<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a)
of the Securities Exchange Act of 1934
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
ANNALY MORTGAGE MANAGEMENT, INC.
(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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
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:
.......................................................................
[_] 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:
.......................................................................
2) Form, Schedule or Registration Statement no.:
.......................................................................
3) Filing Party:
.......................................................................
4) Date Filed:
.......................................................................
<PAGE>
ANNALY MORTGAGE MANAGEMENT, INC.
12 East 41st Street, Suite 700
New York, New York 10017
_________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 1999
_________________________
To the Stockholders of
ANNALY MORTGAGE MANAGEMENT, INC.:
The 1999 Annual Meeting of Stockholders of Annaly Mortgage Management, Inc.
(the "Company") will be held at the offices of Morgan, Lewis & Bockius LLP, 101
Park Avenue, New York, New York 10178, on the 39th floor, on Monday, May 17,
1999 at 9:00 a.m., New York time, for the following purposes:
(1) To elect nine directors. If the proposed amendment to the Company's
by-laws providing for a classified Board is adopted, the nine
directors will be elected to a classified Board, with the Class I
directors being elected initially for a one-year term, the Class II
directors being elected initially for a two-year term and the Class
III directors being elected initially for a three-year term.
(2) To approve an amendment to the Company's by-laws providing for the
classification of the Board of Directors into three classes, with
members of each class serving staggered three-year terms.
(3) To approve the proposed amendment to the Company's Long-Term Stock
Incentive Plan to increase the number of shares of Common Stock
authorized thereunder from the greater of 500,000 shares and 5% of the
outstanding shares of Common Stock to 9.5% of the outstanding shares
of Common Stock.
(4) To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the current fiscal year.
(5) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Provision is made on the enclosed proxy card for your direction as to the
matters set forth as Items (1), (2), (3) and (4) above. Further information
concerning these matters is set forth in the accompanying Proxy Statement.
Holders of record of the Company's Common Stock at the close of business on
March 15, 1999 are entitled to receive notice of and to vote at the 1999 Annual
Meeting of Stockholders and at any postponement or adjournment thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL
ENSURE THAT YOUR SHARES ARE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT A
QUORUM WILL BE PRESENT AT THE ANNUAL MEETING.
By order of the Board of Directors
/s/ MICHAEL A. J. FARRELL
Michael A. J. Farrell
Chairman of the Board and
Chief Executive Officer
New York, New York
March 31, 1999
<PAGE>
ANNALY MORTGAGE MANAGEMENT, INC.
12 East 41st Street, Suite 700
New York, New York 10017
_______________________
1999 ANNUAL MEETING OF STOCKHOLDERS
_______________________
PROXY STATEMENT
SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Annaly Mortgage Management, Inc. (the
"Company") to be voted at the 1999 Annual Meeting of Stockholders to be held at
the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York 10178, on
the 39th floor, on Monday, May 17, 1999, at 9:00 a.m., New York time, and any
postponements or adjournments thereof (the "Annual Meeting"). This Proxy
Statement and the enclosed proxy are being sent to stockholders commencing on or
about March 31, 1999. The principal executive offices of the Company are
located at 12 East 41st Street, Suite 700, New York, New York 10017.
Solicitation will be primarily by mail but may also be made by personal
interview, by telephone, by telegraph, by telex, by telecopier or through the
Company's internet Web site, in each case by officers and employees of the
Company who will not be additionally compensated therefor. The Company will
request persons such as brokers, nominees and fiduciaries, holding stock in
their names for others, or holding stock for others who have the right to give
voting instructions, to forward proxy material to their principals and request
authority for the execution of the proxy. The total cost of soliciting proxies
will be borne by the Company.
VOTING
Only holders of record of common stock, par value $0.01 per share, of the
Company ("Common Stock") at the close of business of March 15, 1999, the record
date, will be entitled to vote at the meeting. On the record date, there were
12,677,611 shares of Common Stock outstanding, and each holder of shares of
Common Stock will be entitled to one vote at the meeting for each share
registered in such stockholder's name. Holders of Common Stock are not entitled
to cumulate their votes on any matter to be considered at the meeting. The
presence at the meeting, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock outstanding on the record date
constitutes a quorum for the transaction of business at the meeting.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of directors to serve until the 2000,
2001 or 2002 annual meeting of stockholders, in voting by proxy, stockholders
may vote in favor of all nominees or withhold their votes as to all nominees or
withhold their votes as to specific nominees. With respect to the other
proposals to be voted upon, stockholders may vote in favor of the proposals,
against the proposals or may abstain from voting. Stockholders should specify
their choices on the enclosed form of proxy. If no specific instructions are
given with respect to the matters to be acted upon, the shares represented by a
signed proxy will be voted FOR the election of all nominees, FOR the proposed
<PAGE>
amendment to the Company's by-laws to adopt a classified Board of Directors, FOR
the proposal to increase the number of shares authorized under the Company's
Long-Term Stock Incentive Plan (the "Incentive Plan") and FOR the proposal to
ratify the selection of Deloitte & Touche LLP as independent auditors for the
Company for the current fiscal year. Directors will be elected by a plurality of
the votes cast by the holders of the shares of Common Stock voting in person or
by proxy at the Annual Meeting. Approval of the proposed amendment to the
Company's by-laws, the proposal to increase the number of shares authorized
under the Incentive Plan and the ratification of the selection of the Company's
independent auditors will require the affirmative vote of the holders of a
majority of the votes cast and, in the case of the proposal to increase the
number of shares authorized under the Incentive Plan, provided that the total
number of votes cast on the proposal represents over 50% in interest of all
securities entitled to vote on the proposal. Abstentions will have no effect on
any of the foregoing votes, except in the case of the proposal to increase the
number of shares authorized under the Incentive Plan, where abstentions will
have the same effect as a negative vote. Broker non-votes will not be included
in vote totals and will have no effect on the outcome of the vote.
A stockholder who submits a proxy may revoke it at any time prior to the
voting of the proxy by written notice to the Secretary of the Company or by
attending the meeting and voting the stockholder's shares in person.
