permitted None Pari passu first
lien.1
</TABLE>
1 Pursuant to an Intercreditor Agreement, both American Tax and CharterMac
have a first mortgage security interest with respect to their bonds.
However, American Tax has a priority as to payment of interest on its
Highpointe Bonds, and a $750,000 priority on the payment of principal with
respect to proceeds from any foreclosure, liquidation, or other disposition
of, or realization upon, the property. That is, American Tax receives the
first $750,000 of net sales proceeds, then the principal of each of the
bonds will be repaid by an equal progression of payments until there are no
more proceeds.
Policies
American Tax has the following investment policies which allow it to:
o incur indebtedness to meet working capital requirements
or to take over the operation of a property on a
short-term basis of up to 24 months.
o to acquire by purchase, lease or otherwise, any real
property or personal property to be used in connection
with the business of the trust.
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<PAGE>
American Tax has the following investment policies which prohibit it
from:
o lending funds to any person or entity, including
Related AMI or its affiliates.
o investing in real estate contracts of sale, otherwise
known as land sale contracts, unless such contracts of
sale are in recordable form and are appropriately
recorded in the chain of title.
o underwriting securities of other issuers, offer
securities in exchange for property, or invest in
securities of other issuers, other than in temporary
investments and tax-exempt securities, or as
specifically permitted in the trust agreement, and
under no circumstances may American Tax invest in
securities of limited partnerships.
o engaging in any transactions which would result in the
receipt by Related AMI or any of its affiliates of any
undisclosed "rebate" or "give-up" or in any reciprocal
business arrangement which results in the circumvention
of the restrictions contained in the trust agreement
and in applicable state securities laws and regulations
upon dealings between American Tax and Related AMI and
its affiliate.
American Tax is not a real estate investment trust, and therefore, is
not subject to the restriction imposed on such entities by the Code. American
Tax may use its best efforts to conduct its operations so as not to be required
to register as an investment company under the Investment Company Act of 1940
and so as not to be deemed a "dealer" in revenue bonds for federal income tax
purposes.
American Tax shareholders have no voting rights with respect to the
establishment or implementation of the investment objectives and policies, all
of which are the responsibility of Related AMI. However shareholder consent must
be obtained before changes are made to American Tax's primary investment
objectives, which are described under the heading "American Tax's Business"
above.
Management and Additional Information
The manager of American Tax is Related AMI. The trustee of American Tax
is Wilmington Trust Company, a Delaware banking corporation. Related AMI manages
and controls the affairs of American Tax directly and by engaging others.
Wilmington Trust Company has been appointed as trustee for the sole and
limited purpose of fulfilling the requirements of Delaware law, which require
all Delaware business trusts to appoint a trustee with a principal place of
business in, or who is a resident of, the State of Delaware. Wilmington Trust
Company has no other authority, duties or liabilities and does not monitor the
conduct of the American Tax or Related AMI. Pursuant to the American Tax trust
agreement, Wilmington Trust Company provides only the following duties:
o executing, delivering, acknowledging and filing any
certificates of trust and any amendments thereto
required to be filed under any applicable law;
o upon written instruction from Related AMI, execute any
share certificates representing shares issued to
shareholders;
o executing any duly adopted amendments to the American
Tax trust agreement; and
o executing, delivering, acknowledging and filing any
certificates of cancellation required to be filed
pursuant to applicable law.
The officers of Related AMI may also provide services to American Tax
on behalf of Related AMI. Each director is elected to hold office until his
successor is duly elected and qualified. The executive officers and directors of
Related AMI and their positions with Related AMI are set forth below.
Name Age Office Held Officer/Director
------------------- ------------ ---------------- -------------------
Michael J. Brenner 54 Director 1999
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<PAGE>
Name Age Office Held Officer/Director
------------------- ------------ ---------------- -------------------
Stuart J. Boesky 43 Director and President 1991
Alan P. Hirmes 45 Senior Vice President 1991
and Treasurer
Teresa Wicelinski 34 Secretary 1998
Biographical information with respect to Messrs. Brenner, Boesky, and
Hirmes and Ms. Wicelinski is set forth above.
Further information about the current Related AMI directors and
executive officers can be found in American Tax's Annual Report on Form 10-K/A-1
for the year ended December 31, 1999 (SEC File No. 0-28340), which is
incorporated by reference into this consent statement-prospectus.
Certain Relationships and Related Transactions
Distributions to Related AMI and its Officers
American Tax does not pay or accrue any fees, salaries or other forms
of compensation to directors and officers of Related AMI for their services.
Related AMI and its affiliates receive substantial fees and compensation in
connection with the management of American Tax's investments.
The costs incurred to Related AMI for the years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
Special distributions $118,875 $118,875 $94,938
Expense reimbursements 85,469 78,165 84,593
Loan Servicing Fee 58,949 59,438 49,755
---------------- --------------- --------------
Total $263,293 $256,478 $229,286
</TABLE>
In accordance with the American Tax trust agreement, Related AMI
received or is entitled to receive:
o special distributions equal to .500% of total assets
invested by American Tax; the total amounts deferred
and unpaid as of December 31, 1999, 1998 and 1997 and
amounted to $314,797, $195,922 and $91,906,
respectively;
o a subordinated incentive fee equal to 2.500% of the
sale of the tax-exempt mortgage bonds proceeds;
o reimbursement of administrative costs incurred by
Related AMI or an affiliate on behalf of American Tax;
the total amounts deferred and unpaid as of December
31, 1999, 1998 and 1997, amounted to $459,368, $373,899
and $295,733, respectively;
o loan servicing fees equal to the lesser of (1) 0.25%
per annum of principal amount of all mortgage loans
outstanding or (2) the normal and competitive fees
customarily charged by unaffiliated third parties; and
o a 1% interest in American Tax's profits, losses and
distributions.
Without Related AMI's continued accrual without payment of the
aforementioned expense reimbursements and fees, American Tax will not be in a
position to maintain its current distribution level. Related AMI has continued
allowing the accrual without payment of these amounts but is under no obligation
to continue to do so.
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Ownership of Underlying Property by an Affiliate
The Highpointe Apartments, which are located in Harrisburg,
Pennsylvania, and which property secures the Highpointe bonds owned by American
Tax, are owned by RHA Inv., Inc., which is an affiliate of Related AMI by virtue
of the fact that Stephen Ross is on the Board of Trustees of both RHA Inv.,
Inc., and Related AMI, and also owns 40% and 67.2% of each entity, respectively.
Neither American Tax nor RHA receives compensation directly or indirectly from
each other. The Highpointe Apartments is the only underlying property securing
American Tax's bonds which is owned by an affiliate of American Tax.
Security Ownership of Beneficial Owners of American Tax Shares
As of August 1, 2000, no person was known by American Tax to be the
beneficial owner of five percent of the outstanding shares of American Tax. As
of August 1, 2000, no directors or officers of Related AMI or trustee own any
shares of American Tax although Related AMI has a 1% interest in all items of
income, loss, and distributions from American Tax.
The sole stockholders of Related AMI are Stephen M. Ross, Alan P.
Hirmes and Stuart Boesky.
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PRICE RANGE OF SHARES AND DISTRIBUTIONS
CharterMac
The CharterMac common shares have been listed on the American Stock
Exchange since October 1, 1997 under the symbol "CHC." Prior to October 1, 1997,
there was no established public trading market for the CharterMac common shares.
The following table sets forth, for the periods indicated, the high and low
reported closing sale prices per CharterMac common shares reported on the
American Stock Exchange.
Closing Sale Price For
Quarter Ended: High Low
---- ---
December 31, 1997.............................. $13.31 $11.13
March 31, 1998................................. $14.50 $12.69
June 30, 1998.................................. $14.44 $12.88
September 30, 1998............................. $14.25 $12.56
December 31, 1998.............................. $13.00 $11.69
March 31, 1999................................. $13.38 $12.00
June 30, 1999.................................. $13.06 $12.38
September 30, 1999............................. $13.06 $12.38
December 31, 1999.............................. $13.06 $11.63
March 31, 2000................................. $12.25 $11.63
Quarterly cash distributions per share for the years ended December 31,
1999 and 1998 and the quarter ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
Total Amount
Cash Distribution for Date Paid Per Share Distributed
--------------------- --------- --------- -----------
<S> <C> <C> <C>
March 31, 2000 5/15/00 $0.265 $5,454,396
========
March 31, 1999 5/15/99 $0.24 $4,939,437
June 30, 1999 8/14/99 0.25 5,042,352
September 30, 1999 11/14/99 0.25 5,042,352
December 31, 1999 2/14/00 0.27 5,453,971
--------- ------------
Total for 1999 $1.00 $20,478,112
======== ===========
March 31, 1998 5/15/98 $0.23 $4,735,119
June 30, 1998 8/14/98 0.23 4,735,205
September 30, 1998 11/14/98 0.23 4,735,205
December 31, 1998 2/14/99 0.24 4,939,068
--------- ------------
Total for 1998 $0.930 $19,144,597
=========== ===========
</TABLE>
In addition to the distributions set forth in the table above,
CharterMac paid Related Charter a special distribution equal to .375% of the
total invested assets of CharterMac which amounted to $2,018,822 and $1,477,797
for the years ended December 31, 1999 and 1998, respectively.
There are no material legal restrictions upon CharterMac's present or
future ability to make distributions in accordance with the provisions of
CharterMac's trust agreement. Future distributions paid by CharterMac will be at
the sole discretion of CharterMac's board of trustees and will depend on the
actual cash flow of CharterMac, its financial condition, capital requirements
and such other factors as CharterMac's board of trustees deem relevant.
On November 2, 1999, the last full trading day prior to the joint
public announcement by American Tax and CharterMac that they had entered into
the merger agreement, the closing price of CharterMac common shares as reported
on the American Stock Exchange was $12.44 per share. On August 1, 2000, the most
recent practicable date
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<PAGE>
prior to the printing of this consent statement-prospectus, the closing price of
CharterMac common shares as reported on the American Stock Exchange was $13.375.
American Tax
The American Tax shares are not included for listing or quotation on
any established market and no public trading market is expected to develop for
the shares, although there may be an informal market.
Cash distributions to American Tax shareholders for the years ended
December 31, 1999 and 1998 and the quarter ended March 31, 2000 were as set
forth in the following table:
Total Amount
Cash Distribution for Per Share Distributed to
Quarter Ended Date Paid Distribution Shareholders
--------------------- --------------- ------------------ -----------------
March 31, 2000 5/15/00 $0.40 $585,408
===== ========
March 31, 1999 5/15/99 $0.40 $585,408
June 30, 1999 8/14/99 0.40 585,408
September 30, 1999 11/14/99 0.40 586,275
December 31, 1999 2/14/00 0.40 586,065
----- --------
Total for 1999 $1.60 $2,343,156
===== ==========
March 31, 1998 5/15/98 $0.40 $584,983
June 30, 1998 8/14/98 0.40 584,993
September 30, 1998 11/14/98 0.40 585,002
December 31, 1998 2/14/99 0.40 584,999
----- --------
Total for 1998 $1.60 $2,339,977
===== ==========
Quarterly distributions were made 45 days following the close of the
calendar quarter and were funded from cash provided from earnings through
approximately the distribution dates and proceeds from the maturity of
investments, together with the deferral by Related AMI of amounts owed to it.
There are no material legal restrictions on American Tax's present or
future ability to make distributions in accordance with the provisions of the
American Tax trust agreement. Distributions to American Tax shareholders are at
the sole discretion of Related AMI based on numerous factors. Throughout its
offering and acquisition period, American Tax had established and maintained a
distribution rate that American Tax expected to be able to pay after it had
fully invested the proceeds of its initial offering, which required that
distributions be supplemented by a return of capital until earnings from bonds
acquired by American Tax stabilized.
When American Tax's acquisition stage was completed at the end of 1997,
American Tax realized that the actual performance of its investment portfolio
would not support the initial distribution rate that it had set based on its
original internal assumptions. American Tax's new distribution policy, adopted
in the first quarter of 1998, calls for quarterly distributions that more
closely reflect the actual, rather than the originally expected, collections of
interest payments on its portfolio. However, rather than implement this new
policy immediately, American Tax determined to seek alternative ways to maintain
the current distribution rate. During this time, American Tax continued to pay
distributions at the current rate by supplementing its actual earnings with the
amortization and repayment proceeds from its short- term investments.
In addition, although under no obligation to do so, over the last eight
quarters, including the quarter ended March 31, 2000, Related AMI has deferred
payment of expenses, reimbursements and fees payable to it in order to further
supplement the cash available to maintain the current distribution rate.
American Tax will soon deplete the remaining amortization and repayment proceeds
from its short- term investments. In addition, Related AMI has recently
indicated that it is no longer willing to continue to defer receipt of expenses,
reimbursements and fees it is owed.
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As a result, Related AMI believes that American Tax's future annual
distributions to its shareholders will decrease. Related AMI is recommending
approval of the proposals contained in this consent solicitation in order to
prevent a significant reduction in the distributions currently received each
quarter by American Tax shareholders.
Related AMI believes that if the merger were approved, American Tax
shareholders will receive annual per share distributions from CharterMac of
$1.05 which equates to $1.52 per American Tax share, based upon the number of
CharterMac common shares they will receive and the current distribution being
paid on CharterMac common shares. In addition, American Tax shareholders will
have the opportunity to benefit from future increases in CharterMac's
distributions. Since inception, CharterMac's distribution has been paid
exclusively from interest collected on its bond investments. None of
CharterMac's distribution has been supplemented with a return of capital or the
accrual of expenses or fees owed to Related Charter.
Of the total distributions of $2,484,623 and $2,484,182 paid during the
year ended December 31, 1999 and 1998, $590,139 ($0.39 per share or 24%) and
$584,309 ($0.39 per share or 24%) represent a return of capital determined in
accordance with generally accepted accounting principles. As of December 31,
1999, the aggregate amount of distributions made since the commencement of
American Tax's initial public offering representing a return of capital, in
accordance with generally accepted accounting principles, totaled $2,684,172.
The portion of the distributions which constitute a return of capital was
significant during American Tax's acquisition stage in order to maintain level
distributions to shareholders. Since Related AMI has implemented American Tax's
distribution policy of making distributions that more closely reflect interest
payments on American Tax's investments, Related AMI does not believe that any
future distributions will represent a return of your capital.
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American Tax CharterMac
CHARTERMAC COMMON SHARES AND COMPARISON
OF SHAREHOLDER RIGHTS
As a result of the merger, you will become a CharterMac shareholder.
The rights of CharterMac shareholders are governed by Delaware law and
CharterMac's trust agreement and by-laws. The following is also a summary of the
material differences between the rights of CharterMac shareholders and American
Tax shareholders.
Description of the CharterMac Shares
Accrual. The CharterMac trust agreement authorizes the issuance of up
to 50,000,000 common or preferred shares of beneficial interests. The CharterMac
trust agreement authorizes the CharterMac board of trustees to classify or
reclassify any unissued CharterMac common shares or CharterMac preferred shares,
to provide for the issuance of beneficial interests of CharterMac in other
classes or series, including preferred beneficial interests in one or more
series, to establish limitations as to distributions, qualifications or terms or
conditions of redemption of such class or series.
Common Shares. CharterMac shareholders are entitled to one vote per
CharterMac common share on all matters voted on by shareholders and, except as
provided in the CharterMac trust agreement in respect of any other class or
series of beneficial interests, the holders of such CharterMac common shares
exclusively possess all voting power. Subject to any preferential rights of any
outstanding shares or series of shares, holders of CharterMac common shares are
entitled to receive distributions, when and as authorized by the CharterMac
board of trustees, out of funds legally available therefor. Upon any dissolution
and liquidation of CharterMac, the holders of CharterMac common shares are
entitled to receive pro rata all assets of CharterMac available for distribution
to its shareholders after payment of, or adequate provisions for, all debts and
liabilities of CharterMac. All CharterMac common shares now outstanding are
fully paid and non-assessable undivided beneficial interests in the assets of
CharterMac. CharterMac shareholders do not have preemptive rights to subscribe
to additional securities issued by CharterMac at a subsequent date.
Preferred Shares. On May 10, 2000, CharterMac completed a private
placement of $27,496,980 convertible preferred shares (1,946,000 convertible
preferred shares priced at $14.13 per share) to three financial institutions
which invested amounts ranging from $7.5 million to $10.0 million. The purchase
price was $2.255 per share in excess of the closing price of CharterMac's common
shares on May 10, 2000 representing a 19% premium to the trading price on that
date of the common shares.
This offering enabled financial institutions to receive credit for
"qualified investments" under the Community Reinvestment Act of 1977, which is
commonly referred to as CRA, in connection with their investment. In this
regard, CharterMac has developed a proprietary method for specially allocating
for reporting purposes these CRA benefits to specific financial institutions
that invest in these convertible preferred shares. The preferred shares are
entitled to the same economic benefits as the common shares and are otherwise
identical to the common shares except that they have limited voting rights and
receive the special allocation of CRA benefits. Any CRA benefits not allocated
to the preferred shareholders remain unallocated to the common shares.
The preferred shareholders, at their option, have the ability to
convert their convertible preferred shares into shares of CharterMac's common
stock at any time at a predetermined conversion price of $15.33 per share which
represents CharterMac's net asset value per share as of December 31, 1999 and
represents a 29% premium on the closing price of CharterMac's common shares on
May 10, 2000. Upon conversion, the preferred investors will no longer be
entitled to retain their preferential allocation of CRA benefits.
CharterMac's ability to issue additional preferred shares which offer
CRA benefits is only limited by the amount of CRA qualifying investments that
are in its portfolio. CharterMac believes that all of its bonds, other than
those which have been previously allocated to the initial preferred
shareholders, are qualifying investments which (1) will be given positive
consideration in determining that the preferred shares are "qualified
investments" under the CRA and (2) may be allocated to additional preferred
shareholders.
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<PAGE>
In order to be a "qualified investment" for purposes of the CRA, the
primary purpose of the investment must be community development. Under the CRA,
investments which promote community development include, among others, those
investments which provide affordable housing for low or moderate income
individuals or fund activities that revitalize or stabilize low or moderate
income areas.
