SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(as filed with the Securities and Exchange Commission on April __, 2000)
Filed by the Registrant X
-
Filed by a Party other than the Registrant ___
Check the appropriate box:
___ Preliminary Proxy Statement ___ Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
X Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MUNICIPAL MORTGAGE & EQUITY, LLC
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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<PAGE>
___ Fee paid previously with preliminary materials.
___ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
Baltimore, Maryland
May 4, 2000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of Common
Shares and Term Growth Shares (the "Shareholders") of Municipal Mortgage &
Equity, LLC, a Delaware limited liability company (the "Company" or "MuniMae"),
will be held at the following location, on May 4, 2000, beginning at 9:00 a.m.:
Municipal Mortgage & Equity, LLC
218 N. Charles St., Suite 500
Baltimore, Maryland 21201
THE PURPOSE of the Annual Meeting will be:
1. To elect three members of the Board of Directors to hold office for
three-year terms expiring at the annual meeting for the fiscal year ending
December 31, 2003 and until their respective successors are duly elected and
qualified; and
2. To consider and act upon any other matter which may properly come
before the meeting or any adjournment or postponement thereof.
All Shareholders are cordially invited to attend the Annual Meeting in
person. The record date for determining those Shareholders entitled to vote at
the Annual Meeting is March 27, 2000. A review of the Company's operations for
the year ended December 31, 1999 will be presented. A proxy statement, form of
proxy and a copy of the 1999 Annual Report to Shareholders is enclosed.
By Order of the Board of Directors,
Thomas R. Hobbs
Secretary
Baltimore, Maryland
March 27, 2000
IMPORTANT - Whether or not you plan to attend the meeting in person, you can
help in the preparation for the meeting by filling in and signing the enclosed
proxy and promptly returning it in the enclosed envelope. If you are unable to
attend, your shares will be voted as directed by your proxy. If you do attend
the meeting, you may vote your shares even though you have sent in your proxy.
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
Corporate Office and Mailing Address:
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(410) 962-8044
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by Municipal Mortgage & Equity, LLC (hereinafter the "Company" or
"MuniMae") from holders of Common Shares and Term Growth Shares (the
"Shareholders") for the Annual Meeting of Shareholders to be held on May 4,
2000. The cost of soliciting such proxies will be borne by the Company. Brokers
and other persons will be reimbursed for their reasonable expenses in forwarding
proxy materials to Shareholders who have a beneficial interest in Common Shares
registered in the names of nominees.
The enclosed proxy, if executed and returned, may be revoked at any time
prior to the meeting by executing a proxy bearing a later date or by written
notice to the Secretary of the Company. The power of the proxy holders will also
be revoked if the Shareholder executing the proxy appears at the meeting and
elects to vote in person. Executed proxies confer upon the persons appointed as
proxies discretionary authority to vote on all matters which may properly come
before the meeting including motions to adjourn the meeting for any reason.
In accordance with the Company's By-Laws, the stock transfer records were
compiled on March 27, 2000, the record date set by the Board of Directors for
determining the Shareholders entitled to notice of, and to vote at, this meeting
and any adjournment or postponement thereof. On that date, there were 17,480,627
outstanding Common Shares (no par value) and 2,000 outstanding Term Growth
Shares. The holders of the outstanding Common Shares and Term Growth Shares at
the close of business on March 27, 2000 will be entitled to one vote for each
share held by them as of such date.
The presence of the holders of a majority of the issued and outstanding
Common Shares and Term Growth Shares entitled to vote at the Annual Meeting,
either in person or represented by properly executed proxies, is necessary to
constitute a quorum for the transaction of business at the Annual Meeting. If
there are not sufficient shares represented in person or by proxy at the meeting
to constitute a quorum, the meeting may be postponed or adjourned in order to
permit further solicitation of proxies by the Company. Proxies given pursuant to
this solicitation and not revoked will be voted at any postponement or
adjournment of the Annual Meeting in the manner described above. Under the rules
of the New York Stock Exchange, Inc. (the "Exchange"), brokers holding shares
for beneficial owners have authority to vote on certain matters when they have
not received instructions from the beneficial owners, and do not have such
authority as to certain other matters (so-called "broker non-votes").
An abstention is deemed "present" but is not deemed a "vote cast." As a
result, abstentions and broker "non-votes" are not included in the tabulation of
the voting results on the election of directors or issues requiring approval of
a majority of the votes cast and, therefore, do not have the effect of votes in
opposition. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power on that item and has not received
instructions from the beneficial owner. Broker "non-votes" and the shares as to
which a stockholder abstains are included in determining whether a quorum is
present.
This proxy statement and the enclosed proxy are first being sent or given
to Shareholders on or about March 31, 2000.
<PAGE>
ELECTION OF DIRECTORS
(Proposal No. 1)
The Company's Amended and Restated Certificate of Formation and Operating
Agreement (the "Operating Agreement") generally provides that the Board of
Directors shall consist of at least five and no more than 15 members, with the
number of seats on the Board to be determined from time to time by resolution of
the Board. On October 7, 1999, the Board deemed it in the best interest of the
Company to increase the size of the Board. As a result, Messrs. Falcone,
McGregor and Banks were appointed to the Board. The number of directors on the
Board is currently set at ten, with (i) nine of the directors divided into three
classes, the members of which are elected by the holders of the Common Shares
and Term Growth Shares for staggered three-year terms, and (ii) one director
(the "Specially Appointed Director") who may be appointed by the Dissolution
Shareholder (see "Certain Relationships and Related Transactions"). As of the
date of this proxy statement, the seat reserved for the Specially Appointed
Director is vacant. The terms of three directors, Messrs. Berndt, Hillman and
Falcone expire in 2000 and Messrs. Berndt and Hillman, directors since 1996, and
Mr. Falcone, a director since October 1999, have been nominated for re-election
at the Annual Meeting.
The names, ages, terms of office and certain other information as of March
17, 2000 with respect to the persons nominated for election as directors and
other persons serving as directors are as follows:
Information Concerning Nominees for Terms Expiring in 2003:
Richard O. Berndt, age 57, a director of the Company since August 1996,
has been the managing partner of the law firm of Gallagher, Evelius & Jones, LLP
located in Baltimore, Maryland since 1976. Mr. Berndt has extensive experience
in corporate and real estate law. Mr. Berndt serves on the Board of Mercantile
Bankshares, Financial Administration for the Archdiocese of Baltimore and Mercy
Medical Center, Inc. Gallagher, Evelius & Jones, LLP provides corporate and real
estate related legal services to the Company.
Robert S. Hillman, age 60, a director of the Company since August 1996,
has been a member of the law firm of Whiteford, Taylor and Preston, L.L.P.,
which has offices in Baltimore, Maryland and Washington, D.C., since 1986.
Formerly the Executive Partner of the 135-attorney firm, Mr. Hillman has
extensive experience in municipal finance, real estate, labor and employment
law. He is presently on the boards of the B&O Railroad Museum, the Babe Ruth
Museum and a trustee of the Enoch Pratt Free Library. He is also a director and
president of H & V Publishing, Inc.
Michael L. Falcone, age 38, a director since October 1999, has been the
President and Chief Operating Officer of the Company since 1997. Prior to his
appointment as President and Chief Operating Officer, Mr. Falcone served as
Executive Vice President from November 1996 to December 1997 and Senior Vice
President from August 1996 to November 1996. Mr. Falcone is responsible for the
operations of the Company focusing on strategic planning and business
development as well as the management of the day-to-day activities of the
Company. Prior to joining the Company, he was a Senior Vice President of Shelter
Development Corporation where he was employed from 1983 to 1996. He is currently
a board member of and shareholder in Shelter Development LLC and Shelter
Properties LLC. Mr. Falcone is a trustee for the Midland Affordable Housing
Group Trust ("MAHGT"), a pension fund that provides debt financing for the
Company's customers. The Midland Companies ("Midland"), a wholly owned
subsidiary of the Company, provides investment advisory services for the MAHGT.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES FOR ELECTION AS DIRECTORS.