After the initial mailing of this Proxy Statement, proxies may be solicited
by telephone, telegram or personally by directors, officers and other employees
of the Company (who will not receive any additional compensation therefor). All
expenses with respect to this solicitation of proxies, including printing and
postage costs, will be paid by the Company. Arrangements will be made with
brokers and other custodians, nominees and fiduciaries to send proxies and the
proxy material to their principals, and the Company will, upon request,
reimburse them for their reasonable expenses in doing so. The Company may
engage an outside proxy soliciting firm to assist in the solicitation of
proxies. The Company will pay reasonable fees and out-of-pocket costs and
expenses if it elects to engage such a firm.
PROPOSAL I
ELECTION OF DIRECTORS
At the Annual Meeting, the stockholders will vote to elect three Class I
directors, whose terms will expire at the 2000 Annual Meeting, three Class II
directors, whose terms will expire at the 2001 Annual Meeting, and three Class
III directors, whose terms will expire at the 2002 Annual Meeting (in all cases
subject to the election and qualification of their successors or to their
earlier death, resignation or removal).
The persons named in the enclosed proxy will vote to elect Spencer I.
Browne, John S. Grace and Wellington J. St. Claire as Class I directors, Kevin
P. Brady, Timothy J. Guba and Donnell A. Segalas as Class II directors, and
Michael A.J. Farrell, Jonathan D. Green and John A. Lambiase as Class III
directors, unless authority to vote for the election of any or all of the
nominees is withheld by marking the proxy to that effect. All of these
individuals currently are directors of the Company.
If Proposal II, the proposed amendment to the Company's by-laws to provide
for the classification of the Board of Directors, is not adopted, all nine
directors will be elected for a one-year term expiring at the 2000 Annual
Meeting of stockholders (subject to the election and qualification of their
successors or to their earlier death, resignation or removal).
-2-
<PAGE>
Recommendation of the Board of Directors Concerning the Election of Directors
The Board of Directors of the Company recommends a vote FOR Spencer I.
Browne, John S. Grace and Wellington J. St. Claire as directors to hold office
until the 2000 Annual Meeting of stockholders and until their respective
successors are duly elected and qualified, FOR Kevin P. Brady, Timothy J. Guba
and Donnell A. Segalas as directors to hold office until the 2001 Annual Meeting
of stockholders and until their respective successors are duly elected and
qualified, and FOR Michael A. J. Farrell, Jonathan D. Green and John A. Lambiase
as directors to hold office until the 2002 Annual Meeting of stockholders and
until their respective successors are duly elected and qualified. Proxies
received by the Board of Directors will be so voted unless stockholders specify
in their proxy a contrary choice.
NOMINEES FOR DIRECTOR OF THE COMPANY
Set forth below are the names and certain information with respect to
each nominee for Director of the Company.
Nominees for Class I Directors (Nominated for Initial Term Expiring at the 2000
Annual Meeting)
Spencer I. Browne, age 49, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Browne has held various executive and management
positions with several publicly traded companies engaged in businesses related
to the residential and commercial mortgage loan industry . From August 1988
until September 1996, Mr. Browne served as President, Chief Executive Officer
and a director of Asset Investors Corporation ("AIC"), a New York Stock Exchange
traded company he co-founded in 1986. He also served as President, Chief
Executive Officer and a director of Commercial Assets, Inc., an American Stock
Exchange traded company affiliated with AIC, from its formation in October 1993
until September 1996. In addition, from June 1990 until March 1996, Mr. Browne
served as President and a director of M.D.C. Holdings, Inc., a New York Stock
Exchange traded company and the parent company of a major homebuilder in
Colorado.
John S. Grace, age 41, was elected on June 26, 1997 to serve as a director
of the Company. For the past six years, Mr. Grace has been the Chairman of
Sterling Grace Corporation, Co-Chairman of Associated Asset Management, Inc. and
general partner of Anglo American Securities Fund, L.P. Mr. Grace is also a
director of the Cold Spring Harbor Laboratory Association, a genetic research
institute, and a director of Andersen Group, Inc. Mr. Grace has also served as
governor of the Foundation for Advanced Information and Research of Tokyo, a
research center whose membership includes senior executives from Japanese
companies, and as a trustee of the Ford Theater in Washington, D.C.
Wellington J. St. Claire, age 35, was elected on December 5, 1996 to serve
as Vice Chairman of the Board, and a director of the Company with responsibility
for managing the portfolio of the Company. She has been Senior Vice President
of Fixed Income Discount Advisory Company, a registered investment advisor
("FIDAC"), from March 1995 to the present and Treasurer since July 1994. From
July 1994 through March 1995 she was a Vice President of FIDAC. Ms. St. Claire
has been the portfolio manager for the Floating Rate Fund since its inception in
August 1994. Prior to joining FIDAC, from March 1992 to July 1994, Ms. St.
Claire had been Vice President responsible for asset selection and financing at
Citadel Funding Corporation. Prior to joining Citadel she had been a trader on
the Mortgage-Backed Securities desk at Schroder Wertheim and Co., Inc. She has
attended the New York Institute of Finance for intense Mortgage-Backed
Securities studies.
-3-
<PAGE>
Nominees for Class II Directors (Nominated for Initial Term Expiring at the 2001
Annual Meeting)
Kevin P. Brady, age 43, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Brady is the Managing Director of Application
Building Blocks, a software development company which services the financial
services industry. He is also the principal of KPB Associates Inc., an
accounting firm which specializes in corporate taxation and finance. Mr. Brady
founded KPB Associates Inc. in December 1993. From July 1986 through November
1993, Mr. Brady worked for PriceWaterhouse Coopers in New York City where he
concentrated on international tax planning for multinational corporations and
held a number of senior management positions. Prior to joining PriceWaterhouse
Coopers, Mr. Brady worked in the corporate tax department of Merck & Co. Mr.
Brady is a Certified Public Accountant.