In connection with the offering, CharterMac received an opinion of
counsel which concluded that it is more likely than not that (1) a banking
institution's investment in the preferred shares will receive positive
consideration under the CRA as a "qualified investment", and (2) the methodology
of initial allocation which CharterMac has developed will be acceptable to the
federal regulatory agencies which monitor CRA. However, investments, including
the preferred shares, are not designated as CRA- qualifying at the time of
issuance by any governmental agency. The final determination of whether
securities are CRA-qualifying is made by the federal agencies during their
periodic examinations of regulated institutions. There is no assurance that the
federal agencies will concur with CharterMac's evaluation that the preferred
shares are "qualified investments" under the CRA.
CharterMac expects to raise additional equity in the future from
similar financial institutions that can utilize the CRA benefits that have not
previously been allocated to other holders of the convertible preferred shares.
While CharterMac expects that these future offerings will be a source of
liquidity for CharterMac, it is only one of many sources of potential liquidity.
Furthermore, you should be aware, that there is no assurance that CharterMac
will be able to consummate such transactions or the price or terms on which the
offering will be consummated. Of course, if the federal regulatory agencies
which monitor CRA were to determine that an investment in the preferred shares
is not a "qualified investment", CharterMac would lose this potential source of
liquidity.
Comparison of Rights of CharterMac Shareholders and American Tax Shareholders
The rights of American Tax and CharterMac shareholders are governed by
Delaware law and their respective trust agreements and, in the case of
CharterMac, its by-laws. When the merger is completed, you will become
shareholders of CharterMac and your rights will be governed by CharterMac's
trust agreement and by-laws, which have provisions which are similar, but not
identical, to American Tax's trust agreement. The following is a summary of the
material differences between CharterMac's trust agreement and by-laws and
American Tax's trust agreement. This summary is not a complete discussion of,
and is qualified in its entirety by reference to, CharterMac's trust agreement
and by-laws, American Tax's trust agreement and Delaware law.
<TABLE>
<CAPTION>
American Tax CharterMac
Form of Organization
<S> <C>
American Tax is a Delaware business trust. Same.
American Tax has been treated as a
partnership for federal income tax purposes.
Investment Objectives and Policies
American Tax's principal investment objectives Same, except as follows:
are to:
CharterMac intends to continue its operations
o preserve and protect American Tax's for an indefinite period of time and is not
invested capital; precluded from raising new capital
through the issuance of equity
o provide quarterly distributions that are securities, including senior securities with
generally exempt from federal income priority over the CharterMac common
taxation; and shares as to cash flow, distributions
and liquidation proceeds, or from
o provide additional distributions in reinvesting cash flow or sale, financing or
connection with first mortgage bond repayment proceeds in new first mortgage bonds.
investments from participating
interest payments that are generally The CharterMac board of trustees may alter
exempt from federal income taxation. CharterMac's investment objectives and policies
without the vote of CharterMac shareholders if,
in their sole
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
discretion, they determine in the
future that such a change is in the best
interests of CharterMac and its shareholders.
American Tax shareholders who receive CharterMac common shares in the
merger will be able to liquidate their investment by selling their CharterMac
common shares in the market. Unlike American Tax, the interest of shareholders
in CharterMac can be diluted through the issuance of additional securities,
including securities that have priority over the CharterMac common shares as to
cash flow, distributions and liquidation proceeds. Also unlike American Tax,
CharterMac's board of trustees may change the investment policies of CharterMac
without a vote of the CharterMac shareholders.
Borrowing Policies
American Tax is restricted in the amount and The CharterMac trust agreement limits aggregate
nature of borrowings and may only borrow to meet financing or leverage, whether secured or
working capital requirements or to take over unsecured, to not in excess of 50% of
operations of an underlying property. CharterMac's total market value, measured at the
time any additional financing or leverage is
incurred. The CharterMac trust agreement does
not limit the portion of the permitted debt that
may bear interest at a fixed rate, or at a
variable rate.
American Tax shareholders who receive CharterMac common shares in the
merger will have invested in an entity that may incur long term debt and other
leverage and that reinvests proceeds from borrowings. An increase in debt may
increase the risk of default on CharterMac's obligations and may reduce the cash
flow available for distribution as a result of fluctuations in the interest
rates applicable to indebtedness of CharterMac.
Management
American Tax is managed by Related AMI, which The business and affairs of CharterMac are
has exclusive authority over American Tax's managed under the direction of a board of
operations, subject to limitations provided in trustees elected by the CharterMac shareholders.
the American Tax trust agreement. Under the Under the CharterMac trust agreement, the
American Tax trust agreement, Related AMI is trustees are required to perform their duties in
required to perform its duties in good faith and good faith. The trust agreement includes
act with integrity in handling trust affairs in provisions that:
the best interests of American Tax. The American
Tax trust agreement includes provisions that: o limit the liability of its trustees and
officers to CharterMac and the
o limit the liability of Related AMI to CharterMac shareholders for money
American Tax and the American Tax damages in most circumstances;
shareholders for money damages in most
circumstances; o obligate CharterMac, to the maximum
extent permitted by Delaware law, to
o obligate American Tax to indemnify and indemnify and to pay or reimburse
pay all judgments and claims arising reasonable expenses to a trustee or
against Related AMI from any liability officer of CharterMac or Related
incurred by Related AMI by reason of Charter in advance of final disposition
any act performed or omitted to be of a proceeding to which he is made a
performed by Related AMI on behalf party by reason of his service in that
of American Tax; and capacity; and
o require American Tax to indemnify a o require CharterMac to indemnify a
director or officer of Related AMI who trustee or officer who has been
has been successful, on the merits or successful, on the merits or otherwise
otherwise, in the defense of any in the defense of any proceeding to
proceeding to which he is made which he is made a party by reason of
his service in that capacity.
Additionally, CharterMac has
</TABLE>
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<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
a party by reason of his service entered into agreements with CharterMac's
in that capacity trustees and officers, indemnifying them.
Related AMI may be removed by a vote of a CharterMac's assets and day-to-day operations
majority of the outstanding American Tax shares, are managed by Related Charter.
with or without cause.
CharterMac's managing trustees may be removed by
the majority vote of shareholders only for cause
prior to October 1, 2001, and with or without
cause after such anniversary. The CharterMac
management agreement cannot be terminated by
CharterMac prior to October 1, 2001, except for
cause.
Not applicable since American Tax has no board CharterMac has a classified board of trustees
of trustees.
The rights of CharterMac shareholders against management of CharterMac are
generally more limited than the rights of American Tax shareholders against
American Tax. However, unlike American Tax, CharterMac holds annual meetings for
the election of managing trustees while American Tax holds no such elections and
is managed solely by Related AMI.
Fees and Expenses
Bond selection fees of up to 2.000% of gross Bond selection fees of 2.000% of the principal
proceeds from the sale of American Tax shares. amount of each first mortgage bond originated or
acquired by CharterMac.
Mortgage loan placement fees not to exceed Bond placement fees of 2.000% of the principal
3.000% of the principal amount of mortgage amount of each first mortgage bond originated or
loans. The Mortgage loan placement fees are paid acquired by CharterMac. The Bond placement fees
by the borrower, not American Tax. are paid by the borrower not CharterMac.
Special distribution equal to 0.500% of total Special distribution equal to 0.375% of total
invested assets. One-half of the special invested assets of CharterMac.
distribution is payable quarterly and one-half
is payable upon the liquidation of the bonds.
Loan servicing fees equal to the lesser of (1) Loan servicing fees of 0.250%of the outstanding
0.250% per annum of principal amount of all principal amount of each first mortgage bond
mortgage loans outstanding or (2) the normal and held by CharterMac.
competitive fees customarily charged by
unaffiliated third parties.
None Liquidation fees of 1.500% of the gross sales
price of the assets sold by CharterMac, payable
in connection with a liquidation of CharterMac
supervised by Related Charter.
Accountable expense allowance equal to actual All expenses paid by CharterMac; Related Charter
costs.
</TABLE>
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<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
reimbursed for services performed for
CharterMac, up to a maximum of $200,000 in any
given year of operations, subject to the
following adjustments: the overall limit on
reimbursements for administrative expenses will
be increased:
o after CharterMac's first year of
operations and each year thereafter by
a percentage equal to the Consumer
Price Index for the year then ended;
and
o proportionately as CharterMac increases
its asset portfolio.
None Incentive share options may be issued to Related
Charter if CharterMac's distributions in any
year exceed $0.9517 per CharterMac common share
if granted by the compensation committee, which
is comprised of two or more independent
trustees.
Subordinated incentive fee equal to 2.5000% of None
sale or repayment proceeds relating to
dispositions of first mortgage bonds to the
extent investors have recovered their original
investment plus 10% return.
Acquisition expense allowance equal to 1.000% of All acquisition expenses paid by CharterMac.
gross proceeds.
Potential Dilution
American Tax is restricted from issuing any The CharterMac board of trustees may, in its
further American Tax shares. discretion, issue additional shares without any
shareholder approval. CharterMac may issue up to
approximately 2,000,000 shares to Related
Charter and other employees pursuant to its
incentive share option plan.
The CharterMac shareholders will be subject to potential dilution if
CharterMac issues additional equity securities. Furthermore, CharterMac may
issue beneficial interests with priorities or preferences with respect to
distributions and liquidation proceeds. A subsidiary of CharterMac has issued
$169,000,000 of preferred shares and CharterMac has issued $22,496,980 of
convertible preferred shares. Any secured debt obligations issued by CharterMac
would have prior claims against the collateral given for security in the event
CharterMac defaults in the payments of those secured obligations.
Potential Redemption
Any shareholder who acquired American Tax shares The CharterMac board of trustees may, at its
directly from American Tax may present its sole discretion, determine to repurchase
shares to American Tax for redemption. American CharterMac common shares from time to time out
Tax is required to redeem such shares for cash of surplus funds, if any, to further the
to the extent it has sufficient net reinvestment business objectives of CharterMac.
proceeds from the sale of American Tax shares
under its reinvestment plan.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
Anti-Takeover Provisions
American Tax has no material anti-takeover The CharterMac trust agreement contains the
provisions. following provisions which could have the effect
of delaying, deferring or preventing a
transaction or a change of control of CharterMac
that might involve a premium price for
CharterMac common shares or otherwise be in the
best interest of CharterMac shareholders:
o the CharterMac board of trustees' power
to issue beneficial interests which
could include anti-takeover provisions;
and
o the classification of CharterMac's
board of trustees.
In addition, the CharterMac management agreement
contains the following provisions which may also
have an anti-takeover effect:
o the Related Charter management
agreement may be terminated only for
cause before October 1, 2001; and
o CharterMac may not be dissolved before
October 1, 2001 unless Related Charter
recommends liquidation, and thereafter,
a supermajority vote of the CharterMac
shareholders and consent of the Charter
Board of Trustees is required to
dissolve and liquidate, unless Related
Charter recommends liquidation, in
which case a majority vote of the
CharterMac shareholders and consent of
the Board of Trustees is necessary.
There are provisions of the organizational documents of CharterMac that
could have the effect of delaying, deferring or preventing attempts to obtain
control of CharterMac in transactions not approved by the CharterMac board of
trustees and Related Charter, respectively.
Expected Distributions and Payments
Throughout its offering and acquisition period, CharterMac intends to pay quarterly
American Tax had established and maintained a distributions to its shareholders. The amount of
stable distribution policy at a rate that such distributions will be established the
American Tax expected to be able to maintain CharterMac board of trustees, taking into
after it had fully invested the proceeds of its account the cash needs of CharterMac, yields
initial offering, but which required that available to CharterMac shareholders and ranges
distributions be supplemented by a return of in market prices for the CharterMac common
capital until earnings from bonds acquired by shares.
American Tax stabilized. In addition, although
under no obligation to do so, over the last
seven quarters, American Tax's manager, Related
AMI, deferred the payment of expenses,
reimbursements and fees payable to it in order
to supplement the cash available to maintain the
current distribution rate.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
Now that the acquisition period has ended and
earnings from the bonds have stabilized, with
performance varying from initial assumptions
upon which the distribution rate was
established, American Tax's distribution policy
has been changed. American Tax's new
distribution policy calls for quarterly
distributions that more closely reflect
collections of interest payments. In addition,
Related AMI has indicated that it is not willing
to continue to accrue expenses, reimbursements
and fees it is owed. As a result of such changes
and assuming that distributions are payable
solely from current collections on the bonds,
Related AMI believes that American Tax's future
annual distributions to its shareholders will be
significantly reduced.
Distributions will be paid if, as and when declared by the board of
trustees of CharterMac in its discretion out of funds legally available
therefor. American Tax shareholders who become shareholders of CharterMac will
receive their pro rata share of the distributions made with respect to
CharterMac common shares. The amount of such distributions will depend upon
CharterMac's earnings, operating expenses, debt service payments, capital
expenditures, reserves and funds set aside for expansion.
Liquidity and Transferability
The American Tax shares are not included for The CharterMac common shares are included for
listing or quotation on any established market listing on the American Stock Exchange. The
and no public trading market is expected to CharterMac common shares currently trade, and
develop for the American Tax shares. may continue to trade, at a discount to their
net asset value, and the market value of the
CharterMac common shares may never equal or
exceed the net proceeds that might be available
if CharterMac's assets were liquidated.
One of the primary objectives of the merger is to provide increased
liquidity to the American Tax shareholders.
Voting Rights
Each outstanding American Tax share entitles the Each outstanding CharterMac common share
holder to one vote on all matters submitted to a entitles the holder to one vote on all matters
vote of American Tax shareholders. Pursuant to submitted to a vote of CharterMac shareholders.
the American Tax trust agreement, shareholders Pursuant to the CharterMac trust agreement,
of American Tax have the right to vote upon: shareholders of CharterMac have the right to
vote upon:
o removal of Related AMI;
o removal of the managing trustees;
o election of a successor manager;
o the election of the managing trustees;
o merger, consolidation or dissolution of
American Tax; o merger, consolidation, or the
conversion of CharterMac into another
o amendment of the American Tax trust entity;
agreement;
o the determination to dissolve CharterMac;
o amendments to the CharterMac trust
agreement; and
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109
<PAGE>
<TABLE>
<CAPTION>
American Tax CharterMac
<S> <C>
o disposition of all or substantially all o dispositions of all or substantially
of American Tax's assets other than the all of the assets of CharterMac.
dissolution and winding up the affairs
of American Tax; o CharterMac shareholders holding 10% or
more of the outstanding shares may call
o pledge or encumbrance of all or a meeting of shareholders
substantially all of American Tax's
assets;
o extension of the term of American Tax;
o change in the primary purpose of
American Tax;
o a material modification of a contract
entered into with an affiliate of
American Tax; and
o assignment of Related AMI's interest in
American Tax.
o American Tax shareholders holding 10%
or more of the outstanding shares may
call a meeting of shareholders.
</TABLE>
110
<PAGE>
APPRAISAL RIGHTS
Shareholders of American Tax do not have dissenters' rights or rights
of appraisal with respect to the merger under Delaware law.
LEGAL MATTERS
The validity of the CharterMac common shares to be issued in connection
with the merger will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to CharterMac. Matters with respect to the merger will also be
passed upon by Paul, Hastings, Janofsky & Walker LLP, counsel to both American
Tax and CharterMac.
EXPERTS
The financial statements of American Tax, as of December 31, 1999 and
1998 and for the years ended December 31, 1999, 1998 and 1997 incorporated in
this consent statement-prospectus by reference to the December 31, 1999 annual
report on Form 10-K/A-1 (SEC File No. 0-28340) have been audited by KPMG LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance on the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of Caselberry-Oxford Associates Limited
Partnership, as of December 31, 1999, 1998 and 1997 and for the years ended
December 31, 1999, 1998 and 1997, incorporated in this consent
statement-prospectus by reference to the December 31, 1999 annual report on Form
10-K/A-1 (SEC File No. 0-28340) of American Tax have been audited by Reznick
Fedder & Silverman, independent auditors, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance on
the reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Rolling Ridge, LLC, as of December 31,
1999, 1998 and 1997 and for the years ended December 31, 1999, 1998 and 1997,
incorporated in this consent statement-prospectus by reference to the December
31, 1999 annual report on Form 10-K/A-1 (SEC File No. 0-28340) of American Tax
have been audited by James L. Zimmerman, independent auditors, as stated in
their reports which are incorporated herein by reference, and have been so
incorporated in reliance on the reports of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements and the related financial
statement schedules as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999 of CharterMac incorporated in this
consent statement-prospectus by reference from CharterMac's Annual Report on
Form 10-K/A-1 for the year ended December 31, 1999 (SEC File No. 1-13237) have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance on the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
CharterMac has filed with the Securities and Exchange Commission a
registration statement under the Securities Act that registers the CharterMac
common shares issuable to the American Tax shareholders upon the consummation of
the merger. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about CharterMac and the
CharterMac common shares. The rules and regulations of the Securities and
Exchange Commission allow CharterMac to omit some information included in the
registration statement from this consent statement-prospectus. In addition,
CharterMac and American Tax file reports, proxy statements and other information
with the Securities and Exchange Commission under the Exchange Act. You may read
and copy this information at the following locations of the Commission:
111
<PAGE>
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, S.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the public reference rooms. You may also obtain
copies of this information by mail from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, S.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world
wide web site that contains reports, proxy statements and other information
about issuers, like CharterMac and American Tax, who file electronically with
the Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
Reports, proxy statements and other information about CharterMac and
American Tax may be inspected at the offices of the NASD, 1745 K Street, S.W.,
Washington, D.C.
INCORPORATION OF INFORMATION BY REFERENCE
The Securities and Exchange Commission allows CharterMac and American
Tax to incorporate by reference information into this consent
statement-prospectus. This means that CharterMac and American Tax can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be a part of this consent
statement-prospectus, except for any information that is superseded by
information that is included directly in this document.