Information Concerning Directors whose Terms Expire in 2001:
William L. Jews, age 48, a director of the Company since August 1996, has
been President and Chief Executive Officer of CareFirst Blue Cross Blue Shield,
since the merger between Blue Cross/Blue Shield of Maryland and Blue Cross/Blue
Shield of National Capital Area on January 16, 1998. Prior to the merger, Mr.
Jews was President and Chief Executive Officer of Blue Cross/Blue Shield of
Maryland since 1993. Mr. Jews serves on the boards of directors of National Blue
Cross/Blue Shield Association, Crown Central Petroleum, Inc., The Ryland Group,
The Federal Reserve Bank of Richmond and EcoLab, Inc. He is also a board member
of the Baltimore County Revenue Authority and the Maryland Health Care
Foundation Board of Trustees.
Carl W. Stearn, age 67, has been a director of the Company since August
1996. Mr. Stearn is Chairman of the Executive Committee of Provident Bankshares
Corporation. Prior to his retirement on April 15, 1998, Mr. Stearn was the
Chairman and Chief Executive Officer of Provident Bankshares Corporation and
Chief Executive Officer of Provident Bank of Maryland since 1990. Mr. Stearn
serves on the boards of directors of the University of Maryland School of
Medicine Board of Visitors, Project Life and the Maryland Science Center.
Douglas A. McGregor, age 57, a director of the Company since October 1999,
is Vice Chairman and Chief Operating Officer for The Rouse Company. Mr. McGregor
has been with The Rouse Company since 1972 and assumed his current position in
1998. Mr. McGregor has extensive experience in real estate development and
management. Mr. McGregor is a trustee of the International Council of Shopping
Centers. Information Concerning Directors whose Terms Expire in 2002:
Mark K. Joseph, age 61, has served as Chairman of the Board and Chief
Executive Officer of the Company since August 1996. He also served as the
President and a director of the Managing General Partner of the SCA Tax Exempt
Fund Limited Partnership, the Company's predecessor (the "Predecessor"), from
1986 through 1996. Mr. Joseph is Chairman of the Board and founder of The
Shelter Group, a real estate development and property management company. Mr.
Joseph serves on the Boards of the Greater Baltimore Committee, Provident
Bankshares Corporation and the Associated Jewish Charities. Mr. Joseph is also
the President and one of five directors of the Shelter Foundation, a public
non-profit foundation that provides housing and related services to families of
low and moderate income.
Charles C. Baum, age 58, a director of the Company since August 1996, has
been Chairman of the Morgan Group, Inc., Elkhart, Indiana, since 1992. Morgan is
the nation's leader in providing transportation and other services to the
manufactured housing and recreational vehicle industries. Since 1973, Mr. Baum
has also been Secretary/Treasurer of United Holdings Co., Inc. and its
predecessors. United Holdings was involved in the metal business until 1990 when
it shifted its focus to become a firm which primarily invests in real estate and
securities. Mr. Baum is also a director of Gabelli Group Capital Partners, Inc.,
Gabelli Group, Inc. and Shapiro Robinson & Associates (a firm which represents
professional athletes).
<PAGE>
Robert J. Banks, age 55, a director of the Company since October 1999, is
the Chairman and Chief Executive Officer of Midland and has been a Senior Vice
President of the Company since October 1999. Mr. Banks was hired by Midland in
1973 and became President and Chief Operating Officer in 1988. In 1993, Mr.
Banks became the Chairman and Chief Executive Officer of Midland. Mr. Banks has
been involved in real estate lending and mortgage banking since 1970 and is an
investment advisor registered with the Securities and Exchange Commission and
holds four different securities licenses. Mr. Banks is a trustee for the MAHGT
and is also a board member of First National Bank of Florida and the National
Multifamily Housing Council.
During 1999, the Board of Directors held two special meetings (one
telephonic) and five regular meetings. There were four committee meetings during
1999. Each director attended at least 75% of the aggregate of the total number
of meetings held by the Board of Directors and the total number of meetings held
by all committees of the Board of Directors on which he served. The Board has
established certain committees as follows:
1. Compensation Committee. The Compensation Committee, composed of Messrs.
Hillman (Chairman), Stearn, Baum and Joseph, met two times during 1999. Its
functions are to determine the compensation of certain officers of the Company,
including but not limited to base compensation, incentive compensation and bonus
compensation. At its first meeting, the Compensation Committee consisted of
Messrs. Hillman, Stearn, Baum and Joseph. On October 18, 1999, in light of the
good practice guidelines of the American Bar Association, the Board
reconstituted the Compensation Committee to consist of Messrs. Hillman, Stearn,
Baum and McGregor.
2. Audit Committee. The Audit Committee composed of Messrs. Stearn
(Chairman), Jews, Berndt and Baum, met two times during 1999. Its duties are to
assist the Board of Directors in fulfilling its financial oversight
responsibilities, select an independent accountant for the Company and to
oversee the work of such independent accountant. Effective June 30, 1999, Mr.
Berndt resigned from the Audit Committee in order to comply with Exchange rules
concerning the composition of its listed companies' audit committees.
3. Share Incentive Committee. The Share Incentive Committee, a subcommittee
of the Compensation Committee, met immediately following each Compensation
Committee meeting. Its functions are to determine awards under the Company's
Share Incentive Plans.
The Company does not have a standing nominating committee of the Board of
Directors, or any committee performing a similar function.
Vote Required for Approval
The affirmative vote of a majority of the holders of the outstanding
Common Shares and Term Growth Shares (voting together as one class) present in
person or represented by duly executed proxies at the Annual Meeting is
necessary for the election of a nominee as a director of the Company. Shares
represented by an executed proxy in the form enclosed will, unless otherwise
directed, be voted for the election of the three persons nominated to serve as
directors. Shares represented by proxies which are marked "WITHHOLD" will be
excluded entirely from the vote and will have no effect.
Compensation of Directors
The Company pays its directors who are not officers of the Company fees
for their services as directors. From time to time, the Board of Directors may
change this compensation by resolution. During 1999, the directors received
annual compensation of $12,000 plus a fee of $500 for attendance at each meeting
of the Board of Directors (including telephonic board meetings) and each
committee meeting. Effective January 1, 2000, such compensation was adjusted to
$16,000 per year plus $1,000 per attendance at each meeting including committee
meetings and $500 for telephonic meetings. Officers of the Company who are
directors are not paid any director fees.