Timothy J. Guba, age 41, was elected on December 5, 1996 to serve as
President, Chief Operating Officer and a director of the Company. Mr. Guba
joined FIDAC in March 1995 as a Senior Vice President to assist FIDAC's
financial institutional clients with securities financing management. From April
1991 to December 1994, Mr. Guba worked as a Vice President at Paine Webber Inc.
in its Taxable Fixed Income Department specializing in Mortgage-Backed
Securities. Mr. Guba was President of JPC Brokers Inc., a subsidiary of
Fundamental Brokers, from 1988 through 1991. He was responsible for a staff of
35 employees and a daily transactional volume of over $300 million in Mortgage-
Backed Securities. Mr. Guba was a Senior Vice President at L.F. Rothschild
Mortgage Capital from 1986 to 1988, specializing in trading of mortgage pass-
through certificates, where he established L.F. Rothschild as a member in the
FNMA and FHLMC selling groups. Mr. Guba began his career in 1980 at Morgan
Guaranty Trust Company in the Treasurer's Department trading various money
market instruments. Mr. Guba has a BS in Finance and Business Management from
Cornell University.
Donnell A. Segalas, age 41, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Segalas is a Principal of Maplewood Partners,
L.L.C., a private equity investment fund. Prior to his joining Maplewood
Partners, Mr. Segalas was a Managing Director at Rodman & Renshaw, Inc. in the
Mortgage- Backed Securities Department from 1994 to June 1997. In December
1995, Mr. Segalas was also given the additional responsibility to manage Rodman
& Renshaw's Structured Finance Group. From 1990 to 1994, Mr. Segalas served as
Senior Vice President in the Mortgage-Backed Securities Department at Tucker
Anthony, Inc., where he co-managed the firm's Structured Finance Group. Prior
to that time, Mr. Segalas had been a Senior Vice President at Smith Barney, Inc.
and Corporate Vice President at Drexel Burnham Lambert.
Nominees for Class III Directors (Nominated for Initial Term Expiring at the
2002 Annual Meeting)
Michael A. J. Farrell, age 47, was elected on December 5, 1996 to serve
as Chairman of the Board and Chief Executive Officer of the Company. Since July
1994, he has been the President and CEO of FIDAC. He is a member of the board
of directors of the U.S. Dollar Floating Rate Fund. Prior to founding FIDAC,
from February 1992 to July 1994, Mr. Farrell served as President of Citadel
Funding Corporation. From April 1990 to January 1992, Mr. Farrell was a Managing
Director for Schroder Wertheim & Co. Inc. in the Fixed Income Department. In
addition to being the former Chairman of the Primary Dealers Operations
Committee of the Public Securities Association (from 1981 through 1985) and its
Mortgage Backed Securities Division, he is a former member of the Executive
Committee of its Primary Dealers Division. Prior to his employment with
Schroder Wertheim, Mr. Farrell had been President of L.F. Rothschild Mortgage
Capital, Inc., Vice President of Trading at Morgan Stanley and Co., Inc., and
Senior Vice President of Merrill Lynch and Co., Inc. Mr. Farrell began his
career at E.F. Hutton and Company in 1971. Mr. Farrell has 25 years of
experience in fixed income trading, management and operations.
-4-
<PAGE>
Jonathan D. Green, age 52, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Green has been the President and Chief Executive
Officer of Rockefeller Center Management Corporation ("RCMC") and Rockefeller
Center Development Corporation ("RCDC"), subsidiaries of The Rockefeller Group
("RGI"), from July 1995 to the present. Mr. Green joined RGI in 1980 as
Assistant Vice President and Real Estate Counsel, was appointed Vice President,
Secretary and General Counsel in 1983, and was elected Chief Corporate Officer
in 1991. As President of RCMC, Mr. Green is responsible for all aspects of
RGI's real estate ownership and management interests in Rockefeller Center in
midtown Manhattan. As President of RCDC, Mr. Green oversees RGI's real estate
development projects including the International Trade Center in Morris County,
New Jersey and Rockefeller Plaza West in midtown Manhattan. Before joining RGI,
Mr. Green was affiliated with the New York City law firm of Thacher, Proffitt &
Wood.
John A. Lambiase, age 59, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Lambiase was Managing Director in Global
Operations at Salomon Brothers from 1985 through his retirement in 1991. Mr.
Lambiase joined Salomon in 1979 as Director of Internal Audit. Mr. Lambiase has
served as Chairman of the Mortgage-Backed Securities Clearance Corporation, a
member of the board of directors of Prudential Home Mortgage and a member of the
Board of the National Securities Clearance Corporation, and was a founding
director and Chairman of the Participation Trust Company. Mr. Lambiase also
served on Salomon's Credit Committee. Prior to joining Salomon, from 1972
through 1979, Mr. Lambiase was President of Loeb Rhodes Wall Street Settlement
Corporation with responsibility for securities clearance of over 130 member
firms. Prior to Loeb Rhodes, Mr. Lambiase had been the Chief Financial Officer
and a General Partner of W.E. Hutton. Mr. Lambiase is a Certified Public
Accountant.
Meetings and Committees of the Board of Directors
The Compensation Committee of the Company consists of Messrs. Browne,
Lambiase and Segalas. The Compensation Committee is charged with administering
the Company's Long-Term Stock Incentive Plan and recommending to the Board of
Directors changes to that Plan. The Compensation Committee is also charged with
approving compensation for officers of the Company.
The Audit Committee of the Company consists of Messrs. Brady, Green and
Lambiase. The Audit Committee is charged with recommending to the Board of
Directors the engagement or discharge of independent public accountants,
reviewing the plan and results of the auditing engagement with the Chief
Financial Officer of the Company and the independent public accountants, and
reviewing with the Chief Financial Officer of the Company the scope and nature
of the Company's internal auditing system.
The Nominating Committee of the Company consists of Messrs. Brady, Farrell
and Guba. The function of the Nominating Committee is to recommend to the Board
of Directors persons to be nominated as directors or to be elected to fill
vacancies on the Board. The Nominating Committee will consider nominees
recommended by stockholders of the Company. Such recommendations shall be
submitted in writing to the Secretary of the Company.
During the fiscal year ended December 31, 1998, the Board of Directors held
four meetings. During 1998, the Compensation, Audit and Nominating Committees
of the Board each held two meetings. Each Director attended at least 75% of the
aggregate number of meetings held by the Board and 75% of the aggregate number
of meetings of each Committee on which he served.
-5-
<PAGE>
Compensation of Directors
The Company pays an annual director's fee to each director who is not an
officer or employee of the Company (an "Independent Director") equal to $10,000,
a fee of $500 for each meeting of the Board of Directors of any Committee
attended by each Independent Director (or $250 for any meeting at which the
Director participates by conference telephone call) and reimbursement of costs
and expenses of all directors for attending such meetings. Directors who are
not officers or employees of the Company do not receive an annual director's fee
or a fee for attending Board or Committee meetings.