This consent statement-prospectus incorporates by reference the
documents listed below that CharterMac and American Tax have previously filed
with the Securities and Exchange Commission. They contain important information
about CharterMac and American Tax and their financial condition.
The following documents previously filed by CharterMac with the
Securities and Exchange Commission (File No. 1-13237) under the Exchange Act are
incorporated by reference into this consent statement-prospectus:
CharterMac SEC Filings Period
Quarterly Report on Form 10-Q and 10- Quarter ended March 31, 2000
Q/A-1
Annual Report on Form 10-K and 10-K/A-1 Year ended December 31, 1999
Proxy Statement Dated April 30, 1999 for its
Annual Meeting of Shareholders
held on June 16, 1999
(incorporated by reference in
the CharterMac 10-K
(SEC File No. 1- 13237))
Registration Statement on Form 10 and Dated July 31, 1997 and filed
Form 10/A on August 1, 1997; and as
amended and filed on
September 23, 1997.
/293812.1
112
<PAGE>
The following documents previously filed by American Tax with the
Securities and Exchange Commission (File No. 0-28340) under the Exchange Act are
incorporated by reference into this consent statement-prospectus:
American Tax SEC Filings Period
Quarterly Report on Form 10-Q and Quarter ended March 31, 2000
10-Q/A-1
Annual Report on Form 10-K and 10-K/A-1 Year ended December 31, 1999
In addition, all documents filed by CharterMac or American Tax under
the Exchange Act after the date of this consent statement-prospectus and before
the deadline for returning consent forms will be deemed to be incorporated by
reference into, and to be a part of, this consent statement-prospectus from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference will be deemed to be modified or superseded for
purposes of this consent statement-prospectus to the extent that a statement
contained in the consent statement-prospectus or in any other subsequently filed
document that is or is deemed to be incorporated by reference in the consent
statement-prospectus modifies or supersedes such previous statement. Any
statement so modified or superseded will not be deemed to constitute a part in
the consent statement-prospectus except as so modified or superseded.
All information contained or incorporated by reference in this consent
statement-prospectus relating to American Tax and its subsidiaries, has been
supplied by American Tax, and all such information relating to CharterMac and
its subsidiaries has been supplied by CharterMac.
CharterMac and American Tax incorporate by reference additional
documents that either company may file with the Securities and Exchange
Commission between the date of this consent statement-prospectus and the
deadline for returning consent forms. These documents include periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through CharterMac or American Tax, as the case may be, or from the
Securities and Exchange Commission through the Securities and Exchange
Commission's web site at the address described above. Documents incorporated by
reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this consent statement-prospectus. You can obtain
documents incorporated by reference in this consent statement-prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
<TABLE>
<S> <C>
Charter Municipal Mortgage Acceptance Company American Tax Exempt Bond Trust
Investor Relations Investor Relations
625 Madison Avenue 625 Madison Avenue
New York, New York 10022 New York, New York 10022
(212) 421-5333 (212) 421-5333
</TABLE>
If you request any incorporated documents from CharterMac or American
Tax, CharterMac or American Tax will mail them to you by first class mail, or
another equally prompt means, within one business day after your request is
received.
CharterMac and American Tax have not authorized anyone to give any
information or make any representation about the merger that is different from,
or in addition to, that contained in this consent statement-prospectus or in any
of the materials that have been incorporated into this document. Therefore, if
anyone does give you information of this sort, you should not rely on it. If you
are in a jurisdiction where offers to exchange or sell, or solicitations of
offers to exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
113
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Introduction
The pro forma condensed consolidated balance sheet has been prepared as
if the proposals were approved and adopted and the related transaction had
occurred on March 31, 2000. The pro forma condensed consolidated income
statements for the year ended December 31, 1999 and three months ended March 31,
2000 have been prepared based on the historical financial statements of American
Tax and CharterMac and assume that the proposals were approved and adopted
January 1, 1999.
The pro forma financial statements are based upon available information
and assumptions, as set forth in the notes to pro forma financial statements,
that CharterMac believes are reasonable in the circumstances.
The unaudited pro forma statements are presented for comparative
purposes only and are not necessarily indicative of the future financial
position or results of operations of the combined company or of the combined
financial position or the results of operations that would have been realized
had the merger been consummated during the period or as of the dates for which
the pro forma statements are presented.
These statements do not purport to represent what CharterMac's
financial position and results of operations (i) would actually have been if the
proposals in fact had been approved and adopted on such dates or at the
beginning of such periods or (ii) any future date or period.
/293812.1
114
<PAGE>
<TABLE>
<CAPTION>
Charter Municipal Mortgage Acceptance Company
Pro Forma Consolidated Balance Sheet
As of March 31, 2000
Unaudited
(Dollars in thousands)
Charter Municipal
Charter Municipal Mortgage
Mortgage Acceptance American Tax Acceptance
Company Exempt Bond Pro Forma Company
ASSETS Historical Trust Historical Adjustments Pro Forma
----------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
First mortgage bonds $592,125 $26,042 $618,167
Other bond-related investments 560 - 560
Temporary investments 33,200 - 33,200
Cash and cash equivalents 15,308 602 15,910
Cash and cash equivalents - restricted 1,606 - 1,606
Interest receivable 2,996 182 3,178
Promissory notes receivable 10,084 - 10,084
Deferred costs 14,435 - $476 (d) 14,911
Goodwill 2,589 - 229 (c) 3,784
Other assets 266 - 966 (a) 266
----------------------- ----------------- --------- --------------------
Total assets $673,169 $26,826 $1,671 $701,666
======================= ================= =============== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Secured borrowing $80,770 $80,770
Accounts payable, accrued expenses
and other liabilities 2,403 $380 $112 (a) 3,600
229 (c)
476 (d)
Due to manager and affiliates 1,316 960 (767) (a) 1,509
Distributions payable 6,945 - 6,945
----------------------- ----------------- --------------------
Total liabilities 91,434 1,340 50 92,824
----------------------- ----------------- ---------- --------------------
Minority interest in subsidiary 177,000 - 177,000
----------------------- ----------------- --------------------
Preferred shares of subsidiary 90,000 - 90,000
----------------------- ----------------- --------------------
Shareholders' Equity
Beneficial owners' equity-manager 502 (31) 31 (a) 502
Beneficial owners' equity-shares 313,282 24,548 3,280 (a) 340,389
(721) (b)
Treasury shares of beneficial interest (103) (721) 721 (b) (103)
Accumulated other comprehensive income 1,054 1,690 (1,690) (a) 1,054
----------------------- ----------------- ------- --------------------
Total shareholders' equity 314,735 25,486 1,621 341,842
----------------------- ----------------- --------- --------------------
Total liabilities and shareholders' equity $673,169 $26,826 $1,671 $701,666
======================= ================= =============== ====================
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
/293812.1
115
<PAGE>
<TABLE>
<CAPTION>
Charter Municipal Mortgage Acceptance Company
Pro Forma Consolidated Income Statement
For the Three Months Ended March 31, 2000
Unaudited
(Dollars in thousands except per share amounts)
Charter Municipal
Mortgage Acceptance American Tax
Company Exempt Bond Trust
Historical Historical
----------------------- ---------------------
<S> <C> <C>
REVENUES
Interest Income:
First mortgage bonds $11,205 $535
Other bond-related investments 136 -
Temporary investments 468 5
Promissory notes 242 -
----------------------- ---------------------
Total revenues 12,051 540
----------------------- ---------------------
EXPENSES
Interest expense 914 -
Loan servicing fees 397 15
General, administrative and other expenses 875 40
Amortization of organization costs 110
Loss on impairments of assets 0 -
----------------------- ---------------------
Total expenses 2,296 55
----------------------- ---------------------
Net income before minority interests 9,755 485
Distribution on preferred shares of subsidiary (1,491) -
Minority interest in income of subsidiary (1,693) -
----------------------- ---------------------
Net income 6,571 485
Special allocation of net income to manager (655) (50)
----------------------- ---------------------
Net income applicable to shareholders $5,916 $435
======================= =====================
Net income applicable to shareholders per weighted average
share $0.29 $0.31
======================= =====================
(basic and diluted)
Weighted average shares outstanding (basic and diluted) 20,581,805 1,466,966
======================= =====================
</TABLE>
<TABLE>
<CAPTION>
Charter Municipal
Mortgage
Acceptance
Pro Forma Company
Adjustments Pro Forma
--------------- -------------------
<S> <C> <C>
REVENUES
Interest Income:
First mortgage bonds $23 (e) $11,741
(7) (f)
(15) (f)
Other bond-related investments 136
Temporary investments 473
Promissory notes 242
---------- -------------------
Total revenues 1 12,592
--------- -------------------
EXPENSES
Interest expense 914
Loan servicing fees 412
General, administrative and other expenses 915
Amortization of organization costs 110
Loss on impairments of assets 0
-------------------
Total expenses 2,351
-------------------
Net income before minority interests 1 10,241
Distribution on preferred shares of subsidiary (1,491)
Minority interest in income of subsidiary (1,693)
-------------------
Net income 1 7,057
Special allocation of net income to manager 23 (g) (682)
-------- -------------------
Net income applicable to shareholders $24 $6,375
-------- ===================
Net income applicable to shareholders per weighted average
share $0.28
===================
(basic and diluted)
Weighted average shares outstanding (basic and diluted) 22,696,386
===================
See accompanying Notes to Pro Forma Consolidated Financial Statements
</TABLE>
/293812.1
116
<PAGE>
<TABLE>
<CAPTION>
Charter Municipal Mortgage Acceptance Company
Pro Forma Consolidated Income Statement
For the Twelve Months Ended December 31, 1999
Unaudited
(Dollars in thousands except per share amounts)
Charter Municipal
Mortgage American Tax
Acceptance Exempt Bond
Company Trust
Historical Historical
----------------------- ---------------------
<S> <C> <C>
REVENUES
Interest Income:
First mortgage bonds $38,141 $2,114
Other bond-related investments 303 -
Temporary investments 1,290 20
Promissory notes 703 -
----------------------- ---------------------
Total revenues 40,437 2,134
----------------------- ---------------------
EXPENSES
Interest expense 1,749 -
Loan servicing fees 1,338 59
General, administrative and other expenses 3,311 536
Amortization of organization costs 382 13
Loss on impairments of assets 1,859 -
----------------------- ---------------------
Total expenses 8,639 608
----------------------- ---------------------
Net income before minority interests 31,798 1,526
Distribution on preferred shares of subsidiary (3,014) -
Minority interest in income of subsidiary (5,602) -
----------------------- ---------------------
Net income 23,182 1,526
Special allocation of net income to manager (2,231) (133)
----------------------- ---------------------
Net income applicable to shareholders $20,951 $1,393
======================= =====================
Net income applicable to shareholders per weighted
average share (basic and diluted) $1.02 $0.95
======================= =====================
Weighted average shares outstanding (basic and 20,580,756 1,464,725
diluted)
======================= =====================
</TABLE>
<TABLE>
<CAPTION>
Charter
Municipal
Mortgage
Acceptance
Pro Forma Company
Adjustments Pro Forma
--------------- -------------------
<S> <C> <C>
REVENUES
Interest Income:
First mortgage bonds $93 (e) $40,260
(29) (f)
(59) (f)
Other bond-related investments 303
Temporary investments 1,310
Promissory notes 703
--------- -------------------
Total revenues 5 42,576
--------------- -------------------
EXPENSES
Interest expense 1,749
Loan servicing fees 1,397
General, administrative and other expenses 3,847
Amortization of organization costs (13) (e) 382
Loss on impairments of assets 1,859
----------- -------------------
Total expenses (13) 9,234
----------- -------------------
Net income before minority interests 18 33,342
Distribution on preferred shares of subsidiary (3,014)
Minority interest in income of subsidiary (5,602)
----------- -------------------
Net income 18 24,726
Special allocation of net income to manager 29 (g) (2,335)
---------- -------------------
Net income applicable to shareholders $(47) $22,391
=============== ===================
Net income applicable to shareholders per weighted
average share (basic and diluted) $0.99
===================
Weighted average shares outstanding (basic and 22,696,386
diluted)
===================
</TABLE>
/293812.1
117
<PAGE>
Charter Municipal Mortgage Acceptance Company
Notes to Pro Forma Financial Statements
For the Three Months Ended March 31, 2000 and the
Year Ended December 31, 1999 (Dollars in
thousands except per share amounts)
(a) Represents the effect of the following:
o the voluntarily waiver of payment of deferred and
unpaid fees, reimbursements and expenses of $767 due
Related AMI, American Tax's manager through June 30,
1999, pursuant to the term of the proposals as
outlined in the consent statement-prospectus;
o the balance of American Tax's merger-related costs of
$112 still to be incurred in connection with the
adoption of the proposals set forth in the consent
statement-prospectus;
o the effect of applying purchase accounting on the
merged American Tax assets results in the elimination
of the accumulated other comprehensive income of
$1,690 because the fair value of the mortgage bonds
becomes CharterMac's cost basis;
o the recording of goodwill, which resulted from the
fair value of the assets acquired and liabilities
assumed being less than the fair value of the
CharterMac common shares issued and associated
transaction costs, $966 is the portion of the
goodwill exclusive of CharterMac's transaction costs
set forth in footnote (c); and
o the net effect of these adjustments to the assets,
liabilities, and other comprehensive income have been
allocated to Related Charter and CharterMac's
shareholders in the amounts of $31 and $3,280,
respectively.
(b) Represents the elimination of American Tax treasury shares as a result
of the merger.
After applying footnotes (a) and (b), American Tax's assets have been
merged into CharterMac. Pursuant to the Merger Agreement, CharterMac
will issue to each outstanding shareholder of American Tax 1.43112
common shares of CharterMac. As of March 31, 2000 the total number of
outstanding shares of American Tax, including the 1% ownership Related
AMI, is equal to 1,478,304 which results in the issuance of 2,115,630
common shares of CharterMac. CharterMac has recorded the total purchase
price of this merger at $27,336 which is calculated as the number of
shares issued, 2,115,630, times the closing price of CharterMac's
common shares on June 30, 1999, the date the terms of the merger were
agreed upon, of 12.8125 plus transaction costs of $229. In accounting
for this merger under the purchase method of accounting, CharterMac has
recorded goodwill to the extent that the fair value of net assets
acquired from American Tax plus transaction costs of $229 are less than
the purchase price as of March 31, 2000. This goodwill is subject to
change depended upon the fair value of these net assets on the actual
merger date.
(c) CharterMac will incur merger-related cost such as legal, accounting,
printing, the consent statement-prospectus, a fairness opinion and
other related costs. These costs are will be recorded as part of
CharterMac's total purchase price. This goodwill is amortized into
interest income using the straight line method over eight years, which
approximates the average remaining term to maturity of the first
mortgage bonds acquired in the merger.
(d) Represents the bond selection fee equal to 2% of the principal amount
of the first mortgage bonds acquired by CharterMac in the merger. In
accordance with the terms and provisions of CharterMac's management
agreement, such fees are paid to the manager, Related Charter. These
acquisition fees are capitalized and are being amortized into interest
income over the terms of the first mortgage bonds acquired in the
merger.
(e) Represents the elimination of American Tax's amortization of deferred
loan origination cost and organization costs as a result of applying
the purchase method of accounting. Under the purchase method of
accounting, American Tax's assets are being recorded at their fair
value and the historical intangible assets are eliminated.
(f) Represents CharterMac's amortization of the goodwill and the bond
selection fee of the assets acquired in the merger. These items are
charged to interest income and are being amortized over the remaining
terms of the first mortgage bonds acquired in the merger.
118
<PAGE>
(g) Represents the reallocation of income between the manager and
shareholders of CharterMac as a result of the following:
o the elimination of American Tax's amortization of
deferred loan origination cost and organization cost
(See Note e);
o the additional amortization of CharterMac's goodwill
and bond selection fee (See Note f); and
o recalculation of the special distribution on American
Tax's assets at CharterMac's rate of .375% as
provided for in the CharterMac's management agreement
instead of American Tax's rate of .500%.
/293812.1
119
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
dated as of November 2, 1999
by and among
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
CM HOLDING TRUST
and
AMERICAN TAX EXEMPT BOND TRUST
NY/293215.2
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.........................................................1
SECTION 1.1 The Merger..........................................1
SECTION 1.2 Closing.............................................2
SECTION 1.3 Effective Time......................................2
SECTION 1.4 Effects of the Merger...............................2
SECTION 1.5 Trust Agreement; Bylaws.............................2
SECTION 1.6 Trustees; Officers..................................2
ARTICLE II MANNER OF CONVERTING SHARES OF THE
CONSTITUENT BUSINESS TRUSTS.......................................3
SECTION 2.1 Effect on Capital Stock.............................3
SECTION 2.2 Further Assurances..................................3
SECTION 2.3 Exchange Procedures.................................3
SECTION 2.4 Distributions with Respect to Unexchanged
ATEBT Shares........................................4
SECTION 2.5 Rights of Former ATEBT Shareholders.................4
SECTION 2.6 Lost ATEBT Share Certificates.......................5
SECTION 2.7 Parent's Option Not to Require Delivery of ATEBT
Shares by ATEBT Shareholders in Order to
Receive Parent Shares...............................5
SECTION 2.8 Nonissuance of ATEBT Share Certificates.............5
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................5
SECTION 3.1 Representations and Warranties of Parent and Sub....5
SECTION 3.2 Representations and Warranties of ATEBT.............7
ARTICLE IV ADDITIONAL AGREEMENTS.............................................8
SECTION 4.1 Waiver of Deferred Fees and Expenses................8
SECTION 4.2 Reasonable Best Efforts.............................8
SECTION 4.3 Public Announcements................................8
SECTION 4.4 Consents, Approvals and Filings.....................8
SECTION 4.5 Exchange Listing....................................9
SECTION 4.6 State Takeover Laws.................................9
SECTION 4.7 No Solicitation by ATEBT............................9
NY/293215.2
<PAGE>
Page
ARTICLE V CONDITIONS PRECEDENT.............................................10
SECTION 5.1 Conditions to Each Party's Obligation
to Effect the Merger...............................10
SECTION 5.2 Conditions to Obligations of ATEBT.................11
SECTION 5.3 Conditions to Obligations of Parent and Sub........12
SECTION 5.4 Frustration of Closing Conditions..................13
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER................................13
SECTION 6.1 Termination........................................13
SECTION 6.2 Effect of Termination..............................14
SECTION 6.3 Amendment..........................................15
SECTION 6.4 Extension; Waiver..................................15
ARTICLE VII GENERAL PROVISIONS...............................................15
SECTION 7.1 Nonsurvival of Representations and Warranties......15
SECTION 7.2 Fees and Expenses..................................15
SECTION 7.3 Definitions........................................15
SECTION 7.4 Notices............................................16
SECTION 7.5 Interpretation.....................................17
SECTION 7.6 Counterparts.......................................18
SECTION 7.7 Entire Agreement; Third-Party Beneficiaries........18
SECTION 7.8 GOVERNING LAW......................................18
SECTION 7.9 Assignment.........................................18
SECTION 7.10 Enforcement........................................18
SECTION 7.11 Severability.......................................18
NY/293215.2
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
2, 1999, by and among American Tax Exempt Bond Trust, a Delaware business trust
("ATEBT"), Charter Municipal Mortgage Acceptance Company, a Delaware business
trust ("Parent"), and CM Holding Trust, a Delaware business trust and a
wholly-owned subsidiary of Parent ("Sub"). Certain capitalized terms used in
this Agreement are defined in Section 7.3.