<PAGE>
In addition, non-employee directors are granted options for Common Shares
and may elect to receive Common Shares or deferred Common Shares in lieu of fees
under the 1996 Non-Employee Directors' Share Plan (the "1996 Directors' Plan")
and the 1998 Non-Employee Directors' Share Plan (the "1998 Directors' Plan," and
collectively with the 1996 Directors' Plan, the "Directors' Plans"). Under the
1996 Directors' Plan, each non-employee director was granted an option to
purchase 2,500 Common Shares following the merger of the Predecessor with the
Company. In addition, the Directors' Plans provide that each such non-employee
director will receive an option to purchase 2,500 Common Shares (i) upon his
initial election or appointment, and (ii) on the date of each Annual Meeting of
Shareholders. Effective January 1, 2000, the Directors' Plans were amended to
provide that each non-employee director receive an option to purchase 7,000
Common Shares upon his initial election or appointment and an option to purchase
5,000 Common Shares on the date of each Annual Meeting of Shareholders. Such
options have and will have exercise prices equal to the fair market value of
Common Shares on the date of grant, and expire and will expire at the earlier of
10 years after the date of grant or one year after the optionee ceases serving
as a director. Such options become and generally will become exercisable one
year after grant, subject to earlier exercisability in the event of death,
disability, or a change in control (as defined in the Directors' Plans), and
will be forfeited in the event of cessation of service as a director within 10
months after the date of grant. The Directors' Plans also permit a non-employee
director to elect to be paid any directors' fees in the form of Common Shares or
deferred Common Shares ("Deferred Shares"). A director who makes the election to
receive Common Shares will receive Common Shares having a fair market value at
the time of issuance equal to the amount of fees he has elected to forego, with
such shares issuable at the time the fees otherwise would have been paid. At any
date on which fees are payable to a director who elected to defer fees in the
form of Deferred Shares, the Company will credit such director's deferral
account with a number of Deferred Shares equal to the number of Common Shares
having an aggregate fair market value at that date equal to the fees that
otherwise would have been payable at such date. Whenever dividends are paid or
distributions are made, the deferral account of a director who elected to
receive Deferred Shares will be credited with dividend equivalents having a
value equal to the amount of the dividend paid on a single Common Share
multiplied by the number of Deferred Shares credited to his deferral account as
of the record date for such dividend. Such dividend equivalents will be credited
to the deferral account as a number of Deferred Shares determined by dividing
the aggregate value of such dividend equivalents by the fair market value of a
Common Share at the payment date of the dividend. A total of 50,000 Common
Shares are reserved for grants under the 1996 Directors' Plan and a total of
50,000 Common Shares are reserved for grants under the 1998 Directors' Plan. The
number and kind of shares reserved and automatically granted under the
Directors' Plans are subject to adjustment in the event of stock splits, stock
dividends and other extraordinary events.
<PAGE>
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company and
provides certain information about each of them.
Current Position(s) with the Company
Name and Age and Past Business Experience
Mark K. Joseph, 61 Chairman of the Board and Chief Executive
Officer of the Company since August 1996.
(See description of past business experience
in the preceding section.)
Michael L. Falcone, 38 President and Chief Operating Officer of the
Company since December 1997. Prior to his
appointment as President and Chief Operating
Officer, Mr. Falcone served as Executive
Vice President from November 1996 to
December 1997 and Senior Vice President
from August 1996 to November 1996. (See
description of past business experience
in the preceding section.)
Gary A. Mentesana, 35 Senior Vice President of the Company since
May 1997 and Chief Financial Officer since
January 1998. Before being appointed Senior
Vice President and Chief Financial Officer,
Mr. Mentesana served as Vice President from
August 1996 to May 1997. Mr. Mentesana is
responsible for the financial operations
of the Company. He manages the capital
market activities of the Company. Between
1988 and 1996, he performed similar
functions for the managing general partner
of the Predecessor. Mr. Mentesana is a
certified public accountant.
Robert J. Banks, 55 Senior Vice President of the Company since
October 1999 and Chairman and Chief
Executive Officer of The Midland Companies
since 1993.(See description of past business
experience in the preceding section.)
Keith J. Gloeckl, 49 Senior Vice President of the Company since
October 1999 and President and Chief
Operating Officer of The Midland Companies
since1993. Mr. Gloeckl is primarily
responsible for the strategic planning and
business development of Midland.
<PAGE>
Thomas R. Hobbs, 59 Senior Vice President and Secretary of the
Company since August 1996. Mr. Hobbs
directs the administrative, board relations
and investor services of the Company. Mr.
Hobbs chairs the Credit Committee, providing
direction on loan policy and product
development. From 1986 to 1996, Mr. Hobbs
was Senior Vice President and General
Manager of the managing general partner
of the Predecessor.
Earl W. Cole, III, 46 Senior Vice President of the Company since
November 1998. Before being appointed
Senior Vice President, Mr. Cole served as
Vice President of the Company from August
1996 to November 1998. Mr. Cole directs
the portfolio management, loan servicing
and underwriting operations of the Company.
Mr. Cole served in a similar capacity for
the managing general partner of the
Predecessor from 1989 to 1996.
Jesse M. Chancellor, 42 Senior Vice President of the Company since
July 1999. Before being appointed Senior
Vice President, Mr. Chancellor served as
Vice President of the Company since March
1997. Mr. Chancellor is responsible for the
origination of investments in tax-exempt
multifamily bonds. Prior to joining the
Company, Mr. Chancellor was the Director of
Field Operations for The Enterprise
Foundation from 1994 to 1997, where he was
responsible for all local Enterprise office
activities including ensuring effective
program delivery, strategic planning and
budgeting.
Ray F. Mathis, 50 Senior Vice President of the Company since
October 1999 and Chief Financial Officer
of The Midland Companies since 1991. Mr.
Mathis is responsible for the financial
operations of Midland and the low income
housing tax credit syndication programs
generated by Midland.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee met two times during 1999 and determined
executive compensation in accordance with recommendations of an independent
consultant hired to perform such services. The recommendations were based on
survey data prepared by nationally recognized real estate compensation
consultants. Based on discussions with the Compensation Committee and the
acquisition of Midland, the consultants decided that each position within the
Company's organization should be benchmarked against its own unique peer group,
depending upon the roles and responsibilities of the position. The consultants
established custom peer groups from two categories of companies; multifamily
REITs and specialty finance and investment companies. As a result, the CEO,
Chief Operating Officer and Chief Financial Officer of the Company were compared
to the multifamily REITs, while the other executives of the Company were
compared to the specialty finance and investment companies.
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of share options, Deferred Shares and various benefits, including
medical and life insurance plans generally available to all employees of the
Company.
Executive Compensation
The Company is committed to establishing and maintaining an organization
and culture where all employees are equitably rewarded for their contribution to
the success of the Company. The compensation program created has as its basis a
strong pay-for-performance approach designed to foster and reward individual
entrepreneurial action and resourcefulness within a team environment. The
Company's overall compensation policy is designed to provide a reward structure
that will motivate the executives to assist in achieving strategic and financial
goals, retain and attract competent personnel and link the interests of
management and shareholders through equity-based compensation.
Base Salary. The Company generally establishes base salaries for executive
officers, including the CEO, at amounts that fall at or below the market median
determined by the consultants. This conservative position has allowed the
Company to create long-term incentive opportunities that are at or somewhat
above average. The Company provides for individual adjustments to base salary
for changes in the market, expansion of job responsibilities and/or the
executive's contribution to the financial success of the Company. The executive
officers fall between the 25th percentile and the median, and lower for the CEO.
Annual cash compensation (base salary and bonus) for all other officers are
currently within the competitive ranges of the Company's peer groups. The
Company has and will continue to periodically review the benchmark salary ranges
to determine continued market competitiveness.
<PAGE>
Annual Incentive. The Company paid incentive compensation to the officers
listed above during 1999. The incentive compensation plan provides incentives to
executive officers based on the achievement of qualifying operating profit
goals. The Compensation Committee awards annual bonuses to officers other than
the CEO based on the recommendations of the CEO; for the CEO, annual bonuses are
determined solely by the Compensation Committee. Based on the consultant's
report, the Compensation Committee established three profit ranges, threshold,
target and superior, to be used to determine bonus awards.
The threshold performance range signifies a solid achievement but falls
short of budget expectations. The target performance range signifies a stretch
achievement that means achieving the business plan and internal budget goals.