The Company's Long-Term Stock Incentive Plan (the "Incentive Plan")
provides that each Independent Director, upon appointment to the Board of
Directors, receives a non-discretionary automatic grant of non-qualified stock
options for the purchase of 5,000 shares of Common Stock, which options vest in
four equal installments over a period of four years form the date of grant. In
addition, each Independent Director is entitled to receive on June 26 of each
year that he or she serves as a director of the Company options to purchase an
additional 1,250 shares of Common Stock, which options vest on the date of
grant. The exercise price for each option is the fair market value of the
Company's Common Stock as of the date on which the option is granted.
Independent Directors also are entitled to receive discretionary awards under
the Incentive Plan. On July 31, 1998 the Company granted to each Independent
Director options to purchase 6,500 shares of Common Stock at an exercise price
of $8.13, the closing price of the Company's Common Stock as of the date of
grant of such options. The options vest in five equal installments on July 31,
1999, 2000, 2001, 2002 and 2003.
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
Name Position with the Company
- - ---- -------------------------
<S> <C>
Michael A. J. Farrell Chairman of the Board and Chief Executive
Officer
Timothy J. Guba President and Chief Operating Officer
Wellington J. St. Claire Vice Chairman of the Board
Kathryn F. Fagan Chief Financial Officer and Treasurer
</TABLE>
Biographical information regarding Mr. Farrell, Mr. Guba and Ms. St. Claire
is provided above. Certain biographical information for Ms. Fagan is set forth
below.
Kathryn F. Fagan, age 32, was employed by the Company on March 31, 1997 in
the positions of Chief Financial Officer and Treasurer. From June 1, 1992 to
February 28, 1997, Ms. Fagan was Chief Financial Officer and Controller of First
Federal Savings & Loan Association of Opelousas, Louisiana. First Federal is a
publicly owned savings and loan which converted to the stock form of ownership
during her employment period. Ms. Fagan's responsibilities at First Federal
included all financial reporting, including reports for internal use and reports
required by the Commission and the Office of Thrift Supervision. Her duties
also included asset/liability management, internal control compliance and the
management of First Federal's investment portfolio. During the period from
September 1988 to May 1992, Ms. Fagan was employed as a bank and savings and
loan auditor by John S. Dowling & Company, a corporation of Certified Public
Accountants. Ms. Fagan is a Certified Public Accountant and has a Masters
Degree in Business Administration.
-6-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 26, 1999,
relating to the beneficial ownership of the Common Stock by (i) all persons
known by the Company to beneficially own more than 5% of the outstanding shares
of the Common Stock, (ii) each executive officer and director of the Company and
(iii) all officers and directors of the Company as a group. Except as otherwise
indicated, to the Company's knowledge, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
Shares Beneficially Owned
--------------------------------------
Beneficial Owner Number Percent
- - ---------------- --------------------- -------------
<S> <C> <C>
Michael A.J. Farrell................................... 86,878(1) *
Timothy J. Guba........................................ 66,161(2) *
Wellington J. St. Claire............................... 63,860(3) *
Kathryn F. Fagan....................................... 2,281(4) *
Kevin P. Brady......................................... 6,500(5)(6) *
Spencer I. Browne...................................... 12,500(5) *
John S. Grace.......................................... 128,750(7)(8) 1.0%
Jonathan D. Green...................................... 7,500(5) *
John A. Lambiase....................................... 27,500(5) *
Donnell A. Segalas..................................... 13,900(5) *
DePrince, Race & Zollo, Inc............................ 704,900 5.6%
201 South Orange Avenue, Suite 800
Orlando, FL 32801
Thomson Horstmann & Bryant, Inc........................ 838,700 6.6%
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
All Executive Officers and Directors as a Group
(10 persons)......................................... 415,830(1)(2) 3.3%
(3)(4)(5)(6)(7)(8)
</TABLE>
____________________
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Includes 23,091 shares of Common Stock subject to options granted under the
Company's Incentive Plan to Mr. Farrell that were exercisable as of
February 26, 1999 or have or will first become exercisable within 60 days
after such date.
(2) Includes 22,848 shares of Common Stock subject to options granted under the
Company's Incentive Plan that were exercisable as of February 26, 1999 or
have or will first become exercisable within 60 days after such date.
-7-
<PAGE>
(3) Includes 32,035 shares of Common Stock subject to vested options granted
under the Company's Incentive Plan that were execisable as of February 26,
1999 or have or will first become exercisable within 60 days after such
date.
(4) Includes 81 shares of Common Stock subject to vested options granted under
the Company's Incentive Plan that were exercisable as of February 26,
1999 or have or will first become exercisable within 60 days after such
date.
(5) Includes 5,000 shares of Common Stock subject to options granted under the
Company's Incentive Plan to each of Kevin P. Brady, Spencer I. Browne,
Jonathan D. Green and Donnell A. Segalas that were exercisable as of
February 26, 1999 or have or will first become exercisable within 60 days
after such date and 2,500 shares of Common Stock subject to options granted
under the Company's Incentive Plan to John A. Lambiase that were exercisable
as of February 26, 1999 or have or will first become exercisable within 60
days after such date.
(6) Includes 1,500 shares of Common Stock held by certain members of Mr. Brady's
immediate family.
(7) Includes 3,750 shares of Common Stock subject to vested options granted to
John S. Grace under the Company's Incentive Plan that were exercisable as of
February 26, 1999 or have or will first become exercisable within 60 days
after such date.
(8) Includes 35,000 shares held by Sterling Grace Capital Management, L.P., as
to which Mr. Grace may be deemed to have sole voting and dispositive power,
and 35,000 shares held by Anglo-American Securities Fund, L.P., 20,000
shares held by Drake Associates, L.P. and 10,000 shares held by Diversified
Long Term Growth Fund, L.P., as to which Mr. Grace may be deemed to have
shared voting and dispositive power. Mr. Grace disclaims beneficial
ownership of all shares held by such limited partnerships in excess of his
pecuniary interest.