W I T N E S S E T H:
-------------------
WHEREAS, Related AMI Associates, Inc., ATEBT's manager ("Related AMI")
and the Board of Trustees of Parent and Sub have determined that it would be
advisable and in the best interests of the respective holders of beneficial
interest in ATEBT, Parent and Sub, for ATEBT to merge with and into Sub with Sub
as the surviving business trust pursuant and subject to the terms and conditions
set forth in this Agreement (the "Merger");
WHEREAS, Related AMI has agreed to (i) waive payment of certain
deferred and unpaid fees, expenses and reimbursements if the Merger is
consummated and (ii) pay or cause to be paid any fees and expenses related to
the Merger if the ATEBT Shareholders do not approve the Merger and certain
corresponding amendments to ATEBT's Trust Agreement.
WHEREAS, ATEBT, Related AMI, Parent and Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Section 3815 of the Delaware
Business Trust Act (the "Act"), the Merger shall be effected and ATEBT shall be
merged with and into Sub at the Effective Time (as defined in Section 1.3), the
separate existence of ATEBT shall cease and Sub shall continue as the surviving
business trust in the Merger. The surviving business trust of the Merger shall
be herein referred to as the "Surviving Business Trust." The Merger shall be
consummated pursuant to the terms of this Agreement, which has been approved and
adopted by
NY/293215.2
1
<PAGE>
Related AMI, and the Board of Trustees of Parent and Sub and by Parent as the
Sub Shareholder. The name of the Surviving Business Trust shall be CM Holding
Trust.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 6.1, and subject to the satisfaction or waiver of the conditions set
forth in Article V, the closing of the Merger (the "Closing") will take place as
soon as practicable following the last to be satisfied or waived of the
conditions set forth in Article V (other than the delivery of certificates
referred to in Sections 5.2(a) and (b) and Sections 5.3(a) and (b)) in
accordance with this Agreement (the "Closing Date"), at the offices of Battle
Fowler LLP, 75 East 55th Street, New York, New York 10022, unless another date,
time or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. The Merger shall become effective (the
"Effective Time") upon the effective date and time set forth in the Certificate
of Merger filed with the Secretary of State of the State of Delaware (the
"Delaware Secretary of State"), which Certificate of Merger shall be in
substantially the form attached hereto as Exhibit A.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in this Agreement and in the applicable provisions of the Act. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of ATEBT and
Sub shall vest in the Surviving Business Trust, and all debts, liabilities and
duties of ATEBT and Sub shall become the debts, liabilities and duties of the
Surviving Business Trust.
SECTION 1.5 Trust Agreement; Bylaws. At the Effective Time, (a) Sub's
Trust Agreement shall be the Trust Agreement of the Surviving Business Trust,
and (b) the bylaws of Sub as in effect at the Effective Time shall, from and
after the Effective Time, be the bylaws of the Surviving Business Trust until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 Trustees; Officers. At the Effective Time, (a) the trustees
of Sub shall be the trustees of the Surviving Business Trust, each of whom will
serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be, and
(b) the officers of Sub shall be the officers of the Surviving Business Trust,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
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ARTICLE II
MANNER OF CONVERTING SHARES
OF THE CONSTITUENT BUSINESS TRUSTS
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Sub, ATEBT,
the ATEBT Shareholders, the Sub Shareholder or the Parent Shareholders, the
ATEBT Shares shall be converted as follows:
(a) Conversion of ATEBT Shares. Each share of beneficial interest
in ATEBT (the "ATEBT Shares") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive 1.43112 common
shares of beneficial interest (the "Parent Shares") of Parent (the "Merger
Consideration"). In addition, Related AMI's one percent (1%) interest in ATEBT
shall, by virtue of the Merger and without any action on the part of Related
AMI, be converted into the right to receive 21,156 Parent Shares. All of the
shares of beneficial interest in Sub (the "Sub Shares") shall remain issued and
outstanding and shall be owned by Parent immediately following the conversion.
(b) No Fractional Interests. No fractional units of Parent Shares
shall be issued in the Merger. An ATEBT Shareholder who would otherwise have
been entitled to a fractional unit of Parent Shares shall be entitled to receive
one Parent Share for each fractional share of 0.5 or greater. No Parent Shares
shall be issued for fractional shares of less than 0.5.
SECTION 2.2 Further Assurances. If, at any time after the Effective
Time, the Surviving Business Trust shall determine or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Business Trust the right, title or interest in, to or under any of the
rights, properties or assets of ATEBT acquired or to be acquired by the
Surviving Business Trust as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the Surviving Business Trust shall be
authorized to execute and deliver, in the name and on behalf of each of Parent,
Sub and ATEBT, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of each of Parent, Sub and ATEBT or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Business Trust or otherwise
to carry out this Agreement.
SECTION 2.3 Exchange Procedures. Prior to the Effective Time, Parent
shall appoint a commercial bank or trust company satisfactory to ATEBT to act as
exchange agent hereunder (the "Exchange Agent"). At the Effective Time, Parent
shall deposit with the Exchange Agent, (i) certificates representing Parent
Shares which immediately prior to the Effective Time represent a number of
Parent Shares required to be issued pursuant to Section 2.1 in exchange for the
issued
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and outstanding ATEBT Shares. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of a certificate or certificates
which immediately prior to the Effective Time represented outstanding ATEBT
Shares (the "ATEBT Share Certificates") appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing ATEBT Shares shall pass, only upon proper
delivery of such certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the ATEBT Share Certificates in exchange for the
certificates representing Parent Shares. The Exchange Agent may establish
reasonable and customary rules and procedures in connection with its duties.
After the Effective Time, each holder of ATEBT Share Certificates issued and
outstanding at the Effective Time shall surrender the ATEBT Share Certificates
to the Exchange Agent and shall promptly upon surrender thereof receive in
exchange therefor the consideration provided in Section 2.1(a). Parent shall not
be obligated to deliver the Merger Consideration to which any holder of ATEBT
Share Certificates is entitled as a result of the Merger until such holder
surrenders such holder's ATEBT Share Certificate for exchange as provided in
this Section 2.3. The ATEBT Share Certificate so surrendered shall be duly
endorsed as the Exchange Agent may reasonably require. Any other provision of
this Agreement notwithstanding, neither the Surviving Business Trust nor the
Exchange Agent shall be liable to a holder of ATEBT Shares for any amounts paid
or property delivered in good faith to a public official pursuant to any
applicable abandoned property law. Adoption of this Agreement by the requisite
ATEBT Shareholders shall constitute ratification of the appointment of the
Exchange Agent.
SECTION 2.4 Distributions with Respect to Unexchanged ATEBT Shares.
Subject to the provisions of Section 2.7, no distributions with respect to
Parent Shares with a record date after the Effective Time shall be paid to any
holder of ATEBT Share Certificates until the surrender for exchange of the ATEBT
Share Certificates representing such ATEBT Shares in accordance with Section
2.3. Following surrender for exchange of any such ATEBT Share Certificate in
accordance with Section 2.3, Parent shall pay to the holder of such certificate,
without interest, (i) at the time of such surrender, the amount of distributions
from Parent with a record date after the Effective Time theretofore paid with
respect to the number of whole Parent Shares into which the ATEBT Shares
represented by such ATEBT Share Certificate immediately prior to the Effective
Time were converted pursuant to Section 2.1, and (ii) at the appropriate payment
date, the amount of distributions from the Parent with a record date after the
Effective Time, but prior to such surrender, and with a payment date subsequent
to such surrender, payable with respect to such whole Parent Shares.
SECTION 2.5 Rights of Former ATEBT Shareholders. At the Effective Time,
the share transfer books of ATEBT shall be closed as to holders of ATEBT Shares
immediately prior to the Effective Time and no transfer of ATEBT Shares by any
such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 2.3, each ATEBT Share
Certificate shall from and after the Effective Time represent for all
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purposes only the right to receive the consideration provided in Sections 2.1 in
exchange therefor.
SECTION 2.6 Lost ATEBT Share Certificates. If any ATEBT Share
Certificates representing ATEBT Shares shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond, in such reasonable amount as Parent may
direct, as indemnity against any claim that may be made against it with respect
to such certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed certificate the Merger Consideration, to which the holder
thereof is entitled pursuant to Section 2.1 and any distributions with respect
to Parent Shares to which the holder thereof is entitled pursuant to Section
2.4.
SECTION 2.7 Parent's Option Not to Require Delivery of ATEBT Shares by
ATEBT Shareholders in Order to Receive Parent Shares. Anything in this Agreement
to the contrary notwithstanding, Parent shall have the right, in its sole and
absolute discretion, but not the obligation (implied or otherwise), to waive the
requirements in Sections 2.3 and 2.4 relating to the delivery of ATEBT Share
Certificates and other items by the holders of ATEBT Shares to the Exchange
Agent, by written notice to the Exchange Agent of the same (the "Notice"). In
the event of such Notice, the Exchange Agent shall promptly fulfill its
obligations and duties under Section 2.3, as if all holders of ATEBT Shares had
fulfilled their obligations under Section 2.3, if any, and fulfilled all
obligations necessary for such holder to receive the Merger Consideration, at
the time of receipt of the Notice by the Exchange Agent.
SECTION 2.8 Nonissuance of ATEBT Share Certificates. Anything in this
Agreement to the contrary notwithstanding, only those holders of ATEBT Shares
who requested and received ATEBT Share Certificates from ATEBT are required to
comply with Sections 2.3 and 2.4.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Parent and Sub. Parent
and Sub represent and warrant to ATEBT as follows:
(a) Organization, Standing and Power. Each of Parent and Sub is a
business trust duly created, validly existing and in good standing under the
laws of the State of Delaware and has the requisite trust power and authority to
carry on its business as now being conducted, except where the failure to do so
would not have, individually or in the aggregate, a Parent Material Adverse
Effect. For purposes of this Agreement, the term "Parent Material
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Adverse Effect" means any Material Adverse Effect with respect to Parent or its
subsidiaries, taken as a whole, or any change of effect that adversely, or is
reasonably expected to adversely, affect the ability of Parent or Sub to
consummate the transactions contemplated by this Agreement in any material
respect or materially impair or delay Parent's or Sub's ability to perform its
obligations hereunder.
(b) Authority; Noncontravention. Parent and Sub have the requisite
trust power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement by Parent and Sub and the consummation by Parent
and Sub of the transactions contemplated hereby have been duly authorized by all
necessary trust action on the part of Parent and Sub. This Agreement has been
duly executed and delivered by Parent and Sub and, assuming this Agreement
constitutes the valid and binding agreement of ATEBT, constitutes a valid and
binding obligation of each of Parent and Sub, enforceable against each of Parent
and Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
affecting creditors' rights and remedies and to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the trust agreement or bylaws of Parent or Sub, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict with,
result in a breach of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of first refusal, termination, cancellation
or acceleration of any obligation (including to pay any sum of money) or loss of
a benefit under, or require the consent of any person under, any indenture or
other agreement, permit, concession, ground lease, franchise, license or similar
instrument or undertaking to which Parent or Sub is a party or by which Parent
or Sub or any of their assets is bound, result in the creation or imposition of
a material lien or other restriction or encumbrance on any material asset of
Parent or Sub, which, singly or in the aggregate, would have a Parent Material
Adverse Effect, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, violate any domestic or foreign law, rule
or regulation or any order, writ, judgment, injunction, decree, determination or
award currently in effect except for such violations, which, singly or in the
aggregate, would only have an immaterial effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any domestic or
foreign governmental agency or regulatory authority (a "Governmental Entity") or
any third party which has not been received or made, is required by or with
respect to Parent or Sub in connection with the execution and delivery of this
Agreement by Parent or Sub or the consummation by Parent or Sub of the
transactions contemplated hereby, except for (i) the filing of the certificate
of merger with the Delaware Secretary of State, (ii) such other consents,
approvals, authorizations, filings or notices as are set forth in Section 3.1(b)
of the Parent Disclosure Schedule and (ii) consents, approvals, authorizations,
declarations, filings and notices that, if not obtained or made, will not,
individually or in the aggregate, result in a Parent Material Adverse Effect.
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SECTION 3.2 Representations and Warranties of ATEBT. ATEBT represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. ATEBT is a business trust
duly created, validly existing and in good standing under the laws of the State
of Delaware, and has all requisite trust power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to do so would not have, individually or in the
aggregate, an ATEBT Material Adverse Effect. For purposes of this Agreement, the
term "ATEBT Material Adverse Effect" means any Material Adverse Effect with
respect to ATEBT or its subsidiaries, taken as a whole, or any change of effect
that adversely, or is reasonably expected to adversely, affect the ability of
ATEBT to consummate the transactions contemplated by this Agreement in any
material respect or materially impair or delay ATEBT's ability to perform its
obligations hereunder.
(b) Authority; Noncontravention. ATEBT has the requisite trust
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance by ATEBT of this Agreement and the consummation of the Merger by
ATEBT has been duly authorized by all necessary trust action on the part of
ATEBT. This Agreement has been duly executed and delivered by ATEBT and,
assuming this Agreement constitutes the valid and binding agreement of Parent
and Sub, constitutes a valid and binding obligation of ATEBT, enforceable
against such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws affecting creditors' rights and remedies and to general principles
of equity. Except as set forth in Section 3.2(b) of the ATEBT Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement, will not (i) conflict with any of the
provisions of the trust agreement or bylaws of ATEBT, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture, or other material agreement,
permit, concession, franchise, license or similar instrument or undertaking to
which ATEBT is a party or by which ATEBT or any of its assets is bound or
affected, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation,
or any order, writ, judgment, injunction, decree, determination or award binding
on or applicable to ATEBT and currently in effect, which, in the case of clauses
(ii) and (iii) above, singly or in the aggregate, would have an ATEBT Material
Adverse Effect. No consent, approval or authorization of, or declaration or
filing with, or notice to, any Governmental Entity which has not been received
or made is required by or with respect to ATEBT in connection with the execution
and delivery of this Agreement by ATEBT or the consummation by ATEBT of any of
the transactions contemplated by this Agreement, except for
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(i) the filing of the certificate of merger with the Delaware Secretary of
State, (ii) such other consents, approvals, authorizations, filings or notices
as are set forth in Section 3.2(b) of the ATEBT Disclosure Schedule and (iii)
consents, approvals, authorizations, declarations, filings and notices that, if
not obtained or made, will not, individually or in the aggregate, result in an
ATEBT Material Adverse Effect.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 Waiver of Deferred Fees and Expenses. Upon the terms and
subject to the conditions and other agreements set forth in this Agreement, at
the Effective Time, Related AMI agrees to waive all deferred and unpaid fees and
expenses owed to Related AMI by ATEBT through June 30, 1999.
SECTION 4.2 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including the
satisfaction of the respective conditions set forth in Article V.
SECTION 4.3 Public Announcements. Parent and Sub, on the one hand, and
ATEBT, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or automated quotation
system.
SECTION 4.4 Consents, Approvals and Filings. (a) ATEBT and Parent will
make and cause their respective subsidiaries to make all necessary filings, as
soon as practicable, in order to facilitate prompt consummation of the Merger
and the other transactions contemplated by this Agreement. In addition, ATEBT
and Parent will each use their reasonable best efforts, and will cooperate fully
with each other (i) to comply as promptly as practicable with all governmental
requirements applicable to the Merger and the other transactions contemplated by
this Agreement; and (ii) to obtain as promptly as practicable all necessary
permits, orders or other consents of Governmental Entities and consents of all
third parties necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement. Each of ATEBT and Parent shall use
reasonable efforts to provide such information and
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communications to Governmental Entities as such Governmental Entities may
reasonably request.
(b) Each of the parties shall provide to the other party copies of
all applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement, and copies of all
correspondence with such Governmental Entities, and shall keep all the parties
timely apprised of the status of the foregoing.
SECTION 4.5 Exchange Listing. Parent shall use its best efforts to
list, prior to the Effective Time, on the American Stock Exchange the Parent
Shares to be issued to Related AMI and the holders of ATEBT Shares pursuant to
the Merger, and Parent shall give all notices and make all filings with the
American Stock Exchange required in connection with the transactions
contemplated herein.
SECTION 4.6 State Takeover Laws. Parent, Sub and ATEBT shall take all
necessary steps to exempt the transactions contemplated by this Agreement from,
or if necessary to challenge the validity or applicability of, any state
takeover law, if any.