Finally, the superior performance range signifies an exceptional achievement
toward realizing the long-term objectives of the Company and would significantly
exceed budget expectations. The threshold, target and superior ranges are based
exclusively on achievement of cash flow per share goals, taking into account the
payment of all bonuses. The plan provides for incentive ranges as a percentage
of base salary to determine annual bonuses within each profit range.
For 1999, the Company achieved superior performance, and therefore, annual
bonuses were paid to the executives, as well as employees, for performance under
the plan in the superior performance range, as disclosed in the Summary
Compensation Table.
Long-term Incentive. The Company established the 1996 Share Incentive Plan
(the "1996 Plan") prior to the merger with the Predecessor in August 1996. In
June 1998, the Shareholders approved the 1998 Share Incentive Plan (the "1998
Plan" and collectively with the 1996 Plan, the "Plans"). The Plans provide a
means to attract, retain and reward executive officers and other key employees
of the Company, to link employee compensation to measures of the Company's
performance, and to promote ownership of a greater proprietary interest in the
Company. The Plans authorize grants of a broad variety of awards, including
non-qualified stock options, stock appreciation rights, restricted shares,
Deferred Shares and shares granted as a bonus or in lieu of other awards. Any
restricted share or Deferred Share awards need to be approved or ratified by the
Share Incentive Committee (the "Committee"). Initially, 883,033 and 839,000
Common Shares are reserved for issuance in connection with awards under the 1996
Plan and the 1998 Plan, respectively, except that shares issued as restricted
shares and shares issued as awards other than options (including restricted
shares) are limited to 20% and 40% of the total number of Common Shares reserved
under the Plans, respectively. Shares subject to forfeited or expired awards, or
relating to awards settled in cash or otherwise terminated without issuance of
shares to the participant become available again under the Plans.
<PAGE>
The Plans are administered by the Committee, which consists of two or more
independent directors. As of the date hereof, the Board has appointed Mr.
Hillman and Mr. Baum as members of the Committee. This Committee is authorized
to select from among the eligible employees of the Company the individuals to
whom awards are to be granted and to determine the number of shares to be
subject thereto and the terms and conditions thereof. The Committee may
condition the grant, vesting, exercisability or settlement of any award on the
achievement of specified performance objectives. Awards may be settled in cash,
Common Shares, other awards or other property, in the discretion of the
Committee. The Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the Plans. The exercise price of stock options
granted will be at least equal to 100% of the fair market value of Common Shares
on the grant date. No member of the Committee will be eligible to participate in
the Plan. The Committee may adjust the number of shares reserved under the Plans
and the number of shares relating to outstanding awards and related terms to
reflect stock splits, dividends, and other extraordinary corporate events.
In December 1999, the Company awarded a total of 78,000 Deferred Shares to
certain executives and employees based on their overall performance and
contribution to the success of the Company.
CEO Compensation
In determining the CEO's base salary and incentive compensation, the
Compensation Committee evaluates the compensation paid to chief executive
officers considered in the CEO's custom peer group. As a result of survey data
gathered in 1999, the Compensation Committee determined that the CEO's base
salary of $150,000 ranked in the lowest quartile among the Company's peer group.
As a result, the CEO's base salary was increased to $250,000. The CEO is
eligible to receive awards under the Company's share incentive plan and
incentive compensation plan.
For the year ended December 31, 1999, the CEO received total cash payments
of $300,000 in salary and bonus (as shown in the Summary Compensation Table on
page __). The Compensation Committee considered these 1999 payments appropriate
in light of Mr. Joseph's leadership and contributions to the overall long-term
strategy and growth of the Company. As also shown in the Long-Term Incentive
Plans Table (on page __ herein), Mr. Joseph was granted 18,000 Deferred Shares
that vest over 50 months for so long as Mr. Joseph remains in the continuous
employ of the Company.
RESPECTFULLY SUBMITTED,
COMPENSATION COMMITTEE
Mr. Robert S. Hillman, Chairman
Mr. Carl W. Stearn
Mr. Charles C. Baum
Mr. Douglas A. McGregor
<PAGE>
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table sets forth for the CEO and the other four most highly
compensated executive officers of the Company: (i) the number of shares of the
Company's Common Shares acquired upon exercise of options during fiscal year
1999; (ii) the aggregate dollar value realized upon exercise; (iii) the total
number of unexercised options held at the end of fiscal year 1999; and (iv) the
aggregate dollar value of in-the-money unexercised options held at the end of
fiscal year 1999.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired on Value Held at Fiscal Y/E (#) @ 12/31/99 ($) (1)
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
($)
------------------------------ ------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Joseph - $ - 119,877 59,938 $ 194,800 $ 97,399
Michael L. Falcone - - 89,908 44,954 146,101 73,050
Gary A. Mentesana - - 44,954 22,477 73,050 36,525
Thomas R. Hobbs - - 44,954 22,477 73,050 36,525
Earl W. Cole, III - - 29,970 14,984 48,701 24,349
(1) Value of unexercised "in-the-money" options is the difference between
the market price of the shares on December 31, 1999 ($18.50 per share)
and the exercise price of the option, multiplied by the number of
shares subject to the option. Options are only "in-the-money" if the
fair market value of the underlying security exceeds the price of the
option.
</TABLE>
<PAGE>
Employment Agreements
Each of Mark K. Joseph, Michael L. Falcone, Gary A. Mentesana, Robert J.
Banks, Keith J. Gloeckl and Ray R. Mathis (each an "Officer" and collectively,
the "Officers") entered into employment agreements with the Company during 1999.
The specifics of the agreements are as follows:
The terms of the agreements for Messrs. Joseph, Falcone and Mentesana are
three years. The agreements provide for annual base compensation in the amounts
of $250,000, $250,000 and $160,000, respectively, with allowance for cost of
living adjustments and annual cash bonuses (or incentive compensation) of up to
150% for Mr. Joseph and 100% for Messrs. Falcone and Mentesana. The agreements
further provide for total compensation goals equal to $675,000, $650,000 and
$350,000 for Messrs. Joseph, Falcone and Mentesana, respectively, based on
achievement of certain performance goals by the individual and the Company. Each
of the employment agreements provides for certain severance payments in the
event of disability or termination by the Company without cause equal to base
compensation for the longer of the balance of the employment term or 36 months
for Mr. Joseph and 18 months for Messrs. Falcone and Mentesana. Additionally,
upon an employee's death, his estate shall receive two years' base compensation.
The agreements also contain provisions which provide such officers with
substantial payments should their employment terminate as a result of a change
in control.
The terms of the agreements for Messrs. Banks and Gloeckl are four years;
the term for Mr. Mathis is one year. The agreements provide for annual base
compensation in the amounts of $250,000, $250,000 and $150,000, respectively,
with allowance for cost of living adjustments. Annual cash bonuses (or incentive
compensation) for Mr. Banks and Mr. Gloeckl are based on the Company's incentive
compensation plan; however, no incentive compensation will be paid in any year
in which Midland does not achieve certain earn-out target goals for such year.
Messrs. Banks and Gloeckl were also awarded options to purchase up to 87,500
Common Shares. Each of the employment agreements provides for certain severance
payments in the event of disability or termination by the Company without cause
equal to base compensation for the balance of the employment term. In addition,
all earn-out shares (as defined in the Stock Purchase and Contribution Agreement
dated September 30, 1999 by and between the Company and Messrs. Banks, Gloeckl
and Mathis, the "Stock Purchase Agreement") which have been earned through the
date of termination and may become payable, shall be immediately and irrevocably
issued to them in the event of disability or termination by the Company without
cause. In the event of death, an employee's agreement is terminated; however,
his estate shall be entitled only to the balance of the earn-out shares
described in, and earned pursuant to the Stock Purchase Agreement.