-8-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The aggregate compensation paid or accrued by the Company during the
Company's fiscal years ended December 31, 1998 and December 31, 1997 to the
Chief Executive Officer of the Company and the Company's other three most highly
compensated executive officers at February 26, 1999 (the "Named Executive
Officers") is set forth in the following table. None of the other officers of
the Company during fiscal year 1997 or 1998 received compensation in salary and
bonus which exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation(2)
------------------------ ------------------------------
Awards
------------------------------
Restricted Securities
Stock Underlying
Salary Bonus Awards Options
Name and Principal Position Year ($) ($) ($)(3) (#)
- - --------------------------- -------- ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Michael A.J. Farrell......... 1998 $250,000 $75,534 $2,734 70,413
Chairman of the Board and 1997 $103,750 $ 0 $ 0 78,750
Chief Executive Officer(1)
Timothy J. Guba.............. 1998 $200,000 $20,427 $1,091 35,085
President and Chief 1997 $ 85,062 $ 0 $ 0 78,750
Operating Officer
Wellington J. St. Claire..... 1998 $200,000 $40,427 $1,091 60,985
Vice Chairman and 1997 $ 85,212 $ 0 $ 0 78,750
Portfolio Manager
Kathryn F. Fagan............. 1998 $125,000 $20,267 $ 551 34,843
Chief Financial Officer 1997 $ 63,745 $ 0 $ 0 0
</TABLE>
_________________________
(1) None of the Named Executive Officers received perquisites or benefits which
totaled the lesser of $50,000 or 10% of his or her salary plus bonus
payments.
(2) At December 31, 1998, Mr. Farrell, Mr. Guba, Ms. St. Claire and Ms. Fagan
held 63,787, 43,313, 31,825 and 2,200 shares of restricted stock,
respectively, with values (based on the closing market price of the
Company's Common Stock on December 31, 1998, which was $8.25 per share) of
$517,993, $357,332, $262,556 and $18,150, respectively. Dividends are paid
on restricted stock when and as paid on the Company's Common Stock.
(3) Based on the closing market price of the Company's Common Stock on March 6,
1998, the date of grant, which was $11.25 per share.
Options Granted
The following table sets forth, as to the Named Executive Officers, with
respect to the fiscal year ended December 31, 1998, information relating to the
grants of stock options. All of such options were granted pursuant to the
Company's Long-Term Stock Incentive Plan.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------- Potential Realizable Value At
Number Of Percent Of Assumed Annual Rates Of
Securities Total Options Exercise Stock Price Appreciation For
Underlying Granted To Or Base Option Term
Options Employees Price Expiration -----------------------------
Name Granted (#) In Fiscal Year ($/Sh) Date 5%($) 10%($)
- - ---- ----------------- ------------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A.J. Farrell......... 1,213(1) 0.50% $11.25 3/06/2008 $ 8,588 $ 21,749
69,200(2) 28.52% $ 8.13 7/31/2008 $353,814 $896,633
Timothy J. Guba.............. 485(1) 0.20% $11.25 3/06/2008 $ 3,434 $ 8,696
34,600(2) 14.26% $ 8.13 7/31/2008 $176,907 $448,317
Wellington J. St. Claire..... 485(1) 0.20% $11.25 3/06/2008 $ 3,434 $ 8,696
60,500(2) 24.93% $ 8.13 7/31/2008 $309,331 $783,906
Kathryn F. Fagan............. 243(1) 0.10% $11.25 3/06/2008 $ 1,720 $ 4,357
34,600(2) 14.26% $ 8.13 7/31/2008 $176,907 $448,317
</TABLE>
_______________________________
(1) On March 6, 1998, the Company granted to Mr. Farrell, Mr. Guba, Ms. St.
Claire and Ms. Fagan, respectively, incentive stock options to purchase
1,213, 485, 485 and 243 shares of Common Stock, respectively, at an exercise
price of $11.25 per share. Such options vest in three equal installments on
March 6, 1999, 2000 and 2001. Such options were granted pursuant to the
Company's Long-Term Stock Incentive Plan.
(2) On July 31, 1998, the Company granted to Mr. Farrell incentive stock options
to purchase 69,200, 34,600, 60,500 and 34,600 shares of Common Stock,
respectively, at an exercise price of $8.13 per share. Such options vest in
five equal installments on July 31, 1999, 2000, 2001, 2002 and 2003,
subject to the approval of the Board in its discretion each year. Any
options which have not vested during the five-year period commencing from
the date of grant will vest automatically on July 31, 2003. Such options
were granted pursuant to the Company's Long-Term Stock Incentive Plan.
Exercises and Values of Options
The following table sets forth certain information regarding options
exercised during the calendar year 1998, and held at year end, by the Named
Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options at FY-End Options at FY-End
Acquired on Realized (#) ($)(1)
Name Exercise (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- - ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael A.J. Farrell........ 16,687 $70,920 3,000/129,476 $0/$221,072
Timothy J. Guba............. 16,687 $70,920 3,000/94,148 $0/$216,920
Wellington J. St. Claire.... 7,500 $31,875 12,187/120,048 $0/$259,072
Kathryn F. Fagan............ 0 $ 0 0/34,843 $ 0/$4,152
</TABLE>
_______________________________
(1) Based on the closing sale price of the Company's Common Stock on the New
York Stock Exchange on December 31, 1998 ($8.25 per share).
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Employment Agreements, Termination of Employment and Change-In-Control
Arrangements
The Company has entered into employment agreements with Mr. Farrell, Mr.
Guba, Ms. St. Claire and Ms. Fagan. Each employment agreement provides for a
term through December 31, 1999 and will be automatically extended for an
additional year at the end of each year of the employment agreement, unless
either the Company or the officer provides a prescribed prior written notice to
the contrary. The Employment Agreements provide for annual salaries to Mr.
Farrell, Mr. Guba, Ms. St. Claire and Ms. Fagan based upon the book value of the
Company. Mr. Farrell's Employment Agreement provides for an annual salary equal
to 0.20% of the book value of the Company, subject to a maximum per annum amount
of $250,000; Mr. Guba's and Ms. St. Claire's Employment Agreements provide for
annual salaries equal to 0.17% of the book value of the Company, subject to a
maximum per annum amount of $200,000; and Ms. Fagan's Employment Agreement
provides for an annual salary equal to 0.10% of the book value of the Company,
subject to a maximum per annum amount of $125,000. The Company's "book value"
is defined in the Employment Agreements as the aggregate amounts reported on the
Company's balance sheet as "Stockholders' Equity," excluding any adjustments for
valuation reserves (i.e., changes in the value of the Company's portfolio of
investments as a result of mark-to-market valuation changes).