SECTION 4.7 No Solicitation by ATEBT. ATEBT shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
ATEBT, or any of its subsidiaries, solicit or encourage (including by way of
furnishing information) the initiation of any inquiries or proposals regarding
any merger, amalgamation, take-over bid, reorganization, sale of substantial
assets, sale of ATEBT Shares (including, without limitation, by way of a tender
offer) or similar transaction involving ATEBT (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal"); provided,
however, that nothing contained in this Agreement shall prevent the Board of
Directors of Related AMI, in its capacity as ATEBT's manager, after consultation
with its financial advisors, and after receiving advice from outside counsel to
the effect that the Board of Directors of Related AMI, in its capacity as
ATEBT's manager, is required to do so in order to discharge properly its
fiduciary duties, from considering, negotiating, approving and recommending to
the holders of ATEBT Shares an unsolicited bona fide Acquisition Proposal which
the Board of Directors of Related AMI, in its capacity as ATEBT's manager,
determines in good faith would result in a transaction more favorable to the
holders of ATEBT Shares than the transaction contemplated by this Agreement (any
such Acquisition Proposal being referred to herein as a "Superior Proposal").
(i) ATEBT shall immediately notify Parent after receipt of
any Acquisition Proposal or any request for nonpublic information relating to
ATEBT in connection with an Acquisition Proposal or for access to the
properties, books or records of ATEBT by any person that informs the Board of
Directors of Related AMI that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contract.
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(ii) If the Board of Directors of Related AMI, in its
capacity as ATEBT's manager, receives a request for material nonpublic
information by a person who makes a bona fide Acquisition Proposal and the Board
of Directors of Related AMI, in its capacity as ATEBT's manager, determines that
such proposal is a Superior Proposal, then, and only in such case, ATEBT may,
subject to the execution of a confidentiality agreement, provide such party with
access to information regarding ATEBT.
(iii) Related AMI, in its capacity as ATEBT's manager, shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties (other than with Parent and Sub) conducted
heretofore with respect to any of the foregoing.
(iv) Related AMI shall ensure that the officers, directors,
trustees and employees of ATEBT and any investment banker or other advisor or
representative retained by ATEBT are aware of the restrictions described in this
Section 4.7, and shall be responsible for any breach of this Section by such
bankers, advisors and representatives.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The ATEBT Shareholders and Sub
Shareholder shall have duly adopted and approved this Agreement, and the
consummation of the transactions contemplated hereby, including the Merger, as
and to the extent required by law and by provisions of any governing instruments
of ATEBT and Sub.
(b) No Injunctions or Restraints. No statute, rule, regulation,
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that the party invoking this condition shall use its best
efforts to have any such temporary restraining order, injunction, order,
restraint or prohibition vacated.
(c) Governmental and Regulatory Consents. All material filings
required to be made prior to the Effective Time with, and all material consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, Governmental Entities, in connection with the execution and
delivery of this Agreement and the consummation of the
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transactions contemplated hereby by ATEBT, Parent and Sub will have been made or
obtained (as the case may be).
(d) Exchange Listing. The Parent Shares issuable pursuant to the
Merger shall have been approved for listing on the American Stock Exchange.
(e) Registration Statement. The Registration Statement shall be
effective under the Securities Act of 1933, as amended, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued, no action, suit, proceeding or investigation by the Securities and
Exchange Commission to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws, or the Securities Act of 1933, as amended or the Securities Exchange Act
of 1934, as amended, relating to the issuance or trading of the Parent Shares
issuable pursuant to the Merger shall have been received.
(f) Power to Acquire First Mortgage Bonds. Parent shall have
complied with Section 10.2(f) of its Amended and Restated Trust Agreement as
currently in effect.
(g) Tax Opinion. ATEBT shall have received an opinion from Battle
Fowler LLP, in form reasonably satisfactory to ATEBT, as to the tax consequences
of the Merger to the ATEBT shareholders.
SECTION 5.2 Conditions to Obligations of ATEBT. The obligations of
ATEBT to effect the Merger are further subject to the satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in Section 3.1 that are qualified as to
materiality or Material Adverse Effect shall be true and correct and the
representations and warranties of Parent and Sub set forth in Section 3.1 that
are not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent such representations and
warranties speak as of an earlier date. In addition, all such representations
and warranties shall be true and correct as of the date hereof and as though
made on and as of the Closing Date, except to the extent such representation or
warranty speaks of an earlier date (without regard to any qualifications for
materiality or Material Adverse Effect) except to the extent that any such
failure to be true and correct (other than any such failure the effect of which
is immaterial) individually and in the aggregate with all such other failures
would not have a Material Adverse Effect, and ATEBT shall have received a
certificate signed on behalf of Parent by an authorized officer of Parent or its
manager to the effect set forth in this paragraph.
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(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and ATEBT
shall have received a certificate signed on behalf of Parent by an authorized
officer of Parent or its manager to such effect.
(c) No Material Adverse Effect. From and after the date of this
Agreement, there shall not have been any changes or events which, individually
or in the aggregate, have had or reasonably would be expected to have a Material
Adverse Effect.
(d) Consents. All consents of third parties set forth in Section
3.2(b) of -------- the Parent Disclosure Schedule shall have been obtained.
(e) Fairness Opinion. ATEBT shall have received from McDonald
Investments Inc., a letter to the effect that, in the opinion of such firm, the
consideration to be received by ATEBT shareholders in connection with the Merger
is fair, from a financial point of view, to such shareholders.
(f) Appraisal. ATEBT shall have received an appraisal from Cushman
& Wakefield and McDonald Investments Inc. as to the value of ATEBT's assets.
SECTION 5.3 Conditions to Obligations of Parent and Sub. The obligation
of Parent and Sub to effect the Merger is further subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of ATEBT and Related AMI set forth in Sections 3.2 and 3.3,
respectively, that are qualified as to materiality or Material Adverse Effect
shall be true and correct and the representations and warranties of ATEBT and
Related AMI set forth in Sections 3.2 and 3.3, respectively, that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date. In addition, all such representations and warranties shall
be true and correct as of the date hereof and as though made on and as of the
Closing Date, except to the extent such representation or warranty speaks of an
earlier date (without regard to any qualifications for materiality or Material
Adverse Effect) except to the extent that any such failure to be true and
correct (other than any such failure the effect of which is immaterial)
individually and in the aggregate with all such other failures would not have a
Material Adverse Effect, and Parent and Sub shall have received a certificate
signed on behalf of ATEBT by an authorized officer of ATEBT or its manager to
the effect set forth in this paragraph.
(b) Performance of Obligations of ATEBT and related AMI. ATEBT and
Related AMI shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and Parent and Sub
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shall have received a certificate signed on behalf of ATEBT by an authorized
officer of ATEBT or its manager to such effect.
(c) No Material Adverse Effect. From and after the date of this
Agreement, there shall not have been any changes or events which, individually
or in the aggregate, have had or reasonably would be expected to have a Material
Adverse Effect.
(d) Consents. All consents of third parties set forth in Section
3.1(b) of the ATEBT Disclosure Schedule shall have been obtained.
(e) Fairness Opinion. Parent shall have received from Legg Mason
Wood Walker Incorporated, a letter to the effect that, in the opinion of such
firm, the consideration to be paid to the ATEBT shareholders in connection with
the Merger is fair, from a financial point of view, to Parent.
(f) Appraisal. Parent shall have received an appraisal from
Cushman & Wakefield and McDonald Investments Inc. as to the value of ATEBT's
assets.
(g) Amendment of ATEBT's Trust Agreement. Immediately prior to
the Effective Time, ATEBT shall have amended its Trust Agreement to delete
Sections 23.2, 23.3(a) through (d), and 15.4.9.
SECTION 5.4 Frustration of Closing Conditions. None of Parent, Sub nor
ATEBT may rely on the failure of any condition set forth in Section 5.1, 5.2 or
5.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to commence or complete the Merger and
the other transactions contemplated by this Agreement.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, in any one of the following circumstances:
(i) By mutual written consent of Parent and ATEBT.
(ii) By Parent or ATEBT, if the ATEBT Shareholders fail to
adopt or approve this Agreement and the transactions contemplated hereby.
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(iii) By Parent or ATEBT, if (x) any statute, rule or
regulation shall have been promulgated by any Governmental Entity prohibiting or
restricting the Merger or (y) any federal or state court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree or
ruling, or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable; provided, that a party may not
terminate this Agreement pursuant to this clause (iii) if it has not complied
with its obligations under Section 4.2.
(iv) By Parent or ATEBT, if (A) the other party shall have
failed to comply in any material respect with any of the covenants and
agreements (or in any respect with regard to covenants and agreements qualified
by materiality) contained in this Agreement to be complied with or performed by
such party at or prior to such date of termination, and such failure continues
for thirty (30) business days after the actual receipt by such party of a
written notice from the other party setting forth in detail the nature of such
failure, or (B) a representation or warranty of the other party contained in
this Agreement shall be untrue in any material respect or a representation or
warranty qualified as to materiality or Material Adverse Effect, as the case may
be, shall be untrue in any respect.
(v) By ATEBT, if any of the conditions set forth in Section
5.2 shall have become incapable of being fulfilled and shall not have been
waived by ATEBT, or by Parent or Sub if any of the conditions set forth in
Section 5.3 shall have become incapable of being fulfilled and shall not have
been waived by Parent.
(vi) By Parent or ATEBT, if, during the 30 consecutive
trading days ending with and including the trading date that is one trading day
immediately preceding the Closing Date, the average Closing Price (as defined
below) of the Parent Shares is less than $11.18 or greater than $14.50. For
purposes hereof, "Closing Price" shall mean the last reported sale price per
Parent Share as reported on the American Stock Exchange on the trading day in
question.
(vii) By ATEBT, if the Board of Directors or Related AMI
shall have withdrawn or modified in accordance with Section 4.7 in any manner
adverse to Parent its approval or recommendation of the Merger or this Agreement
in connection with, or approved or recommended, a Superior Proposal.
SECTION 6.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement (except
for the provisions of Sections 4.3, this Section 6.2 and Article VII) shall
forthwith become void and have no effect, without any Liability on the part of
any party hereto or its directors, officers or shareholders; provided, however,
that nothing in this Section 6.2 shall relieve any party to this Agreement of
Liability for any willful or intentional breach of this Agreement.
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SECTION 6.3 Amendment. To the extent permitted by law, this Agreement
may be amended by a subsequent writing signed by each of the parties upon the
approval of the boards of directors of Related AMI and the board of trustees of
Parent, whether before or after ATEBT Shareholder approval of this Agreement has
been obtained; provided, that after any such approval by the ATEBT Shareholders,
there shall be made no amendment that requires further approval by such
shareholders without the further approval of such shareholders.
SECTION 6.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to Section 6.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 7.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 7.2 Fees and Expenses. If this Agreement is terminated for any
reason other than the failure of the ATEBT Shareholders to approve the Merger,
Parent and ATEBT will pay their own fees and expenses. If this Agreement is
terminated because the ATEBT Shareholders do not approve the Merger (including
the related amendments to ATEBT's trust agreement set forth in Section 4.3(g) of
this Agreement), Parent shall pay its own and Sub's fees and expenses and
Related AMI hereby agrees to pay, or to cause one of its affiliates to pay, all
fees and expenses incurred as part of the solicitation of consents and
negotiation of the Merger incurred by ATEBT. If the Merger is completed, Parent
and ATEBT will pay their own fees and expenses.
SECTION 7.3 Definitions. For purposes of this Agreement:
(a) "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
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(b) "ATEBT Disclosure Schedule" shall mean the disclosure schedule
delivered by ATEBT to Parent and Sub prior to the execution of this Agreement;
(c) "ATEBT Shareholders" means the holders of ATEBT Shares as of
the date set by board of directors of Related AMI in order to determine
beneficial owners of ATEBT entitled to consent to the Merger;
(d) "business day" means any day other than Saturday, Sunday or
any other day on which banks in the City of New York are required or permitted
to close;
(e) "Liability" means, as to any Person, all debts, liabilities
and obligations, direct, indirect, absolute or contingent of such Person,
whether accrued, vested or otherwise, whether known or unknown and whether or
not actually reflected, or required in accordance with GAAP to be reflected, in
such Person's balance sheet.
(f) "Material Adverse Effect" with respect to any person means an
event that has had or would reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of such
person and its subsidiaries taken as a whole;
(g) "Parent Disclosure Schedule" shall mean the disclosure
schedule delivered by Parent and Sub to ATEBT prior to the execution of this
Agreement;
(h) "Parent Shareholders" means the holders, from time to time, of
beneficial interests in Parent;
(i) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity;
(j) "Sub Shareholder" means Parent, in its capacity as the sole
beneficial owner of Sub.
(k) "Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the Securities and
Exchange Commission by Parent under the Securities Act of 1933, as amended, with
respect to the Parent Shares to be issued to the ATEBT Shareholders and related
AMI in connection with the transactions contemplated by this Agreement.
SECTION 7.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered
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personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to Parent or Sub, to
Charter Municipal Mortgage Acceptance Company
625 Madison Avenue
New York, New York 10022
Attention: Stuart J. Boesky
Telecopy: (212) 751-3550
with a copy (which shall not constitute notice) to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Mark Schonberger, Esq.
Telecopy: (212) 856-7816
(ii) if to ATEBT, to
c/o Related AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022
Attention: Stuart J. Boesky
Telecopy: (212) 751-3550
with a copy (which shall not constitute notice) to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Mark Schonberger, Esq.
Telecopy: (212) 856-7816
SECTION 7.5 Interpretation. When a reference is made in this Agreement
to a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
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SECTION 7.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 7.7 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer upon
any person other than the parties hereto and the third party beneficiaries
referred to in the following sentence, any rights or remedies.
SECTION 7.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
SECTION 7.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 7.10 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware, this being in addition to any other remedy to
which they are entitled at law or in equity.
SECTION 7.11 Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
[signature page follows]
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IN WITNESS WHEREOF, Parent, Sub, Related AMI and ATEBT have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
CHARTER MUNICIPAL MORTGAGE
ACCEPTANCE COMPANY
By:__________________________________
Name:
Title:
AMERICAN TAX EXEMPT BOND TRUST
By: Related AMI Associates, Inc.,
its Manager
By:_______________________________
Name:
Title:
CM HOLDING TRUST
By:_________________________________
Name:
Title:
ACCEPTED AND AGREED
only with respect to Sections 4.1 and 7.2
RELATED AMI ASSOCIATES, INC.
By: /s/ Stuart J. Boesky___________
--------------------
Name: Stuart J. Boesky
Title: Senior Vice President
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<PAGE>
Exhibit A
CERTIFICATE OF MERGER
OF
AMERICAN TAX EXEMPT BOND TRUST
INTO
CM HOLDING TRUST
(Under Section 3815 of the Delaware Business Trust Act)
The undersigned business trust DOES HEREBY CERTIFY:
FIRST: That the names and jurisdictions of formation of each of
the constituent business trusts of the merger are as follows:
NAME JURISDICTION OF FORMATION
American Tax Exempt Bond Trust Delaware
CM Holding Trust Delaware
SECOND: That an Agreement and Plan of Merger between the parties
to the merger has been approved and executed by each of the constituent business
trusts in accordance with the requirements of Section 3815 of the Delaware
Business Trust Act.
THIRD: The name of surviving Delaware business trust is CM Holding
Trust (the "Surviving Business Trust").
FOURTH: That the executed Agreement and Plan of Merger is on file
at the principal place of business of the Surviving Business Trust, located at
625 Madison Avenue, New York, New York 10022.
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FIFTH: That a copy of the Agreement and Plan of Merger will be
furnished by the Surviving Business Trust, on request and without cost, to any
beneficial owner of any constituent business trust.
SIXTH: That this Certificate of Merger shall be effective at [___]
a.m., New York time, on [________], 2000.
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In witness whereof, the Surviving Business Trust has caused this
Certificate of Merger to be signed by its Managing Trustee on the ___ day of
_________, 2000.
CM HOLDING TRUST
By:____________________________
Name: Stuart J. Boesky
Title: Managing Trustee
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Appendix B
[Legg Mason Wood Walker, Incorporated Letterhead]
October 26, 1999
Board of Directors
Charter Municipal Mortgage Acceptance Company
625 Madison Avenue
New York, NY 10022
Members of the Board:
We have been advised that Charter Municipal Mortgage Acceptance Company
(the "Company"), CM Holding Trust ("CM Holding") and American Tax Exempt Bond
Trust ("ATEBT") have entered into an Agreement and Plan of Merger, to be dated
on or about the date hereof (the "Agreement"), pursuant to which ATEBT will
merge with and into CM Holding and each shareholders of ATEBT will receive
1.43112 newly issued shares of Common Stock of the Company for each share of
beneficial interest in ATEBT owned by such shareholder on terms and conditions
more fully set forth in the Agreement (the transaction is referred to herein as
the "Merger").
You have requested our opinion, as investment bankers, as to fairness
to the Company, from a financial point of view, of the amount of consideration
to be paid by the Company to the shareholders of ATEBT in the Merger.
In connection with our opinion, we have, among other things:
1. reviewed and analyzed draft copies of the Agreement;
2. reviewed and analyzed the audited and unaudited financial
statements and the related filings on forms 10-K and 10-Q of the
Company for the year ended December 31, 1998 and for the six
months ended June 30, 1999;
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Charter Municipal Mortgage Acceptance Company
October 26, 1999
Page 2
3. reviewed and analyzed the audited and unaudited financial
statements and the related filings on forms 10-K and 10-Q of ATEBT
for the year ended December 31, 1998 and for the six months ended
June 30, 1999;
4. reviewed and analyzed certain internal information, primarily
financial in nature, concerning the business and operations of the
Company prepared by the management of the Company, including cash
flow projections and operating budgets;
5. reviewed and analyzed certain internal information, primarily
financial in nature, concerning the business and operations of
ATEBT prepared by the management of ATEBT, including cash flow
projections and operating budgets;
6. reviewed and analyzed certain publicly available information
concerning the Company and ATEBT;
7. reviewed and analyzed financial and market data and operating
statistics relating to ATEBT and compared them with similar
information of the Company and publicly available selected public
companies that we deemed relevant to our inquiry;
8. reviewed documents describing each of ATEBT's first mortgage bonds
("FMB") and documents describing the details of any bond
modifications, if applicable;
9. reviewed the appraisals, prepared by Cushman and Wakefield and
dated September 1, 1999, for each underlying property secured by a
mortgage loan financed by an FMB held by ATEBT;
10. held meetings and discussions with certain directors, officers and
employees of Related AMI Associates, Inc. ("Related AMI"), ATEBT's
manager, and the Company concerning the past and current
operations, financial condition and prospects of ATEBT and the
Company; and
11. conducted such other financial studies, analyses and
investigations and considered such other information as we deemed
appropriate.