Pursuant to the employment agreements, the Company generally will have
"cause" to terminate an Officer if such person: (i) engages in acts or omissions
with respect to the Company which constitute intentional misconduct or a knowing
violation of law; (ii) personally receives a benefit of money, property or
services from the Company or from another person dealing with the Company in
violation of law; (iii) breaches his non-competition agreement with the Company;
(iv) breaches his duty of loyalty to the Company; (v) engages in gross
negligence in the performance of his duties; or (vi) repeatedly fails to perform
services that have been reasonably requested of him by the Board of Directors
following applicable notice and cure periods and which are consistent with the
terms of his employment agreement. Each of Messrs. Banks, Gloeckl and Mathis
shall continue to be entitled to earn-out shares to the extent provided in the
Stock Purchase Agreement regardless of whether such Officer has been terminated
for cause.
<PAGE>
Each Officer will have "good reason" to terminate his employment with the
Company in the event of any reduction in his base compensation without his
consent, any material breach or default by the Company under his employment
agreement, any substantial diminution in his duties, any requirement to perform
an act which would violate criminal law or any requirement to perform an act not
in the best interests of the Company and its Shareholders. Each of Messrs.
Banks, Gloeckl and Mathis shall be entitled to all earn-out shares which have
been earned through the date of termination and may become payable and such
shares shall be immediately and irrevocably issued to each of them.
As part of their employment agreements, each of the Officers is bound by a
limited non-competition covenant with the Company which prohibits each of them,
without prior written consent of the Board of Directors, from engaging in or
carrying on, directly or indirectly, whether as an advisor, principal, agent,
partner, officer, director, employee, shareholder, associate or consultant of or
to any person, partnership, corporation or any other business entity which is
engaged in the business of financing or asset management of multifamily
apartment properties financed by tax-exempt bonds, except by or through the
Company, for 12 months following the termination of employment with the Company
for Messrs. Joseph, Falcone and Mentesana and 24 months following the
termination of employment with the Company for Messrs. Banks, Gloeckl and
Mathis; provided, however, if such Officer's employment is terminated by the
Company without "cause" or by the employee for "good reason," the covenant not
to compete will terminate upon termination of employment. Certain of the
agreements may contain other exceptions.
In addition to the above, Mr. Thomas R. Hobbs also has an employment
agreement with the Company for an initial term of three years with an automatic
renewal of successive one-year periods after the end of the initial term. On
August 1, 1999, the initial term expired. As provided for in the agreement, the
Company is required to provide at least 30 days notice of its intent to
terminate such agreement. As of that date, the Company did not provide such
notice. The terms of his agreement provide for annual compensation in the amount
of $125,000 adjusted annually for cost of living adjustments and for certain
severance payments equal to base compensation for the longer of the balance of
the employment term or 18 months in the event of disability or termination by
the Company without cause or by the employee with "good reason," and contains
provisions which will provide substantial payment should Mr. Hobbs' employment
terminate as a result of a change in control. Mr. Hobbs' agreement contains the
same non-competition covenant as Messrs. Joseph, Falcone and Mentesana.
<PAGE>
Summary Compensation Table
The following table sets forth the annual compensation paid or accrued by
the Company during the last three years to the Chief Executive Officer and to
each of the Company's other four most highly compensated officers.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
--------------------------------------- -----------------------------------------
Restricted Securities
Other Annual Share Underlying Share All Other
Name and Principal Position (1) Year Salary ($) Bonus ($) Compensation (2) Awards($)(3) Options/SARs(#) Options(#) Compensation($)
- ------------------------------- ---- ---------- --------- ---------------- ------------ -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark K. Joseph 1999 $ 150,000 $ 150,000 $ 8,282 $ - - - $ 2,026 (4)
Chairman of the Board 1998 157,769 108,000 7,253 - - - 2,176 (4)
and Chief Executive Officer 1997 150,000 50,000 6,230 - - 179,815 -
Michael L. Falcone 1999 183,000 150,000 8,288 - - - 2,026 (6)
President and Chief 1998 183,885 73,000 7,554 - - - 2,017 (6)
Operating Officer (5) 1997 148,077 40,000 6,228 - - 134,862 1,866 (6)
Gary A. Mentesana 1999 120,000 100,000 7,009 - - - 2,026 (8)
Senior Vice President and 1998 109,231 48,000 6,245 - - - 1,569 (8)
Chief Financial Officer (7) 1997 88,693 25,000 5,356 - - 67,431 1,134 (8)
Thomas R. Hobbs 1999 136,000 60,000 6,863 - - - 1,946 (9)
Senior Vice President 1998 138,277 54,000 6,713 - - - 2,070 (9)
and Secretary 1997 127,558 29,000 6,347 - - 67,431 2,331 (9)
Earl W. Cole, III 1999 110,000 75,000 6,777 - - - 26 (11)
Senior Vice President (10) 1998 110,933 44,000 6,177 - - - 44 (11)
1997 89,897 20,000 - - - 44,954 66 (11)
</TABLE>
<PAGE>
(1) Messrs. Banks and Gloeckl were appointed as Senior Vice Presidents of the
Company effective with the acquisition of The Midland Companies on October
20, 1999. Had Messrs. Banks and Gloeckl been executive officers of the
Company for all of 1999, they would have been included in this table along
with Messrs. Joseph, Falcone and Mentesana.
(2) The amounts indicated for each officer are reimbursements during the fiscal
year for the payment of taxes.
(3) 1999 awards of Deferred Shares are properly reflected on the Long-Term
Incentive Plans - Awards in Last Fiscal Year Table located on page ____
herein.
(4) The amounts indicated include $2,000 for both 1999 and 1998 related to the
Company's contribution to Mr. Joseph's individual retirement account and
$26 and $176 for 1999 and 1998, respectively, for the dollar value of
insurance premiums paid by the Company with respect to term life insurance
that benefits Mr. Joseph.
(5) Effective December 1997, Mr. Falcone was promoted to President and Chief
Operating Officer of the Company. Prior to that time, Mr. Falcone was the
Executive Vice President of the Company.
(6) The amounts indicated include $2,000, $2,000 and $1,800 for 1999, 1998 and
1997, respectively, related to the Company's contribution to Mr. Falcone's
individual retirement account and $26, $17 and $66 for 1999, 1998 and 1997,
respectively, for the dollar value of insurance premiums paid by the
Company with respect to term life insurance that benefits Mr. Falcone.
(7) Effective May 1997, Mr. Mentesana was promoted to Senior Vice President
from Vice President of the Company. In January 1998, in addition to his
title as Senior Vice President, Mr. Mentesana now holds the title of Chief
Financial Officer of the Company.
(8) The amounts indicated include $2,000, $1,555 and $1,080 for 1999, 1998 and
1997, respectively, related to the Company's contribution to Mr.
Mentesana's individual retirement account and $26, $14 and $54 for 1999,
1998 and 1997, respectively, for the dollar value of insurance premiums
paid by the Company with respect to term life insurance that benefits Mr.
Mentesana.
(9) The amounts indicated include $1,920, $1,957 and $1,881 for 1999, 1998 and
1997, respectively, related to the Company's contribution to Mr. Hobbs'
individual retirement account and $26, $113 and $450 for 1999, 1998 and
1997, respectively, for the dollar value of insurance premiums paid by the
Company with respect to term life insurance that benefits Mr. Hobbs.
(10) Effective November 1998, Mr. Cole was promoted to Senior Vice President
from Vice President of the Company.
(11) The amounts indicated include $26, $44 and $66 for 1999, 1998, and 1997,
respectively, for the dollar value of insurance premiums paid by the
Company with respect to term life insurance that benefits Mr. Cole.