Base salary is evaluated quarterly by the Board of Directors or the
Compensation Committee and upon the raising of additional equity. The maximum
salary caps may be raised at the discretion of the Board or the Compensation
Committee. Base salary can also be lowered at management's discretion based
upon the Company's cash flow needs. To date, the Board of Directors has not
revised the salary caps set forth in the employment agreements.
Pursuant to the employment agreements, the named executive officers are
entitled to participate in the Company's benefit plans, including the Company's
Long-Term Stock Incentive Plan. In addition, the Board of Directors has
established a bonus incentive compensation plan for executive officers of the
Company. This program permits the Board of Directors, in its discretion, to
award cash bonuses annually to executive officers of the Company.
Each employment agreement provides for the subject officer to receive his
or her base salary and bonus compensation to the date of the termination of
employment by reason of death, disability or resignation and to receive base
compensation to the date of the termination of employment by reason of a
termination of employment for cause as defined in the employment agreement.
Each employment agreement also provides for the subject officer to receive, in
the event that the Company terminates the subject officer's employment without
cause, or if the subject officer resigns for "good reason" (as defined in the
employment agreement, including the occurrence of a "Change of Control" of the
Company as defined in the employment agreement), an amount, 50% payable
immediately and 50% payable in monthly installments over the succeeding twelve
months, equal to three times the greater of such officer's combined maximum
salary base and actual bonus compensation for the preceding fiscal year or the
average for the three preceding years of such officer's combined actual base
salary and bonus compensation, subject in each case to a maximum amount of 1% of
the Company's book equity value (exclusive of valuation adjustments) and a
minimum amount of $250,000. Section 280G of the Code may limit the
deductibility of such payments by the Company for Federal income tax purposes.
Each employment agreement also contains a "non-compete" provision prohibiting
the subject officer from managing, controlling, participating in or operating a
competing REIT for a period of one year following termination of employment
following the Company's termination of the subject officer without cause or
resignation of the subject officer for "good reason" (including a "Change of
Control"). Providing services to Fixed Income Discount Advisory Company (an
affiliate of the Company) and its customers is expressly excluded from operation
of the "non-compete" provision. In addition, all outstanding options and other
awards granted to the subject officer under the Company's's Long-Term Stock
Incentive Plan shall immediately vest upon his or her termination without cause
or termination for "good reason" (including upon a "Change of Control").
"Change of Control" for
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<PAGE>
purposes of the agreements would include a merger or consolidation of the
Company, a sale of all or substantially all of the assets of the Company,
changes in the identity of a majority of the members of the Board of Directors
of the Company (other than due to the death, disability or age of a director) or
acquisitions of more than 9.8% of the combined voting power of the Company's
capital stock, subject to certain limitations. Each agreement requires that the
subject officer act in accordance with provisions of Maryland law relating to
corporate opportunities.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised solely of the following outside
directors: Spencer I. Browne, John A. Lambiase and Donnell A. Segalas. None
of them has served as an officer or employee of the Company or any affiliate or
has any other business relationship or affiliation with the Company, except his
service as a director.
Report of the Compensation Committee
The Company's compensation structure for its executive officers and
directors has been developed with consideration for the following objectives:
1. Incentives for Management to Maximize Company Performance. The Company
has designed its compensation policy to provide the proper incentives to
management to maximize the Company's performance in order to serve the best
interests of the Company's stockholders. The Company has sought to achieve this
objective through the granting of stock options under the Company's Long-Term
Stock Incentive Plan, the award of compensation pursuant to the Company's bonus
incentive compensation program, and employment agreements with its executive
officers where compensation is dependent upon the Company's book value.
To date, executive officers of the Company, pursuant to the Company's Long-
Term Stock Incentive Plan (the "Incentive Plan"), have been granted options to
purchase, in the aggregate, 437,576 shares of Common Stock of the Company with
exercise prices ranging from $4.00 to $11.25. Over 99% of these options vest in
equal installments over a four or five-year period from the date of grant.
During 1998, 201,326 incentive stock options were granted to executive officers
of the Company. All of these options were granted with an exercise price equal
to the closing price of the Company's Common Stock as of the date of the grant
of the options.
The Company's Board also has adopted a bonus incentive compensation program
for executive officers of the Company. This program permits the Board's
Compensation Committee, in its discretion, to award bonuses to the officers and
employees of the Company based upon individual performance, Company performance,
or such other factors as the Compensation Committee determines to be
appropriate. Bonuses may be paid in the form of cash, stock options or other
forms of compensation as determined appropriate by the Compensation Committee.
In 1998, bonuses were paid in the form of incentive stock options under the
Plan, restricted stock and cash. Over 98% of the incentive stock options
granted during 1998 vest over a five-year period. Awards during 1998 were based
upon guidelines established by the Committee with the assistance of Performance
Management, LLC, an outside compensation consultant engaged by the Company. One
important factor considered in these awards was the performance of the Company
relative to its competitors and in the context of adverse market conditions
during 1998.
Pursuant to employment agreements entered into between the Company and its
executive officers, base compensation for employees is calculated as a
percentage of the Company's "book value." This arrangement was established
based upon the Company's view at the time that successful performance by the
Company would result in the Company's ability to raise additional capital. In
the short term, as a result of
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<PAGE>
various factors, including the relatively weak performance of the Company's
industry segment, this has not occurred. However, the Committee believes that,
in the long term, the Company's ability to raise additional capital will
correlate with the Company's performance.
2. Long-Term Commitment of Company Management. The Committee believes that
the long-term commitment of its current management team is a crucial factor in
the Company's future performance. This team includes Messrs. Farrell and Guba,
and Ms. St. Claire, who have worked together at FIDAC since March 1995 and at
the Company since the Company's incorporation in November 1996 and the Company's
commencement of operations in February 1997, and Ms. Fagan, who has worked at
the Company since April 1997. To ensure the long-term commitment of its
management team, the Company, with the approval of the Board, has entered into
employment agreements with Messrs. Farrell and Guba and Mss. St. Claire and
Fagan. Each of these agreements provides for a term through December 31, 1999
with automatic one-year extensions unless either the Company or the officer
provides written notice to the contrary.