In connection with our review, we relied, without independent
verification, on the accuracy and completeness of all information that was
publicly available, supplied or otherwise
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Charter Municipal Mortgage Acceptance Company
October 26, 1999
Page 3
communicated to Legg Mason by or on behalf of the Company or ATEBT and we have
further relied upon the assurances of the management of the Company and Related
AMI that they are unaware of any facts that would make the information provided
to us incomplete or misleading. Legg Mason assumed, with the consent of
management of the Company, that any material liabilities (contingent or
otherwise, known or unknown) of the Company or ATEBT are as set forth in the
respective financial statements of the Company and ATEBT.
Legg Mason has also relied upon the management of the Company and
Related AMI as to the reasonableness and achievability of the financial
forecasts and projections (and the assumptions and bases therein) provided to us
for the Company and ATEBT, and we have assumed such forecasts and projections
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of management as to the future operating performance of
the Company and ATEBT. Neither the Company nor ATEBT publicly discloses internal
management forecasts and projections of the type provided to Legg Mason. Such
forecasts and projections were not prepared with the expectation of public
disclosure. The forecasts and projections were based on numerous variables and
assumptions that are inherently uncertain, including, without limitation, facts
related to general economic and economic conditions. Accordingly, actual results
could vary significantly from those set forth in such forecasts and projections.
Legg Mason has relied on these forecasts and does not in any respect assume any
responsibility for the accuracy or completeness thereof.
Legg Mason has not been requested to make, and has not made, an
independent evaluation or appraisal of the assets, properties, facilities, or
liabilities (contingent or otherwise) of ATEBT or the Company and, with the
exception of the appraisal of the underlying properties of ATEBT referred to
above, we have not been furnished with any such appraisals or evaluations.
Estimates of values of companies and assets do not purport to be appraisals or
necessarily reflect the prices at which companies and assets may actually be
sold. Because such estimates are inherently subject to uncertainty, Legg Mason
assumes no responsibility for their accuracy. Our opinion is necessarily based
upon financial, economic, market and other conditions and circumstances existing
and disclosed to us on the date hereof. Furthermore, Legg Mason has expressed no
opinion as to the value of or the price or trading range at which the shares of
the Company will trade in the future. We were not requested to, nor did we,
solicit the interest of any other party in acquiring interests in ATEBT or its
assets. We have assumed that the final Agreement will not differ in any material
respect from the draft Agreement we reviewed. We have also assumed that the
Merger will be consummated on the terms and conditions described in the
Agreement, without any waiver of material terms or conditions by the Company or
ATEBT, and that obtaining any necessary regulatory approvals or satisfying any
other conditions for consummation of the Merger will not have an adverse effect
on the Company or ATEBT.
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Charter Municipal Mortgage Acceptance Company
October 26, 1999
Page 4
We have acted as financial advisor to the board of directors (the
"Board") of the Company and will receive a fee for our services. In addition, in
June, 1999, Legg Mason was co- manager of a private placement of CharterMac
securities, for which Legg Mason received a customary fee.
It is understood that this letter is for the information of the Board
in their evaluation of the Merger and our opinion does not constitute a
recommendation to the Board as to how such Board should vote on the Merger.
Additionally, our opinion does not compare the relative merits of the Merger
with those of any other transaction or business strategy which were or might
have been considered by Board as alternatives to the Merger and does not address
the underlying business decision by the Board to proceed with or effect the
merger. This letter is not to be quoted or referred to, in whole or in part, in
any registration statement, prospectus, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without the prior written consent of Legg Mason;
provided that this opinion may be included in its entirety in any joint proxy
statement/ prospectus of the Company and ATEBT filed with the Securities and
Exchange Commission in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the amount of consideration to be paid by the Company to the
shareholders of ATEBT in the Merger is fair to the Company from a financial
point of view.
Very truly yours,
/s/ Legg Mason Wood Walker, Incorporated
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Appendix C
[Letterhead of McDonald Investments Inc.]
November 1, 1999
Board of Directors
Related AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022
Attention: J. Michael Fried, CEO of the Manager of American Tax Exempt
Bond Trust
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio (as defined below) to be paid by Charter Municipal
Mortgage Acceptance Company, a Delaware business trust ("Charter Mac"), to the
holders of the issued and outstanding common shares of beneficial interest of
American Tax Exempt Bond Trust, a Delaware business trust ("ATEBT" or the
"Company"), pursuant to the proposed Agreement and Plan of Merger (the
"Agreement") by and among ATEBT, Charter Mac and CM Holding Trust, a wholly
owned subsidiary of Charter Mac ("Merger Sub") (the "Transaction").
Under the terms of the Agreement, at the effective time of the merger (the
"Effective Time"), ATEBT will be merged with and into Merger Sub, the Company's
separate existence will cease, and ATEBT's common shares of beneficial interest
issued and outstanding immediately prior to the merger will be converted into
the right to receive 1.43112 (the "Exchange Ratio") CharterMac common shares of
beneficial interest (the "Merger Consideration") for each ATEBT share. In
connection with the merger and pursuant to the terms of the Agreement, certain
accrued fees and expenses payable by ATEBT to Related AMI Associates, Inc.
("Related AMI") will be waived upon consummation of the merger.
McDonald is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
In connection with rendering our opinion, we have reviewed and analyzed, among
other things, the following: (i) the most recent draft of the Agreement,
provided to McDonald as of November 1, 1999, including the exhibits and
schedules thereto; (ii) a draft dated October 29, 1999 of the preliminary proxy
statement prepared by the Company for use in soliciting the consent of
shareholders to the merger and certain other matters relating thereto; (iii)
certain publicly available information concerning Charter Mac, including the
Annual Report on Form 10K of
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Charter Mac for the year ended December 31, 1998, and the Quarterly Reports on
Form 10Q of Charter Mac for the quarters ending March 31, 1999 and June 30,
1999; (iv) certain publicly available information concerning ATEBT, including
the Annual Report on Form 10K of ATEBT for the year ended December 31, 1998, and
the Quarterly Reports on Form 10Q of ATEBT for the quarters ending March 31,
1999 and June 30, 1999; (v) with respect to the tax-exempt Bonds secured by
first mortgages owned by ATEBT (the "Bonds"), (a) the latest available "asset
management reports" prepared by Related AMI in its ongoing monitoring of the
first mortgage collateral assets of the ATEBT Bonds; (b) the latest available
rent rolls for the collateral properties dated for rents not earlier than June
30, 1999; (c) the latest internal net operating income reports of the collateral
properties of the Bonds dated not earlier than June 30, 1999; (d) the Appraisals
of Cushman & Wakefield all dated as of September 1, 1999; (e) the appropriate
Trust Indentures, Loan Agreements, Land Use Restriction Agreements (sometimes
called the Regulatory Agreements), and Mortgage (and Security) Agreements
supporting the Bonds (along with the respective amendments as applicable); and
(f) in the case of the Highpointe Apartments project, we also reviewed an
Intercreditor Agreement and related supplements and correspondence in connection
thereto; (vi) information with respect to the trading volumes and trading price
ranges of the common shares of Charter Mac; (vii) publicly available information
with respect to the trading of and trading markets for, securities that in our
judgment, have credit and other characteristics comparable to the Bonds; (viii)
publicly available information with respect to the trading of and trading
markets for, securities that in our judgment, have credit and other
characteristics comparable to the common shares of Charter Mac for purposes of
evaluating the value of the Merger Consideration; (ix) publicly available
information with respect to other transactions that, in our judgment, have
credit and other characteristics comparable to the Transaction; and (x) other
financial studies and analyses and other matters as we deemed necessary,
including our assessment of general economic, market and monetary conditions. We
also met with certain officers and employees of the managers of the respective
companies to discuss various matters relating to their respective portfolios,
litigation and other issues that could affect the value of the ATEBT assets as
well as other matters we believed relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of Charter Mac and Related AMI contained in
the Agreement. We have not been engaged to, and have not independently attempted
to, verify any such information. In addition we have not conducted a physical
inspection or appraisal of any assets, properties or facilities of Charter Mac.
We have assumed that there have been no material changes in the cash and
liabilities reflected on ATEBT's unaudited balance sheet included in its
Quarterly Report on Form 10Q for the period ending June 30, 1999. With respect
to the real estate securing the Bonds, we have materially relied on the
appraisal reports issued by Cushman & Wakefield. We have also assumed the
accuracy and completeness of all representations and warranties contained in all
agreements and instruments relating to the collateral and the Bonds (including
representations concerning the tax- exempt status of the Bonds), and that all
documentation supporting the collateral and the Bonds has been duly authorized,
executed and delivered and constitute valid, binding and enforceable obligations
of the respective parties thereto. In addition we have assumed that the
conditions to the merger as set forth in the Agreement would be satisfied, and
that the merger would be consummated on a timely basis in the manner
contemplated by the Agreement. We have also assumed that the final form of the
Agreement would be substantially similar to the last draft of the Agreement
reviewed by us.
It should be noted that this Opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date hereof and does not address any matters subsequent to such date, including
the value of the Charter Mac common shares on the date of issuance thereof to
the holders of ATEBT common shares. We were not engaged to address the effect on
the Exchange Ratio of applicable provisions of the Internal Revenue Code of
1986, as amended, or applicable provisions of state or local tax laws, and
express no view concerning such matters. In addition, our Opinion is, in any
event, limited to the fairness, as of the date hereof, from a financial point of
view, of the Exchange Ratio and does not address ATEBT's or Charter Mac's
underlying business decision to effect the merger or any other terms of the
merger. We expressly disclaim any obligation to update the Opinion subsequent to
the date hereof.
Our engagement has been limited to expressing the Opinion and the related
Valuation of ATEBT's net assets. We received a fee for our services in rendering
the Opinion and the Valuation, as well as the Company's agreement to indemnify
us under certain circumstances.
In the ordinary course of business, we may actively trade securities of both
Charter Mac and ATEBT for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We note that McDonald is a wholly owned subsidiary of KeyCorp. KeyCorp also
wholly owns KeyBank National Association ("KeyBank"). In June 1999, McDonald
participated as a co- manager in a $90 million private placement of preferred
stock for Charter Mac, for which McDonald received customary compensation.
KeyBank has also had relationships with various entities affiliated with the
managers of ATEBT and Charter Mac. Such KeyBank relationships have included
direct lending, participation in credit lines or other forms of credit extension
to such entities. As of October 31, 1999 KeyBank's actual participation in
extended commitments and/or outstanding loans to such entities approximated $160
million.
It is understood that this Opinion was prepared for the confidential use of the
Board of Directors and senior management of Related AMI in its capacity as
manager of ATEBT. Our Opinion does not constitute a recommendation to any
stockholder of ATEBT as to how such stockholder should vote in connection with
any meeting or consent solicitation in connection with the merger.
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Based upon and subject to the forgoing and such other matters as we considered
relevant, it is our opinion that as of the date hereof, the Exchange Ratio is
fair, from a financial point of view, to the shareholders of ATEBT.
Sincerely,
/s/ McDonald Investments Inc.
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<PAGE>
Appendix D
Amendments to American Tax Trust Agreement
If the American Tax shareholders approve the merger and the amendments
to American Tax's trust agreement as described in the foregoing consent
statement- prospectus, then the following italicized provisions will be deleted
from American Tax's trust agreement.
15.4 Limitations. Neither the Manager nor any Affiliate shall have the
authority to:
[Sections 15.4.1 through 15.4.8 and Sections 15.4.10 through 15.4.32
intentionally omitted]
15.4.9 except as permitted in Paragraph 15.2.5 (which Paragraph is
hereby deemed applicable to Affiliates of the Manager) and by Paragraph 15.4.4,
purchase First Mortgage Bonds or Tax-Exempt Securities from the Trust or sell
First Mortgage Bonds or Tax-Exempt Securities to the Trust or purchase real
property from the Trust or lease real property securing First Mortgage Bonds
owned by the Trust;
23.2 Shareholder Options. Unless otherwise permitted by the Guidelines
of the North American Securities Administration Association, Inc. then in
effect, the person sponsoring the Rollup shall offer to Shareholders who vote
"no" on the proposed Rollup the choice of:
(a) accepting the securities of the Rollup Entity offered in the
proposed Rollup; or
(b) one of the following choices:
(i) remaining as Shareholders of the Trust and preserving
their interests therein on the same terms and conditions as
existed previously; or
(ii) receiving cash in an amount equal to the Shareholders'
pro rata share of the appraised value of the net assets of the
Trust.
23.3 Restrictions. Unless otherwise permitted by the Guidelines of the
North American Securities Administrators Association, Inc. then in effect, the
Trust shall not participate in any proposed Rollup which would:
(a) result in the Shareholders having voting rights that are less than
those provided in this Trust Agreement;
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<PAGE>
(b) include provisions which would operate to materially impede or
frustrate the accumulation of securities by any purchaser of the securities of
the Rollup Entity (except to the minimum extent necessary to preserve the tax
status of the Entity);
(c) limit the ability of an investor to exercise the voting rights of
its securities in the Rollup Entity on the basis number of Shares held by that
investor;
(d) result in investors in the Rollup Entity having rights of access to
the records of the Rollup Entity or rights to receive reports that are less than
those provided in Paragraph 14; or
[Section 23.3(e) intentionally omitted]
NY/293215.2
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<PAGE>
Appendix E
[Letterhead of Cushman & Wakefield of Florida, Inc.]
October 20, 1999
Board of Directors
Related AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022-1801
RE: Summarization Letter
Reflections Apartments, Orlando, Florida
High Pointe Apartments, Harrisburg, PA
Rolling Ridge Apartments, Chino Hills, CA
Lexington Trails Apartments, Houston, Texas
Dear Sirs:
In fulfillment of our agreement as outlined in the letter of
engagement, Cushman & Wakefield of Florida, Inc. is pleased to submit this
Summarization Letter pertaining to the September 1, 1999 limited appraisals of
the four (4) multi-family residential apartment properties referenced. The
results of the individual limited appraisals were conveyed in individual Summary
Reports. The properties were individually appraised by Cushman & Wakefield of
Florida, Inc. or other affiliates of Cushman & Wakefield of Florida, Inc.
proximate to the various properties, as outlined within this Summarization
Letter. The terms "our" or "we" as used herein refer to the Cushman & Wakefield
Company which prepared the reports and estimated the values. September 1, 1999
was the date of valuation for all the properties.
This Summarization Letter is not an appraisal. It merely summarizes the
four (4) Summary Reports prepared by identified Cushman & Wakefield appraisers.
For each individual property/limited appraisal, this Summarization Letter will:
1. Identify the property by its name, location and number of
apartment units.
2. Identify the office of the Cushman & Wakefield affiliate that
performed the limited appraisal.
3. Identify the appraiser(s) that signed the limited appraisal,
summary format.
4. Identify the interest appraised.
5. Indicate procedures undertaken and the methodology of the
appraisal.
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6. Indicate the Date of Value.
7. Indicate the estimated Market Value that was reported within
the Summary Report by the identified signatory appraiser(s).
8. Include a brief description of common valuation methodology
employed within all of the Limited Appraisals, Summary
Reports.
9. Identify the standard Assumptions and Limiting Conditions
utilized in each report, as detailed on Exhibit A.
It is our understanding that this Summarization Letter will be an
exhibit attached to the Consent Statement-Prospectus, on the condition that the
entire Summarization Letter is provided. Once again, this document is not an
appraisal and it does not conform to the reporting requirements of the Uniform
Standards of Professional Appraisal Practice. However, the individual Summary
Reports were prepared in accordance with the Departure Provision of the Uniform
Standards of Professional Appraisal Practice. Changes in market conditions since
the September 1, 1999 date of value(s) may or may not have changed the estimated
market value(s). Since this Summarization Letter is not an appraisal there may
have been changes in market values since the original date of value(s),
September 1, 1999. Furthermore, physical changes to the four (4) subject
properties since the September 1,1999 date(s) of value(s) (approximately 2
months ago) may have changed the estimated market value(s).
The September 1, 1999 limited appraisals estimated the fee simple
market value of each property individually. Cushman & Wakefield did not estimate
the portfolio market values for the properties. The aggregate or total fee
simple market values should not be relied upon as being the equivalent to the
price that would necessarily be received in the event of a sale or other
disposition of the portfolio.
Our individual market value(s), as presented in the four (4) individual
summary reports, were based in part upon information supplied to us by Related
Capital Company and/or its affiliated management companies including but not
limited to: rent rolls, building reports, financial schedules of current lease
rates, income, expenses, cash flow and related financial information, property
descriptive information, and other supporting documentation. We relied upon such
information and assumed that the information provided is accurate and complete.
We did not attempt to independently verify such information.
History of Assignment: On August 6, 1999, Cushman & Wakefield of
Florida, Inc. was engaged by Related AMI Associates, Inc., on behalf of American
Tax Exempt Bond Trust to prepare individual limited appraisals of four (4)
multi-family residential apartment properties referenced above. All of the
properties were inspected by Cushman & Wakefield appraiser(s) during the period
between August and September 1999. The appraisals were delivered during
September 1999.
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<PAGE>
All of the appraisals were limited appraisals prepared in accordance
with the Departure Provision of the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation. The results of the limited appraisals were
conveyed in summary reports in accordance with our August 6, 1999 agreement. The
limited appraisal contains something less than the work required by the specific
guidelines of the Uniform Standards of Professional Appraisal Practice. In this
case, only the Income Capitalization Approach was utilized. The Cost and Sales
Comparison Approaches, which might have been appropriate to the appraisals, were
not developed. This constitutes a departure from Standards Rule 1-4(a), 1-4(b)
i, ii, and iii of USPAP. The Income Capitalization Approach was deemed to be the
valuation method of primary relevance to the appraisals.