<PAGE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth for the CEO and the other four most highly
compensated executive officers of the Company: (i) the number of shares awarded
during fiscal year 1999; (ii) the performance or other time period until payout
or maturation of the award; and (iii) the estimated future payouts under
non-stock price-based plans.
Estimated Future
Number of Performance Payouts under
Shares, Or Other Period Non-Stock
units or other Until Maturation Price-based
Name rights (#) (1) or Payout (2) Plans ($) (3)
------------------- --------------- ------------------ -----------------
Mark K. Joseph 18,000 50 months $ 333,000
Michael L. Falcone 15,000 50 months 277,500
Gary A. Mentesana 7,000 50 months 129,500
Thomas R. Hobbs 5,000 50 months 92,500
Earl W. Cole, III 7,000 50 months 129,500
(1) A total of 78,000 Deferred Shares were awarded in fiscal year 1999, each
with vesting occurring over fifty months beginning February 2, 2000. As of
the end of fiscal year 1999, the aggregate Deferred Share holdings
consisted of 277,799 shares worth $5,139,282 at the then current market
value (as represented by the closing price of the Company's Common Shares
on December 31, 1999). Such amounts included $1,775,149 for Mr. Joseph
(95,954 shares); $1,205,053 for Mr. Falcone (65,138 shares); $639,527 for
Mr. Mentesana (34,569 shares); $417,527 for Mr. Hobbs (22,569 shares); and
$315,351 for Mr. Cole (17,046 shares). Distributions are paid only with
respect to the portion of the shares which have vested and become
nonforfeitable in accordance with the share agreements. The Deferred Share
agreements also provide for accelerations of vesting on a discretionary
basis, upon a change in control and death or disability.
(2) The shares become vested and nonforfeitable cumulatively to the extent of
20% of such Deferred Shares on February 2, 2000 (the "Vesting Date") and
20% for each of the remaining four anniversaries of the Vesting Date for so
long as the officers remain in the continuous employ of the Company.
(3) The amounts indicated represent the fair market value of the Deferred
Shares awarded on December 31, 1999 at the then closing price of the
Company's Common Shares on such date.
<PAGE>
Compensation Committee Interlocks and Insider Participation
No person who served as a member of the Compensation Committee during the
1999 fiscal year has ever been an officer or employee of the Company or any of
its subsidiaries, except for Mark K. Joseph who serves as Chairman of the Board
and Chief Executive Officer of the Company. On October 18, 1999, in light of the
good practice guidelines of the American Bar Association, the Board
reconstituted the Compensation Committee to consist of Messrs. Hillman, Stearn,
Baum and McGregor. During fiscal year 1999, no executive officer of the Company
served as a director or member of the compensation committee of another entity,
one of whose directors or executive officers served as a director or member of
the Compensation Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 1, 1996, the Company completed a merger (the "Merger") in which
the Company succeeded to the business of the Predecessor. The former general
partners of the Predecessor were responsible for initiating and structuring the
Merger. Mark K. Joseph, Chairman of the Board and Chief Executive Officer, and
Thomas R. Hobbs, Secretary and Senior Vice President of the Company, were
stockholders, directors or officers of the former general partners of the
Predecessor.
As a result of the Merger, the former general partners (and their
affiliates) received certain economic benefits, including 1,000 Term Growth
Shares in exchange for their general partnership interests in the Predecessor
and 883,033 Common Shares in exchange for the contribution of their mortgage
acquisition and servicing activities that generate fees from the operating
partnerships that are the ultimate debtors on the Company's bond investments
(the "Operating Partnerships"). In connection with the Merger, the former
general partners retained an independent third party, to render an opinion that
the allocation of the Common Shares and Term Growth Shares among the former
general partners and the BAC holders was fair from a financial point of view.
At the time of the Merger, the Company designated Shelter Development
Holdings, Inc. ("Shelter Development") as the shareholder that has personal
liability for the obligations of the Company (the "Special Shareholder") and
whose death, retirement, resignation, expulsion, bankruptcy or dissolution would
result in the dissolution of the Company (the "Dissolution Shareholder") to
preserve its pass-through tax status under the tax laws in existence at that
time. Mr. Joseph owns 100% of Shelter Development. In connection with the
Merger, Shelter Development received 26,729 Common Shares for its agreement to
serve as the Special Shareholder and Dissolution Shareholder. The Company does
not compensate Shelter Development annually for serving as the Special
Shareholder or Dissolution Shareholder. Nevertheless, the Dissolution
Shareholder has the right to appoint one director to the Company's Board of
Directors so long as the size of the Board is 10 persons or less, and two
directors if the size of the Board is more than 10 persons. In addition, if
certain change-in-control transactions occur that the Special Shareholder has
not approved, the Special Shareholder has the right to receive $1 million if it
exercises its right to withdraw as the Special Shareholder of the Company.
As noted above, the former general partners of the Predecessor received
883,033 Common Shares in exchange for the contribution of their acquisition and
mortgage servicing activities. Prior to the Merger, an affiliate of the former
general partners of the Predecessor received project selection and acquisition
fees from a partnership formed by the Predecessor to invest the proceeds from
the Predecessor's February 1995 financing, in amounts equal to one percent of
the gross proceeds permanently invested. In addition, prior to the Merger, the
former general partners (and their affiliates) received mortgage servicing fees
from the Operating Partnerships. As a result of the Merger, the Company receives
(i) mortgage servicing fees from the Operating Partnerships controlled by
non-affiliates and (ii) additional bond interest for bonds collateralized by
properties owned by the 18 Operating Partnerships controlled by Mr. Joseph. For
the year ended December 31, 1999, the Company received approximately $0.3
million in mortgage servicing fees and $1.6 million in additional bond interest
as a result of the contribution of the mortgage servicing fee activities to the
Company.
<PAGE>
Mr. Joseph controls the general partners of 19 of the operating
partnerships whose property collateralizes the Company's bonds and Mr. Thomas R.
Hobbs, a Senior Vice President of the Company, serves as an officer of such
general partners. Mr. Michael L. Falcone and Ms. Angela A. Barone, the Company's
Vice President of Finance and Administration, serve as directors and officers in
two such general partners. In order to preserve the loan obligations and the
participation in cash flow for the Company and thereby assure that the Company
will continue to recognize tax-exempt income, 13 of the 19 operating
partnerships were created as successors to the original borrowers. With respect
to the other six operating partnerships, an entity controlled by Mr. Joseph was
designated as the general partner of the original borrowing entities. However,
such entities could have interests that do not fully coincide with, or even are
adverse to, the interests of the Company. Such entities could choose to act in
accordance with their own interests, which could adversely affect the Company.
Among the actions such entities could desire to take might be selling a
property, thereby causing a redemption event, at a time and under circumstances
that would not be advantageous to the Company. Also, Mr. Joseph owns an indirect
interest in the general partners of the Southgate Crossings and Poplar Glen
operating partnerships.
On September 1, 1996, 11 of the 19 Operating Partnerships controlled by
Mr. Joseph entered into an agreement with the Company whereby the terms of
certain notes held by the Company were amended to defer principal amortization
on such notes. Additionally, on July 1, 1997, nine of the eleven operating
partnerships entered into an agreement with the Company whereby the principal
amortization on one of these notes was increased. The increase in the principal
payments on these notes was equal to the amount of principal payments suspended
on the other notes. This action did not change the total cash payments received
from the operating partnerships, nor did it change total income, but did result
in a reclassification of interest income on bonds to interest earned on related
notes of $0.2 million for the year ended December 31, 1999. In December 1998 and
March 1999, the Company amended, consolidated and sold notes relating to three
and eight Operating Partnerships, respectively, in the aggregate principal face
amount of $7.4 million and $8.8 million, respectively. In order to facilitate
the sales of the notes, the Company provided a guarantee on behalf of the
operating partnerships for the full and punctual payment of interest and
principal due under the notes.