Consistent with the foregoing, the Company has structured its executive
compensation policies to promote the long-term commitment of Company management.
A significant portion of management compensation is in the form of incentive
stock options. In addition, as indicated above, over 99% of the incentive stock
options granted by the Company since inception have been options with vesting
periods of three, four or five years. The options provide that vesting each
year prior to the third, fourth or fifth anniversary, as applicable, of the date
of grant is subject to the prior approval of the Board. The Company also has
structured a portion of its executive compensation in the form of grants of
restricted stock. The restricted stock granted by the Company during 1998 does
not vest until 2001.
3. Comparability with Competitors' Compensation Structures. In assisting
the Company to develop guidelines for the Company's compensation structure,
including the bonus incentive program, the compensation consultant engaged by
the Company looked to the compensation structures of other publicly held
mortgage REITS and other publicly held companies in the financial services
industry. The Company believes its management compensation structure, is
consistent, generally, with the management compensation structure of comparable
companies. The Company will continue to monitor that it compensation structure
is consistent with the compensation structure of its competitors.
4. Compensation of Non-Employee Directors. Upon the recommendation of the
Company's compensation consultant, the Company granted to its non-employee
directors during 1998 options to purchase 6,500 shares of Common Stock vesting
in equal installment over a five-year period. The five-year vesting period for
these options is intended to promote the long-term commitment of these
directors. The compensation consultant has informed the Committee that its
compensation structure for non-employee directors is consistent, generally, with
the compensation structure for non-employee directors of comparable companies.
The foregoing report has been furnished by the current members of the
Compensation Committee, being:
Spencer I. Browne John A. Lambiase Donnell A. Segalas
Performance Analysis
The following graph provides a comparison of the cumulative total
stockholder return among the Company, the Standard & Poor's Composite-500 Stock
Index ("S&P 500") and the BBG REIT Mortgage Index (the "BBG Index"), an industry
index of 11 tax-qualified mortgage REITs. The comparison is for the period from
October 8, 1997 (the date on which the Company's Common Stock commenced trading
on the New York Stock Exchange) to December 31, 1998 and assumes the
reinvestment of any dividends. The
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<PAGE>
initial price of the Company's Common Stock shown in the graph below is based
upon the price to public of $12.00 in the Company's initial public offering on
October 8, 1997. The closing price of the Company's Common Stock quoted on the
New York Stock Exchange at the close of business on October 8, 1997 was $12.63
per share. Upon written request, the Company will provide stockholders with a
list of the REITs included in the BBG Index. The historical information set
forth below is not necessarily indicative of future performance.
[Performance Graph Appears Here]
<TABLE>
<CAPTION>
10/8/97 12/31/97 12/31/98
------- -------- --------
<S> <C> <C> <C>
Annaly............................ 100 87 65
S&P 500 Index..................... 100 98 126
BBG REIT Mortgage................. 100 78 59
</TABLE>
Certain Transactions
Messrs. Farrell and Guba, and Ms. St. Claire, are actively involved in the
management of Fixed Income Discount Advisory Company, a registered investment
adviser ("FIDAC"). Mr. Farrell is the sole stockholder of FIDAC. The Company
shares with FIDAC office space and certain office expenses, such as lease
payments and utilities charges, at cost on a pro rata basis based on the
relative use of such facilities and services by the Company and FIDAC. For
1998, $9,791 of the costs for lease payments and utilities charges were
allocated to the Company and $9,161 of such costs were allocated to FIDAC.
During 1998, the Company made an initial investment of $49,980 in Annaly
International Mortgage Management, Inc. ("AIMM"), a newly formed corporation
established to explore opportunities to conduct various business activities
overseas, including the origination of mortgages. AIMM has not commenced
operations beyond this exploratory stage. The Company owns 24.99% of the equity
of AIMM in the form of non-voting securities. The remaining equity of AIMM is
owned by various persons and entities, including FIDAC, Mr. Grace, a director of
the Company, and other persons. During 1998, AIMM made an initial investment of
$20,400 in Annaly.com, Inc., a newly formed corporation established to explore
opportunities to acquire or originate mortgages in the United States. AIMM
owns 5% of the equity of Annaly.com, Inc. The remaining equity of Annaly.com is
owned by various persons and entities, including FIDAC.
PROPOSAL II
AMENDMENT TO THE COMPANY'S BY-LAWS
TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved and recommended
that the stockholders of the Company approve an amendment and restatement of
Article IV, Section 1 of the Company's by-laws which would provide for the
classification of the Board of Directors into three classes of directors with
staggered terms of office (the "Classified Board Provision").
A copy of the Classified Board Provision is attached as Annex A to this
Proxy Statement, and stockholders are urged to review it carefully. The Board
of Directors reserves the right to make minor revisions to the text of the
Classified Board Provision, provided such revisions do not materially alter the
meaning or effect of the Classified Board Provision.
The Board of Directors has approved the amendment and restatement of
Article IV, Section 1 of the Company's by-laws to add the Classified Board
Provisions.
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<PAGE>
The Company's by-laws now provide that all directors are to be elected
annually for a term of one year. Maryland law permits provisions in a
certificate of incorporation or by-law approved by stockholders that provide for
a classified board of directors. The Classified Board Provision would amend the
Company's by-laws to provide that directors will be classified into three
classes, with each class to consist of three directors. One class would hold
office initially for a term expiring at the 2000 Annual Meeting of Stockholders;
another class would hold office initially for a term expiring at the 2001 Annual
Meeting; and another class would hold office initially for a term expiring at
the 2002 Annual Meeting. At each Annual Meeting following this initial
classification and election, the successors to the class of directors whose
terms expire at that meeting would be elected for a term of office to expire at
the third succeeding Annual Meeting after the election and until their
successors have been duly elected and qualified. See Proposal I, "Election of
Directors" as to the initial composition of each class of directors if this
proposal is adopted. If this proposal were adopted, vacancies occurring during
the year could be filled by the Board of Directors until the next annual
meeting.