Appraisal Process: The four (4) individual limited appraisals generally
followed the following outline:
o Cover or Title Page
o Letter of Transmittal
o Summary of Salient Facts and Conclusions
o Table of Contents
o Photographs of the Subject Property
o Introduction Section, including:
-- Identification of Property
-- Property Ownership and Recent History
-- Purpose and Intended Use of the Appraisal
-- Extent of the Appraisal Process
-- Date of Value and Property Inspection
-- Property Rights Appraised
-- Definitions of Value, Interest Appraise, and Other
Pertinent Terms
-- Legal Description
o Market Area Analysis
o Property Description Section
-- Description of the Site
-- Description of the Improvements
o Real Property Taxes and Assessments
o Zoning
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o Highest and Best Use
-- As Though Vacant
-- As Improved
o Valuation Process Section
o Income Capitalization Approach
o Reconciliation and Final Value Estimate
o Assumptions and Limiting Conditions
o Certification of Appraisal
o Addenda
As indicated, the individual limited appraisals only utilized the
Income Capitalization Approach. In developing the Income Capitalization Approach
we:
o Estimated appropriate rental rates by unit type by examining
recent leases in the complex appraised and by surveying
similar competing complexes.
o Estimated income from sources other than apartment rentals
(e.g., washer and dryer rental, forfeited deposits, late
charges, parking space rentals, garage rentals, and various
other fees).
o Estimated an appropriate vacancy and collection loss based
upon the subject's rental history and the experience of
similar complexes.
o Forecasted the property's stabilized annual operating expenses
and reserves for replacement after reviewing its historical
performance and the operating statements of similar complexes
with which we are familiar. We analyzed each item of expense
and attempted to forecast amounts a typical informed investor
would consider reasonable. We also examined industry norms as
reported by The Institute of Real Estate Management in its
apartment survey.
o Estimated net operating income by subtracting stabilized
expenses from effective gross income.
o Capitalized stabilized net operating income into an indication
of capital value. In the direct capitalization method, we
estimated market value by dividing stabilized net operating
income by an overall rate derived from our analyses of market
sales and/or market surveys and computed by dividing the net
operating income from a sold property by its sale price. Most
overall capitalization rates were derived from comparable
improved properties located within or near the subject market.
o Prepared a discounted cash flow analysis in which the
estimated income and expenses over a 10-year forecast, and the
estimated property value at the time of
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<PAGE>
reversion, are discounted at an appropriate rate to estimate
present market value. In general, the steps were as follows:
1. The pro forma was based on a ten-year holding period,
beginning September 1, 1999.
2. All revenue and expense items were entered based on our
September 1999 estimates.
3. Based upon our assessment of the rental market, we
estimated an annual percentage growth rate in effective
rents.
4. General operating expenses were estimated to increase
at appropriate inflationary levels.
5. The reversion estimate was based on a resale in the
tenth year of the analysis period. It was formulated by
applying a terminal overall rate to the eleventh year
NOI and subtracting appropriate estimated selling
costs.
6. The net cash flows and net reversion were discounted to
net present value using an appropriate market supported
equity yield (discount) rate.
On the attached Exhibit B, I present the summary of the four (4)
individual limited appraisals. The total of the individual property values does
not represent a portfolio market value(s). All the values are as of September 1,
1999 and no opinion is rendered after that date.
I trust that this Summarization Letter will meet your requirements at
this time. Once again, it is always a pleasure to be of service.
Sincerely,
CUSHMAN & WAKEFIELD OF FLORIDA, INC.
Thomas J. Landon, MAI
Director and Manager, Florida Valuation Advisory Services
(Fort Lauderdale, Tampa and Orlando)
State-Certified General Real Estate Appraiser No. RZ0000430
Enclosures
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<PAGE>
EXHIBIT A ASSUMPTIONS AND LIMITING CONDITIONS
--------- -----------------------------------
"Appraisal" means the appraisal report and opinion of value stated therein, or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
The Appraisal has been made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed
for the legal description or for any matters which are legal in nature
or require legal expertise or specialized knowledge beyond that of a
real estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all
liens unless otherwise stated. No survey of the Property was
undertaken.
2. The information contained in the Appraisal or upon which the Appraisal
is based has been gathered from sources the Appraiser assumes to be
reliable and accurate. Some of such information may have been provided
by the owner of the Property. Neither the Appraiser nor C&W shall be
responsible for the accuracy or completeness of such information,
including the correctness of estimates, opinions, dimensions, sketches,
exhibits and factual matters. Any authorized user of the Appraisal is
obligated to bring to the attention of C&W any inaccuracies or errors
that it believes are contained in the Appraisal.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the
Property itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Reference to the Appraisal
Institute or to the MAI designation is prohibited. Except as may be
otherwise stated in the letter of engagement, the Appraisal may not be
used by any person other than the party to whom it is addressed or for
purposes other than that for which it was prepared. No part of the
Appraisal shall be conveyed to the public through advertising, or used
in any sales or promotional or offering or SEC material without C&W's
prior written consent.
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<PAGE>
Any authorized user of this Appraisal who provides a copy of this
Appraisal to, or permits reliance thereon by, any person or entity not
authorized by C&W in writing to use or rely thereon, hereby agrees to
indemnify and hold C&W, its affiliates and their respective
shareholders, directors, officers and employees, harmless from and
against all damages, expenses, claims and costs, including attorneys'
fees, incurred in investigating and defending any claim arising from or
in any way connected to the use of, or reliance upon, the Appraisal by
any such unauthorized person or entity.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent
management of the Property; (b) there are no hidden or unapparent
conditions of the Property, subsoil or structures that render the
Property more or less valuable (no responsibility is assumed for such
conditions or for arranging for engineering studies that may be
required to discover them); (c) full compliance with all applicable
federal, state and local zoning and environmental regulations and laws,
unless noncompliance is stated, defined and considered in the
Appraisal; and (d) all required licenses, certificates of occupancy and
other governmental consents have been or can be obtained and renewed
for any use on which the value estimate contained in the Appraisal is
based.
7. The physical condition of the improvements considered by the Appraisal
is based on visual inspection by the Appraiser or other person
identified in the Appraisal. C&W assumes no responsibility for the
soundness of structural members nor for the condition of mechanical
equipment, plumbing or electrical components.
8. The forecasted potential gross income referred to in the Appraisal may
be based on lease summaries provided by the owner or third parties. The
Appraiser assumes no responsibility for the authenticity or
completeness of lease information provided by others. C&W recommends
that legal advice be obtained regarding the interpretation of lease
provisions and the contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market
thinking on future income and expenses. The Appraiser and C&W make no
warranty or representation that these forecasts will materialize. The
real estate market is constantly fluctuating and changing. It is not
the Appraiser's task to predict or in any way warrant the conditions of
a future real estate market; the Appraiser can only reflect what the
investment community, as of the date of the Appraisal, envisages for
the future in terms of rental rates, expenses, supply and demand.
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<PAGE>
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the
construction or maintenance of the improvements or may be located at or
about the Property was not considered in arriving at the opinion of
value. These materials (such as formaldehyde foam insulation, asbestos
insulation and other potentially hazardous materials) may adversely
affect the value of the Property. The Appraisers are not qualified to
detect such substances. C&W recommends that an environmental expert be
employed to determine the impact of these matters on the opinion of
value.
11. Unless otherwise stated in the Appraisal, compliance with the
requirements of the Americans With Disabilities Act of 1990 (ADA) has
not been considered in arriving at the opinion of value. Failure to
comply with the requirements of the ADA may adversely affect the value
of the Property. C&W recommends that an expert in this field be
employed
12. If the Appraisal is submitted to a lender or investor with the prior
approval of C&W, such party should consider this Appraisal as only one
factor together with its independent investment considerations and
underwriting criteria, in its overall investment decision. Such lender
or investor is specifically cautioned to understand all Special
Conditions and Assumptions and this Appendix Assumptions and Limiting
Conditions incorporated in this Appraisal.
13. In the event of a claim against C&W or its affiliates or their
respective officers or employees or the Appraisers in connection with
or in any way relating to relative to the Appraisal or this engagement,
the maximum damages recoverable shall be the amount of the monies
actually collected by C&W or its affiliates for this Appraisal and
under no circumstances shall any claim for consequential damages be
made.
14. By use of this Appraisal each party which uses this Appraisal agrees to
be bound by all of the Assumptions and Limiting Conditions stated
herein.
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<PAGE>
EXHIBIT B
---------
SUMMARIZATION LETTER - RELATED CAPITAL
DATE OF VALUATION FOR ALL 4 LIMITED APPRAISALS: SEPTEMBER 1, 1999
<TABLE>
<CAPTION>
C&W Signing No. Average
C&W VAS MAI/Staff of Square Average Monthly
No. Property City State Office Appraiser(s) Units Footage Unit Size Rent
-------- ---- ----- ------ ------------ ----- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Reflections Apartment Casselberry Florida Orlando Wilhoit 336 266,256 792 $656
Lexington Trails
2 Apartments Houston Texas Houston Page/Littman 199 227,319 1142 $576
High Pointe Club
3 Apartments Harrisburg Pennsylvania Philadelphia Vizza/McNamara 240 215,280 834 $632
4 Rolling Ridge Chino Hills California Irvine Platt 110 101,200 913 $856
Apartments
(1) This is the Fee Simple Market Value.
Aggregate or Average
885 810,055 920 $680
</TABLE>
<TABLE>
<CAPTION>
Appraisal Overall
Date 09/01/1999 "As Capitalization Discount
No. Occupancy Is" Value Rate Rate
--------- --------- ---- ----
<S> <C> <C> <C> <C>
1 92.26% $15,000,000 9.07% 11.50%
2 96.00% $5,200,000(1) 10.00% 12.00%
3 99.00% $9,800,000 8.75% 11.00%
4 100.00% $7,100,000 8.00% 11.00%
Aggregate or Average 97.00% $37,100,000 8.96% 11.38%
This does not represent the portfolio market value.
</TABLE>
NY/293215.2
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<PAGE>
Appendix F
[Letterhead of McDonald Investments Inc.]
November 1, 1999
Board of Directors
Related AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022
Attention: J. Michael Fried, CEO of the Manager of American Tax Exempt
Bond Trust
Ladies and Gentlemen:
You have requested that we render our Not to Exceed Fair Market Valuation of the
Net Assets (as defined below) of American Tax Exempt Bond Trust ("ATEBT" or the
"Company") (the "Valuation").
For purposes of the Valuation, the term "Not to Exceed Fair Market Valuation of
the Net Assets" shall be defined as the sum of (i) the price that it is
reasonable to assume would be unlikely to be exceeded in a competitive sale
process for each individual tax-exempt first mortgage bond in the Company's
portfolio, assuming that neither the buyer nor the Company were compelled to
engage in the transaction and that both parties had full knowledge of all
operative facts; and (ii) cash less the liabilities of the Company as reported
in the balance sheet contained in the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1999.
McDonald is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Further, McDonald is familiar with and has been engaged in
originating, buying, selling and exchanging assets similar in nature to the
Bonds (as defined below) and otherwise is generally familiar with underwriting
standards and procedures employed by Fannie Mae and purchasers of unrated,
unenhanced tax-exempt multifamily housing revenue bonds.
In rendering the Valuation McDonald considered the following:
1. We assumed an orderly liquidation of the first mortgage
secured tax-exempt assets (the "Bonds") held by ATEBT and
then added that cash ($761,430) and subtracted those
liabilities ($780,098 -- which liabilities included the fees
and expenses accrued by the manager of ATEBT, Related AMI
Associates, Inc.
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<PAGE>
("Related AMI") of $766,747) as shown in the June 30, 1999
Form 10Q balance sheet of ATEBT (the "Net Assets").
2. We are not rendering a value on ATEBT shares. ATEBT shares
are not a listed security and lack any significant market
liquidity. Although subject to special redemption features in
accordance with the ATEBT Trust Agreement provisions, ATEBT
shares have been trading only to the extent of purchaser
interest for shares tendered for redemption, and then only at
certain prices established by the Trust's terms through
November 1, 1999, and thereafter to trade at "market prices"
as such is determined by the manager of ATEBT. Such shares
offered for redemption are currently backlogged. Had there
been a liquid trading market for ATEBT shares (considered by
McDonald not to be a viable alternative), the value of ATEBT
shares may have deviated from the underlying value of its Net
Assets.
3. Related AMI has indicated, should the merger be consummated,
that it will waive the $766,747 in fees and expenses accrued
by Related AMI through June 30, 1999 with respect to past
activities by Related AMI for the benefit of ATEBT. Should
the merger not take place Related AMI has indicated it will
no longer defer payment of these accrued fees and expenses
and shall charge ATEBT for such fees and expenses over time
and/or immediately. McDonald has included in the Valuation a
reduction in value respecting Related AMI's accrued fees and
expenses.
4. McDonald, with the consent of Cushman & Wakefield (the
"Appraiser"), materially relied on the four appraisals (the
"Appraisals") for the underlying properties acting as the
first mortgage collateral supporting the Bonds. Such
Appraisals were material to the value McDonald assessed for
the Bonds and McDonald incorporates all the provisions and
limitations expressed in such Appraisals by the Appraiser as
also being further provisions and limitations of McDonald's
assessment of the value of the Bonds.
5. In connection with the valuation of the Bonds, McDonald was
provided several legal documents supporting among other
things, the first mortgage interest in the collateral
property and providing for the tax-exempt status of the
Bonds. McDonald is not licensed in the practice of law and
cannot render legal services nor advice. Review of all such
documents was limited solely to a review from a financial
point of view. McDonald assumed all legal matters to be in
good standing, and by way of example and not by way of
limiting the generality to the foregoing, McDonald assumed
that all copies of documents provided us were genuine copies
of the original documents and that all were valid,
enforceable, and binding, entered into by and on behalf of
the appropriate parties and that all documents necessary to
perfect the nature of any and all contracts, mortgages,
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<PAGE>
collateral and tax-exempt bond opinions, and other
documentation supporting the Bonds were executed
appropriately at the time of their origination and that no
material adverse event has happened to the date of this
Valuation, nor is anticipated to occur in the future, which
would otherwise have a material impact on McDonald's
valuation of the Bonds.
6. The value of the ATEBT Bond assets will fluctuate daily based
upon, among several factors, not all of which are listed
here, the general market interest rate environment, the
assessment of financial risk, including the financial health
of the underlying collateral assets and the real estate
markets in which those assets are situated, the collateral's
continuing compliance with tax laws and regulatory agreements
in maintaining the Bonds' tax-exempt status, and changes in
the federal, state and local tax laws. McDonald's assessment
of value for the Bonds considered only the prevailing market
conditions as of the date of this Valuation Letter, and
McDonald used its professional judgment with respect to such
Bond assets. The Valuation assigned by McDonald is subject to
several assumptions and estimates by McDonald. Had the Bonds
been subject to an open market auction, the assumptions and
estimates may have deviated from those used by McDonald. Due
to changes in these factors, the Bonds may have sold for a
value differing from those values that McDonald assessed had
the Bonds actually been put up for sale. McDonald did not
consider the costs of sales of the Bonds in the Valuation.
7. McDonald assumed that there was no material litigation or
event with respect to any party materially influencing the
ownership or management of the underlying collateral assets
supporting the Bonds, that the collateral is not subject to
any material lawsuit or event which may impair the
collateral's value, and that ATEBT is not subject to any
material lawsuits or events affecting its value generally.
In rendering our Valuation, McDonald examined and performed the following
procedures:
1. We read what we considered to be all material financial provisions of
the following documents:
(a) The latest available "asset management reports" prepared by
Related AMI in its ongoing monitoring of the first mortgage
collateral assets of the ATEBT Bonds.
(b) The latest available rent rolls for the collateral properties
dated for rents not earlier than June 30, 1999.
(c) The latest internal net operating income reports of the collateral
properties of the Bonds dated not earlier than June 30, 1999.
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<PAGE>
(d) The Appraisals of Cushman & Wakefield all dated as of September 1,
1999.
(e) The appropriate Trust Indentures, Loan Agreements, Land Use
Restriction Agreements (sometimes called the Regulatory
Agreements), and Mortgage (and Security) Agreements supporting the
Bonds.
(f) In the case of the Highpointe Apartments project we also reviewed
an Intercreditor Agreement.
(g) The year ending 1998 10K Report and the 10Q Reports for the
periods ending March and June 1999 for ATEBT.
(h) Certifications made by Related AMI to McDonald concerning certain
factual matters that McDonald deemed relevant to the Valuation.
2. We visited each of the four first mortgage collateral security property
sites to evaluate the potential for immediately visible signs of
impairment in the value of each property and the potential thereon for
such collateral impairment to impair the value of the Bonds. We did not
walk all the units and did not walk every angle of the exterior of the
site. We are not real estate appraisers and we materially relied on the
Appraiser's expertise with respect to the value of the collateral
assets.
3. We prepared a quantitative analysis of the cash flows of each Bond's
underlying collateral asset.
4. We assessed normal financial ratio characteristics of risk measurement
with respect to the Bonds, such as potential ranges of Loan to Value
and Debt Service Coverage Ratios respecting the Bonds.
5. We assessed where necessary the likelihood of borrower bond calls, and
the ability for ATEBT to direct a mandatory redemption.
6. We assessed the likelihood of the realization of the contingent
interest component of the Bonds (where applicable), including
contingent interest arising from the sale or refinance of the
collateral property or the Bond (where applicable).
7. We discounted cash flows anticipated from the Bonds, whether from
normal operating conditions, under foreclosure, sale or refinance,
where applicable, and assessed the resulting value, comparing various
potential outcomes on the valuation of the ATEBT Bond assets.
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<PAGE>
8. We accepted as true the liabilities and cash holdings represented in
the June 30, 1999 10Q of ATEBT.
We have not been engaged to, and have not independently attempted to, verify any
of the information provided us, either publicly or from ATEBT or ATEBT's
manager.