Mr. Joseph controls and is an officer of, and Mr. Falcone has an ownership
interest in and is a board member of, an entity that is responsible for a full
range of property management functions for certain properties that serve as
collateral for the Company's bond investments. For these services the affiliates
receive property management fees pursuant to management fee contracts.
Consistent with the Company's Amended and Restated Certificate of Formation and
Operating Agreement (the "Operating Agreement"), each affiliate property
management contract is presented to the independent members of the Board of
Directors for approval with information documenting the comparability of the
proposed fees to those in the market area of the property. During 1999, there
were 11 affiliated property management contracts for properties that
collateralize the Company's investments with fees at or below market value.
During the year ended December 31, 1999 these fees approximated $1.1 million.
This entity also provides the Company with certain administrative services
(primarily computer network related) for which the entity receives direct
reimbursement from the Company on a monthly basis. For the year ended December
31, 1999, the Company paid $100,000 to the affiliate for these administrative
services. Also, prior to November 1998, the Company reimbursed an entity
controlled by Mr. Joseph for the rental cost of the Company's office space. In
November 1998, the Company assumed the lease agreement for the Company's office
space from this entity at market rates. Mr. Joseph and Mr. Richard O. Berndt, a
director of the Company, have ownership interests in the partnership that leases
the office space to the Company. For the year ended December 31, 1999, the
Company paid $178,000 in rental lease payments under the lease agreement.
<PAGE>
At December 31, 1999, the Company owned all of the interests in a trust
that holds a $33.9 million bond collateralized by the Village of Stone Mountain.
The borrower of the $33.9 million mortgage revenue bond is the Shelter
Foundation, a public non-profit foundation that provides housing and related
services to families of low and moderate income. Mr. Joseph is the President and
one of five directors of the Shelter Foundation. In addition, companies in which
Mr. Joseph owns an indirect minority interest and Mr. Falcone owns a direct
minority interest, received a consulting fee of 1.0% of the loan amount and
serve as property manager of the related apartment project for a fee of $13,750
per month payable out of available cash flow.
At December 31, 1999, the Company owned a $2.2 million B bond, a $2.1
million C bond and a $1.3 million taxable loan collateralized by the Winter Oaks
Apartment Community. The borrower of the bonds and the taxable loan is Winter
Oaks Partners, Ltd., (L.P.), a Georgia limited partnership whose 1% general
partner is MMA Successor I, Inc. and whose 99% limited partner is Winter Oaks,
L.P. The 1% general partner of Winter Oaks, L.P. is MMA Successor I, Inc.,
and the 99% limited partner of Winter Oaks, L.P. is the MuniMae Foundation,
Inc. a private non-profit entity organized to provide charitable purposes on
behalf of the Company. Mr. Joseph is the President and one of three directors
of the MuniMae Foundation. Mr. Falcone and Mr. Gary A. Mentesana, the
Company's Chief Financial Officer, are also directors of the MuniMae Foundation.
In addition, a company of which Mr. Joseph owns an indirect minority interest
and Mr. Falcone owns a direct minority interest, serve as property manager of
the related apartment project for a fee of 3% of gross rent collected payable
out of available cash flow.
Mr. Berndt, a director since 1996, is the managing partner of the law firm
Gallagher, Evelius and Jones, LLP ("GEJ"), which provides corporate and real
estate related legal services to the Company. For the year ended December 31,
1999, GEJ received $1.3 million in legal fees generated by transactions
structured by the Company of which $750,000 was directly incurred by the
Company. The total amount of $1.3 million represented 12.0% of GEJ's total
revenues for 1999.
An affiliate of Merrill Lynch Pierce Fenner & Smith Incorporated ("Merrill
Lynch") owns 1,250 Term Growth Shares of the Company and 128,367 Common Shares.
The Company may from time to time enter into various investment banking,
financial advisory and other commercial services with Merrill Lynch for which
Merrill Lynch receives and will receive (in the future) customary compensation.
The Company also enters into various investments and interest rate swap
transactions with Merrill Lynch on terms generally available in the marketplace.
<PAGE>
A subsidiary of the Company functions as a real estate advisor for
pension funds and the MAGHT. The MAGHT is a professionally managed portfolio
of diversified income producing real estate mortgage investments for pension
funds and profit-sharing trusts. Mr. Falcone and Mr. Robert J. Banks, Mr.
Keith J. Gloeckl, and Mr. Ray F. Mathis, all Senior Vice Presidents of the
Company, are trustees of the MAGHT.
For the period October 20, 1999 through December 31, 1999, a subsidiary of
the Company received administrative service fees of approximately $300,000 from
the MAGHT. As of December 31, 1999, a subsidiary of the Company had a $5.0
million line of credit available to the MAGHT, with no outstanding balance. The
line matured on December 31, 1999, and bears interest at the rate of 10.25%. The
collateral for the line is the net assets of the MAGHT. At December 31, 1999,
the Company has notes payable with an outstanding balance of $133 million due to
the MAGHT. The notes were made to finance construction loans and are
collateralized by the related construction loan receivables.
At December 31, 1999, a subsidiary of the Company has a $50.0 million
warehouse facility provided by the MAGHT, with an outstanding balance of $28.6
million. This warehouse facility is provided for interim funding of permanent
loans, completed construction loans, and GNMA MBS advances until funded by
permanent lender or security holder and is collateralized by a security interest
in the loans, bears interest at various rates based upon collateral. Individual
borrowings mature separately within one year.
On October 20, 1999, the Company acquired Midland Financial Holdings, Inc.
from Messrs. Banks, Gloeckl and Mathis for approximately $45 million. Of this
amount, the Company paid approximately $23 million in cash and approximately $12
million in common shares at the closing of the transaction. In addition, $3.33
million in Common Shares is payable annually over a three year period to Messrs.
Banks, Gloeckl and Mathis if Midland meets certain performance targets,
including minimum annual contributions to cash available for distribution. The
acquisition is being accounted for as a purchase. The total purchase price
incurred during 1999 was $35.9 million, which includes acquisition costs but
excludes contingently issuable MuniMae shares over the next three years, as
discussed above. The results of operations of Midland are included in the
consolidated financial statements of the Company subsequent to October 20, 1999.
Performance Graph
The following table compares total shareholder returns for the Company at
December 31, 1999 to the Standard and Poors 500 Index ("S&P 500"), the NAREIT
Index ("NAREIT") and the Lipper Municipal Bond High Yield Index ("Lipper Bond")
assuming a $100 investment made on December 31, 1996. The Company does not
believe that there are any other businesses or indices that reflect both the
same industry as that in which the Company operates and the same "pass-through"
tax status as that of the Company. Accordingly, the Company selected the NAREIT
and Lipper Bond indices because the NAREIT index consists of real estate
investment trusts which, like the Company, pass-through their income to their
shareholders, although not tax-exempt income, and the Lipper Bond index, which
represents the performance of municipal bond issues.
Comparative Price Performance
Indexed Closing Prices
(Values Indexed to 100 as of December 31, 1996)
Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99
MuniMae 100.00 109.40 132.90 154.90 122.30 157.60 143.30
S&P 500 100.00 120.60 133.30 156.90 171.30 192.50 207.40
NAREIT 100.00 105.97 118.86 112.74 96.49 101.26 90.24
Lipper Bond 100.00 103.29 109.78 113.06 115.88 115.52 111.65
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Shares and Term Common Shares as of
March 17, 2000, of (i) each director and nominee as director, (ii) all persons
known by the Company to be beneficial owners of more than 5% of its Common
Shares and Term Common Shares and (iii) all the executive officers and directors
of the Company as a group. With respect to shares subject to options, only those
shares subject to options which are immediately exercisable or exercisable
within 60 days are listed below. Unless otherwise indicated, each Shareholder
has sole voting and investment power with respect to the shares beneficially
owned.
Common Shares Term Growth Shares
-------------------------- ---------------------
Number of Percent Number of Percent
of of
Name Shares Class Shares Class
- --------------------------- ------------ ---------- ---------- ----------
Mark K. Joseph 1,150,293 (1) 6.61 740 37.00
Michael L. Falcone 178,901 (2) 1.03 - -
Robert J. Banks 354,739 2.04 - -
Keith J. Gloeckl 118,013 * - -
Gary A. Mentesana 84,352 (2) * - -
Thomas R. Hobbs 76,810 (2) * - -
Earl W. Cole, III 49,869 (2) * - -
Jesse M. Chancellor 37,893 (2) * - -
Ray F. Mathis 117,913 * - -
Charles C. Baum 19,000 (3) * - -
Richard O. Berndt 10,000 (3) * - -
Robert S. Hillman 12,700 (3) * - -
William L. Jews 10,550 (3) * - -
Douglas A. McGregor - * - -
Carl W. Stearn 47,058 (3) * - -
Two Broadway Associates IV 128,367 * 1,250 62.50
2 World Financial Center,
South Tower
New York, New York 10080-6123
All directors and officers 2,268,092 13.04 740 37.00
as a group (15 persons)
*Less than one percent.
<PAGE>
(1) Included in Mr. Joseph's beneficial ownership of Common Shares are: (a)
179,815 Common shares subject to options granted under the 1996 Share
Incentive Plan and (b) Common shares held by certain entities controlled by
Mr. Joseph (detailed below). Certain limited partners in one such entity
are officers of the Company. As a result of their limited partnership
interest in that entity, such officers would be entitled to receive the
following allocation of shares. Accordingly, these shares are not included
in each officers' beneficial ownership above.
Michael L. Falcone 44,861 Common Shares
Thomas R. Hobbs 31,819 Common Shares
Gary A. Mentesana 11,758 Common Shares
Earl W. Cole, III 9,618 Common Shares
The Term Growth Shares reported herein are held by SCA Associates 86 II
Limited Partnership (365 shares) and SCA Realty I, Inc.(375 shares) which
are controlled by Mr. Joseph.
(2) Included in each officer's beneficial ownership of Common Shares are Common
Shares subject to options granted under the 1996 Share Incentive Plan as
follows:
Shares Subject
To Options
Michael L. Falcone 134,862
Thomas R. Hobbs 67,431
Gary A. Mentesana 67,431
Earl W. Cole, III 44,954
Jesse M. Chancellor 33,334
(3) Included in each board member's beneficial ownership of Common Shares are
Common Shares subject to options granted under the 1996 and 1998
Non-Employee Directors' Share Plans as follows:
Shares Subject
To Options
Charles C. Baum 10,000
Richard O. Berndt 5,000
Robert S. Hillman 10,000
William L. Jews 10,000
Carl W. Stearn 10,000
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's audited financial statements for the year ended December 31,
1999, have been provided to the Shareholders as part of the Annual Report to
Shareholders. PricewaterhouseCoopers LLP has acted as the Company's independent
accountants since the successful completion of the Merger into the Company in
1996 and also acted as the independent accountants for the Predecessor since
1986. No election, approval or ratification of independent accountants by the
Shareholders is required. The Audit Committee intends to select the independent
accountants for the fiscal year ended December 31, 2000 at its next scheduled
meeting. A representative of PricewaterhouseCoopers LLP will be present at the
Annual Meeting with the right to make a statement if he or she so desires and
will be available to respond to appropriate questions by the Shareholders.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of the Company's outstanding Common Shares to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership, reports of changes in ownership and annual reports of ownership of
Common Shares. Specific due dates for these records have been established and
the Company is required to report on this proxy statement any failure to file by
these dates in 1999. Based solely on a review of copies of such reports of
ownership furnished to the Company, the Company believes that the following
reports were filed late. Late reports on Form 4 were filed by Carl Stearn and
Michael Falcone for October due to travel. Late reports on Form 5 were filed by
Richard Berndt and William Jews due to travel and to properly reflect shares
received under the Directors' Plans.
OTHER BUSINESS
The Board of Directors is not aware of any other matters which may come
before the meeting. It is the intention of the persons named in the enclosed
proxy to vote all shares represented by proxies in accordance with their best
judgment if any other matters do properly come before the meeting.
Whether or not you attend the Annual Meeting in person, it would be
appreciated if you would fill in, date and sign the enclosed proxy and return it
promptly. If you attend the meeting, you may vote your shares even though you
may have sent in your proxy.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER WHO WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON SHARES ON THE RECORD DATE FURNISHED TO THE SECRETARY OF THE
COMPANY AT THE ADDRESS SET FORTH BELOW, THE COMPANY WILL PROVIDE WITHOUT CHARGE
A COPY OF ITS ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
THE SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1999.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL PROXY STATEMENT
Proposals by Shareholders intended to be presented at the Company's 2001
Annual Meeting, in order to be included in the 2000 Proxy Statement and proxy,
must be received by the Company at its principal corporate offices no later than
November 25, 2000.
Any Shareholder who intends to submit a proposal at the Company's Annual
Meeting in 2001 without including the proposal in the Company's proxy statement
for such Annual Meeting must notify the Company of such proposal not later than
the close of business on March 5, 2001 and not earlier than the close of
business on February 3, 2001 or, in the event that the date of the Company's
Annual Meeting in 2001 is advanced by more than 30 days or delayed by more than
60 days from the Company's Annual Meeting in 2000, then pursuant to the
Company's By-Laws.
MUNICIPAL MORTGAGE & EQUITY, LLC
218 N. Charles Street, Suite 500
Baltimore, Maryland 21201
Dated: March 27, 2000
<PAGE>
REVOCABLE PROXY
MUNICIPAL MORTGAGE & EQUITY, LLC
COMMON SHARES
X Please Mark Votes As In This Example
Proxy for Annual Meeting of Shareholders
Wednesday, May 4, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Revoking all prior proxies, the undersigned, a Shareholder of Municipal
Mortgage & Equity, LLC (the "Company"), hereby appoints Thomas R. Hobbs and
Angela A. Barone, and each of them, attorneys and agents of the undersigned,
with full power of substitution, to vote all Common Shares, no par value (the
"Shares"), of the undersigned in the Company at the Annual Meeting of
Shareholders of the Company to be held at the Company's offices at 218 N.
Charlest St., Park Charles Building, Suite 500, Baltimore, Maryland 21201, on
May 4, 2000, at 9:00 a.m., local time, and at any adjournment thereof, as fully
and effectively as the undersigned could do if personally present and voting as
indicated hereon, and at their discretion, upon any other business not now known
which properly may come before the said meeting, all as more fully set forth in
the accompanying proxy statement, receipt of which is acknowledged.
For Withhold For All Except
__________ _________ _________
1. ELECTION OF DIRECTORS
(For a term of 3 years):
RICHARD O. BERNDT
ROBERT S. HILLMAN
MICHAEL L. FALCONE
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
If no choice is indicated above, this proxy shall be deemed to grant authority
to vote FOR the election of director nominees and to vote FOR the proposals. The
Shareholder's signature should be exactly as the name appears below. When shares
are held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please be sure to sign and date this Proxy in the box below.
Date
Shareholder sign above Co-holder (if any) sign above