It should be noted that this Valuation is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such date.
We expressly disclaim any obligation to update this Valuation subsequent to the
date hereof.
Our engagement has been limited to expressing the Valuation and the related
fairness opinion (the "Opinion") dated as of even date hereof. We received a fee
for our services in rendering the Valuation and Opinion, as well as the
Company's agreement to indemnify us under certain circumstances.
In the ordinary course of business, we may actively trade securities of both
Charter Municipal Mortgage Acceptance Company ("Charter Mac") and ATEBT for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
We note that McDonald is a wholly owned subsidiary of KeyCorp. KeyCorp also
wholly owns KeyBank National Association ("KeyBank"). In June 1999, McDonald
participated as a co- manager in a $90 million private placement of preferred
stock for Charter Mac, for which McDonald received customary compensation.
KeyBank has also had relationships with various entities affiliated with the
managers of ATEBT and Charter Mac. Such KeyBank relationships have included
direct lending, participation in credit lines or other forms of credit extension
to such entities. As of October 31, 1999 KeyBank's actual participation in
extended commitments and/or outstanding loans to such entities approximated $160
million.
It is understood that this Valuation was prepared for the confidential use of
the Board of Directors and senior management of Related AMI in its capacity as
manager of ATEBT. Our Valuation does not constitute a recommendation to any
stockholder of ATEBT as to how such stockholder should vote in connection with
any meeting or consent solicitation in connection with the merger.
NY/293215.2
F-5
<PAGE>
Based on the forgoing examinations and procedures, and subject to the
limitations and facts as outlined above, McDonald has assessed the Not to Exceed
Fair Market Valuation of the Net Assets of ATEBT (as defined above) to be
$26,560,000 (with such value having been reduced by Related AMI's accrued fees
and expenses of $766,747, and which such accrued fees and expenses would be
waived if the merger were to occur).
Sincerely,
/s/ McDonald Investments Inc.
NY/293215.2
F-6
Included with this consent statement-prospectus are the following
reports for each of American Tax and CharterMac:
o Form 10-K/A-1 for the year ended December 31, 1999 (as amended
and restated)
o Form 10-Q/A-1 for the three month period ended March 31, 2000
(as amended and restated)
[For purposes of this filing, we have not included copies of the
above-referenced reports although they will be sent to American Tax shareholders
together with the consent statement-prospectus]
NY/293215.2
F-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 3817(a) of the Delaware Code authorizes a business trust to
indemnify and hold harmless any trustee, or beneficial owner or other person
from and against any and all claims and demands whatsoever. Section 14.1 of the
Registrant's Amended and Restated Trust Agreement provides for the
indemnification of directors and officers. Article XII of the Registrant's
By-laws also provides for indemnification of its officers.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit Description
No.
3.1(a) Certificate of Business Trust dated as of August 12, 1996
(incorporated by reference to the Registrant's Registration
Statement on Form 10, File No. 001-13237)
3.1(b) Certificate of Amendment of Certificate of Business Trust dated
as of April 30, 1997 (incorporated by reference to the
Registrant's Registration Statement on Form 10, File No.
001-13237)
3.1(c) Trust Agreement dated as of August 12, 1996 (incorporated by
reference to the Registrant's Registration Statement on Form
10, File No. 001-13237)
3.1(d) Amendment No. 1 to Trust Agreement dated as of April 30, 1997
(incorporated by reference to the Registrant's Registration
Statement on Form 10, File No. 001-13237)
3.1(e) Amended and Restated Trust Agreement dated as of September 30,
1997 (incorporated by reference to the Registrant's Current
Report on Form 8-K, filed with the Commission on March 19,
1998, File No. 001-13237)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 in the Registrant's Annual Report on Form 10-K/A-1
for the fiscal year ended December 31, 1999)
<PAGE>
4.1 Specimen Copy of Share Certificate for shares of beneficial
interest of the Registrant (incorporated by reference to the
Registrant's Amendment No. 1 on Form 10/A to the Registrant's
Registration Statement on Form 10, File No. 001-13237)
5.1 Opinion of Richards, Layton & Finger, P.A. as to the issuance
of the CharterMac shares of beneficial interest (filed
herewith)
8.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
certain tax matters (filed herewith)
10(a) Management Agreement dated as of October 1, 1997, between the
Registrant and Related Charter L.P. (incorporated by reference
to the Registrant's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
10(b) Agreement and Plan of Merger dated as of October 1 1997, by and
among the Registrant, Summit Tax Exempt Bond Fund, LP., Summit
Tax Exempt L.P. II and Summit Tax Exempt L.P. III (incorporated
by referenced to the Registrant's Current Report on Form 8-K,
filed with the Commission on March 19, 1998)
10(c) Incentive Share Option Plan (incorporated by reference to the
Registrant's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
10(d) Contribution Agreement between CharterMac and CharterMac
Origination Trust ("Origination Trust") dated as of May 21,
1998 (incorporated by reference to Exhibit 10(aaaw) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q)
10(e) Contribution Agreement between OriginationTrust and CharterMac
Owner Trust ("Owner Trust")dated as of May 21, 1998
(incorporated by reference to Exhibit 10(aaax) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
10(f) Insurance Agreement among MBIA, CharterMac, Origination Trust,
Owner Trust, CharterMac Floater Certificate Trust ("Floater
Certificate Trust"), First Tennessee Bank National Association
("First Tennessee"), Related Charter LP, and Bayerishche
Landesbank Girozentrale, New York Branch ("Bayerische") dated
as of May 21, 1998 (incorporated by reference to Exhibit
10(aaay) in the Registrant's June 30, 1998 Quarterly Report on
Form 10-Q)
10(g) Liquidity Agreement among Owner Trust, Floater Certificate
Trust, First Tennessee, MBIA and Bayerische dated as of May 21,
1998 (incorporated by reference to Exhibit 10(aaaz) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
II-2
<PAGE>
10(h) Liquidity Pledge and Security Agreement among Origination
Trust, Owner Trust, Floater Certificate Trust, MBIA, First
Tennessee and Bayerische dated as of May 21, 1998 (incorporated
by reference to Exhibit 10(aaaaa) in the Registrant's June 30,
1998 Quarterly Report on Form 10-Q
10(i) Fee Agreement among Wilmington Trust Company, Floater
Certificate Trust and CharterMac dated as of May 21, 1998
(incorporated by reference to Exhibit 10(aaaab) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
10(j) Certificate Placement Agreement (incorporated by reference to
Exhibit 10(aaaac) in the Registrant's June 30, 1998 Quarterly
Report on Form 10-Q)
10(k) Remarketing Agreement (incorporated by reference to Exhibit
10(aaaad) in the Registrant's June 30, 1998 Quarterly Report on
Form 10-Q
10(l) Charter Mac Equity Issuer Trust, 6 5/8% Series A Cumulative
Preferred Shares, Purchase Agreement, dated June 14, 1999
(incorporated by reference to Exhibit 10(aaaaz) in the
Registrant's June 30, 1999 Quarterly Report on Form 10-Q)
10(m) Agreement and Plan of Merger, dated as of November 2, 1999,
among the Registrant, CM Holding Trust, and American Tax Exempt
Bond Trust (included as Appendix A to the consent
statement/prospectus)
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 in the Registrant's Annual Report on Form 10-K/A-1
for the fiscal year ended December 31, 1999)
23.1 Consent of KPMG LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
23.3 Consent of Reznick Fedder & Silverman (filed herewith)
23.4 Consent of James Zimmerman CPA (filed herewith)
23.5 Consent of Richards, Layton & Finger, P.A. (included in the
opinion filed as Exhibit 5.1)
II-3
<PAGE>
23.6 Consent of Paul, Hastings, Janofsky & Walker LLP (included in
the opinion filed as Exhibit 8.1)
23.7 Consent of Wheat First Union (filed herewith)
24.1 Power of Attorney (contained on Page II-7)
99.1 Amended and Restated Trust Agreement by and among J. Michael
Fried, Stuart J. Boesky, Alan P. Hirmes, Robert W. Grier and
Andrew T. Panaccione as Managing Trustees, Charter Municipal
Mortgage Acceptance Company and Wilmington Trust Company, as
Registered Trustee dated June 22, 1999 relating to Charter Mac
Equity Issuer Trust (incorporated by reference to Exhibit 99
in the Registrant's June 30, 1999 Quarterly Report on Form
10-Q)
99.2 Agreement dated as of April 15, 1999 between Charter Municipal
Mortgage Acceptance Company and Melvyn I. Weiss, Esq. and
Lawrence A. Sucharow, Esq., as Class Counsel co-chairmen
(incorporated by reference to the Registrant's current report
on Form 8-K filed with the Commission on April 29, 1999, File
No. 001-13237) (b) Financial Statement Schedules
(b) Financial Statement Schedules
(Not Applicable)
(c) Report, Opinion or Appraisal
Fairness Opinion of Legg Mason Wood Walker Incorporated, dated
as of October 26, 1999 is incorporated by reference from Appendix B to the
consent statement-prospectus filed as a part of this registration statement on
Form S-4.
Fairness Opinion of McDonald Investments Inc., dated as of
November 1, 1999 is incorporated by reference from Appendix C to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
Summarization Letter of Cushman & Wakefield, dated as of
October 20, 1999 is incorporated by reference from Appendix E to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
Fairness Opinion of McDonald Investments Inc., dated as of
November 1, 1999 is incorporated by reference from Appendix F to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
Item 22. Undertakings.
(a) 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:
II-4
<PAGE>
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change in such information in the registration
statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering hereof.
(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.
(b) 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
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) 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 that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provision or otherwise, the Registrant has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the parties
of expenses incurred or paid by a director, officer or controlling person 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 their respective
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
(d) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus within one
business day of receipt of such request, and to send the incorporated documents
by first class mall or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on August 2, 2000.
CHARTER MUNICIPAL MORTGAGE
ACCEPTANCE COMPANY
By: /s/ Stuart J. Boesky
Stuart J. Boesky
Managing Trustee, President and
Chief Executive Officer
Each person whose signature to the Registration Statement appears below
hereby appoints Stuart J. Boesky and Alan P. Hirmes, and each of them, as his
attorney-in-fact, with full power of substitution and resubstitution, to execute
in the name and on behalf of such person, individually and in the capacity
stated below, and to file all amendments and post-effective amendments to this
Registration Statement, which amendment or amendments may make such changes in
and additions to this Registration Statement as such attorneys-in-fact may deem
necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen M. Ross Chairman of the Board August 2, 2000
---------------------------------
Stephen M. Ross
Managing Trustee August ______, 2000
---------------------------------
Peter T. Allen
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Arthur P. Fisch Managing Trustee August 2, 2000
---------------------------------
Arthur P. Fisch
/s/ Stuart J. Boesky Managing Trustee, August 2, 2000
---------------------------------
Stuart J. Boesky President and Chief
Executive Officer
/s/ Alan P. Hirmes Managing Trustee, August 2, 2000
---------------------------------
Alan P. Hirmes Executive Vice President,
Interim Chief Financial
Officer and Chief
Accounting Officer and
Secretary
Managing Trustee August ______, 2000
---------------------------------
Michael B. Brenner
/s/ Thomas White Managing Trustee August 2, 2000
---------------------------------
Thomas White
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
Exhibit Description
No.
3.1(a) Certificate of Business Trust dated as of August 12, 1996
(incorporated by reference to the Registrant's Registration
Statement on Form 10, File No. 001-13237)
3.1(b) Certificate of Amendment of Certificate of Business Trust dated
as of April 30, 1997 (incorporated by reference to the
Registrant's Registration Statement on Form 10, File No.
001-13237)
3.1(c) Trust Agreement dated as of August 12, 1996 (incorporated by
reference to the Registrant's Registration Statement on Form
10, File No.
001-13237)
3.1(d) Amendment No. 1 to Trust Agreement dated as of April 30, 1997
(incorporated by reference to the Registrant's Registration
Statement on Form 10, File No. 001-13237)
3.1(e) Amended and Restated Trust Agreement dated as of September 30,
1997 (incorporated by reference to the Registrant's Current
Report on Form 8-K, filed with the Commission on March 19,
1998, File No. 001-13237)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 in the Registrant's Annual Report on Form 10-K/A-1
for the fiscal year ended December 31, 1999)
4.1 Specimen Copy of Share Certificate for shares of beneficial
interest of the Registrant (incorporated by reference to the
Registrant's Amendment No. 1 on Form 10/A to the Registrant's
Registration Statement on Form 10, File No. 001-13237)
5.1 Opinion of Richards, Layton & Finger, P.A. as to the issuance
of the CharterMac shares of beneficial interest (filed
herewith)
8.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
certain tax matters (filed herewith)
10(a) Management Agreement dated as of October 1, 1997, between the
Registrant and Related Charter L.P. (incorporated by reference
to the Registrant's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
II-9
<PAGE>
Exhibit Description
10(b) Agreement and Plan of Merger dated as of October 1 1997, by and
among the Registrant, Summit Tax Exempt Bond Fund, LP., Summit
Tax Exempt L.P. II and Summit Tax Exempt L.P. III (incorporated
by referenced to the Registrant's Current Report on Form 8-K,
filed with the Commission on March 19, 1998)
10(c) Incentive Share Option Plan (incorporated by reference to the
Registrant's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
10(d) Contribution Agreement between CharterMac and CharterMac
Origination Trust ("Origination Trust") dated as of May 21,
1998 (incorporated by reference to Exhibit 10(aaaw) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q)
10(e) Contribution Agreement between OriginationTrust and CharterMac
Owner Trust ("Owner Trust")dated as of May 21, 1998
(incorporated by reference to Exhibit 10(aaax) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
10(f) Insurance Agreement among MBIA, CharterMac, Origination Trust,
Owner Trust, CharterMac Floater Certificate Trust ("Floater
Certificate Trust"), First Tennessee Bank National Association
("First Tennessee"), Related Charter LP, and Bayerishche
Landesbank Girozentrale, New York Branch ("Bayerische") dated
as of May 21, 1998 (incorporated by reference to Exhibit
10(aaay) in the Registrant's June 30, 1998 Quarterly Report on
Form 10-Q)
10(g) Liquidity Agreement among Owner Trust, Floater Certificate
Trust, First Tennessee, MBIA and Bayerische dated as of May 21,
1998(incorporated by reference to Exhibit 10(aaaz) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
10(h) Liquidity Pledge and Security Agreement among Origination
Trust, Owner Trust, Floater Certificate Trust, MBIA, First
Tennessee and Bayerische dated as of May 21, 1998 (incorporated
by reference to Exhibit 10(aaaaa) in the Registrant's June 30,
1998 Quarterly Report on Form 10-Q
10(i) Fee Agreement among Wilmington Trust Company, Floater
Certificate Trust and CharterMac dated as of May 21, 1998
(incorporated by reference to Exhibit 10(aaaab) in the
Registrant's June 30, 1998 Quarterly Report on Form 10-Q
10(j) Certificate Placement Agreement (incorporated by reference to
Exhibit 10(aaaac) in the Registrant's June 30, 1998 Quarterly
Report on Form 10-Q)
II-10
<PAGE>
Exhibit Description
10(k) Remarketing Agreement (incorporated by reference to Exhibit
10(aaaad) in the Registrant's June 30, 1998 Quarterly Report on
Form 10-Q
10(l) Charter Mac Equity Issuer Trust, 6 5/8% Series A Cumulative
Preferred Shares, Purchase Agreement, dated June 14, 1999
(incorporated by reference to Exhibit 10(aaaaz) in the
Registrant's June 30, 1999 Quarterly Report on Form 10-Q)
10(m) Agreement and Plan of Merger, dated as of November 2, 1999,
among the Registrant, CM Holding Trust, and American Tax Exempt
Bond Trust (included as Appendix A to the consent
statement/prospectus)
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 in the Registrant's Annual Report on Form 10-K/A-1
for the fiscal year ended December 31, 1999)
23.1 Consent of KPMG LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
23.3 Consent of Reznick Fedder & Silverman (filed herewith)
23.4 Consent of James Zimmerman CPA (filed herewith)
23.5 Consent of Richards, Layton & Finger, P.A. (included in the
opinion filed as Exhibit 5.1)
23.6 Consent of Paul, Hastings, Janofsky & Walker LLP (included in
the opinion filed as Exhibit 8.1)
23.7 Consent of Wheat First Union (filed herewith)
24.1 Power of Attorney (contained on Page II-7)
99.1 Amended and Restated Trust Agreement by and among J. Michael
Fried, Stuart J. Boesky, Alan P. Hirmes, Robert W. Grier and
Andrew T. Panaccione as Managing Trustees, Charter Municipal
Mortgage Acceptance Company and Wilmington Trust Company, as
Registered Trustee dated June 22, 1999 relating to Charter Mac
Equity Issuer Trust (incorporated by reference to Exhibit 99 in
the Registrant's June 30, 1999 Quarterly Report on Form 10-Q)
II-11
<PAGE>
Exhibit Description
99.2 Agreement dated as of April 15, 1999 between Charter Municipal
Mortgage Acceptance Company and Melvyn I. Weiss, Esq. and
Lawrence A. Sucharow, Esq., as Class Counsel co-chairmen
(incorporated by reference to the Registrant's current report
on Form 8-K filed with the Commission on April 29, 1999, File
No. 001-13237)
(b) Financial Statement Schedules
(Not Applicable)
(c) Report, Opinion or Appraisal
Fairness Opinion of Legg Mason Wood Walker Incorporated, dated
as of October 26, 1999 is incorporated by reference from Appendix B to the
consent statement-prospectus filed as a part of this registration statement on
Form S-4.
Fairness Opinion of McDonald Investments Inc., dated as of
November 1, 1999 is incorporated by reference from Appendix C to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
Summarization Letter of Cushman & Wakefield, dated as of
October 20, 1999 is incorporated by reference from Appendix E to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
Fairness Opinion of McDonald Investments Inc., dated as of
November 1, 1999 is incorporated by reference from Appendix F to the consent
statement- prospectus filed as a part of this registration statement on Form
S-4.
II-12