The proposed Classified Board Provision will significantly extend the time
required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Company. Currently, a change in
control of the Board of Directors can be made by stockholders holding a
plurality of the votes cast at a single Annual Meeting. If the Company
implements a classified board of directors, it will take at least two Annual
Meetings for even a majority of stockholders to make a change in control of the
Board of Directors, because only a minority of the directors will be elected at
each meeting.
ADVANTAGES. The Classified Board Provision is designed to assure
continuity and stability in the Board of Directors' leadership and policies.
While management has not experienced any problems with such continuity in the
past, it wishes to ensure that this experience will continue. The Board of
Directors also believes that the Classified Board Provision will assist the
Board of Directors in protecting the interests of the Company's stockholders in
the event of an unsolicited offer for the Company.
DISADVANTAGES. Because of the additional time required to change control
of the Board of Directors, the Classified Board Provision will tend to
perpetuate present management. Because the Classified Board Provision will
increase the amount of time required for a takeover bidder to obtain control of
the Company without the cooperation of the Board of Directors, even if the
takeover bidder were to acquire a majority of the Company's outstanding stock,
it will tend to discourage certain tender offers, perhaps including some tender
offers that stockholders may feel would be in their best interests. The
Classified Board Provision also will make it more difficult for the stockholders
to change the composition of the Board of Directors even if the stockholders
were to believe that such a change would be desirable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE COMPANY'S BY-LAWS TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
PROPOSAL III
APPROVAL OF AMENDMENT TO THE COMPANY'S LONG-TERM
STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to the approval of the
shareholders of the Company, an amendment to the Company's Long-Term Stock
Incentive Plan (the "Incentive Plan") increasing the number of authorized shares
of Common Stock under the Incentive Plan from the greater of 500,000 shares and
5% of the number of outstanding shares of Common Stock to 9.5% of the
outstanding shares of Common Stock.
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<PAGE>
The proposed amendment also would increase the maximum number of shares of
Common Stock that could be delivered upon exercise of incentive stock options,
subject to this 9.5% maximum amount.
Description of Proposed Amendment
To date, the Company has granted options with respect to 637,884 shares of
Common Stock of the Company. Of these options which have been granted, options
with respect to 73,311 have been exercised. If the amendment were approved,
options with respect to an additional 563,716 shares would be available for
grant under the Incentive Plan. The Incentive Plan is an essential part of the
Company's compensation and reward program for its officers, directors and
employees because awards under the Incentive Plan permit officers, directors and
employees to benefit from the Company's growth and financial performance. The
Board of Directors believes that it is in the best interest of the Company to
authorize additional shares under the Incentive Plan to continue to provide
officers, directors and employees compensation and reward for their efforts to
accomplish the Company's long-term and short-term goals. At present, all of the
Company's five officers, six non-employee directors and two non-officer
employees are eligible to participate in the Plan. The future allocation of
options or other awards to any person or group of persons under the Incentive
Plan is not, at present, determinable.
Description of Long-Term Stock Incentive Plan
The following is a summary of the principal features of the Incentive Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Incentive Plan. A copy of the Incentive Plan and the proposed
amendment is attached as Annex B to this Proxy Statement and stockholders
should refer to Annex B for a more complete description of the Plan and the
proposed amendment.
The Company adopted the Incentive Plan to provide officers, directors and
other key employees and consultants of the Company with additional incentives
to exert their best efforts on behalf of the Company, to increase their
proprietary interest in the success of the Company, to award outstanding
performance, and to attract and retain executive personnel of outstanding
ability. The effective date of the Incentive Plan was January 2, 1997.
Awards under the Incentive Plan to officers and other key employees of, and
consultants to, the Company are granted subject to the approval of the
Compensation Committee of the Board of Directors, which administers the
Incentive Plan. Awards under the Incentive Plan may include: (i) options to
purchase shares of Common Stock, including incentive stock options, non-
qualified stock options or both, which options may contain automatic reload
features; (ii) stock appreciation rights, whether in conjunction with the grant
of stock options or independent of such grant, or stock appreciation rights that
are only exercisable in the event of a change in control of the Company (as
defined in the Incentive Plan) or upon other events; (iii) restricted stock, in
which Common Stock is granted to participants subject to restrictions on
transferability and other restrictions, which lapse over time; (iv) deferred
stock, in which delivery of Common Stock occurs upon expiration of a deferral
period; (v) bonus stock, consisting of a right to receive Common Stock in an
amount determined with reference to a fixed bonus amount; (vi) dividend
equivalents, consisting of a right to receive cash, other awards, or other
property equal in value to dividends paid with respect to a specified number of
shares of Common Stock, or other periodic payments; or (vii) other awards not
otherwise provided for, the value of which are based in whole or in part upon
the value of the Common Stock. The Compensation Committee is composed of three
non-employee directors of the Company.
The Incentive Plan also provides that each person who becomes a director,
but who is not an officer or employee of the Company, upon appointment to the
Board of Directors receives a non-discretionary automatic grant of non-qualified
stock options for the purchase of 5,000 shares of Common Stock, which options
vest in four equal installments over a period of four years from the date of
grant. In addition, each
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<PAGE>
non-employee director is entitled to receive on June 26 of each year that he or
she serves as a director of the Company options to purchase an additional 1,250
shares of Common Stock, which options vest on the date of grant. The exercise
price for each share of Common Stock subject to these non-employee directors'
options is equal to the fair market value of the Common Stock on the date the
option is granted.
The flexible terms of the Incentive Plan are intended, among other things,
to permit the Compensation Committee of the Board of Directors, which
administers the Incentive Plan, to impose performance conditions with respect to
any award to officers and key employees, thereby requiring forfeiture of all or
a part of any award if performance objectives are not met, or linking the time
of exercisability or settlement of an award to the achievement of performance
conditions. Awards granted under the Incentive Plan are generally not
assignable or transferable except by the laws of descent and distribution.
The Compensation Committee has the authority under the Incentive Plan,
among other things, to: (i) select the officers and other key employees and
consultants entitled to receive awards under the Incentive Plan; (ii) determine
the form of awards, or combinations thereof, and whether such awards are to
operate on a tandem basis or in conjunction with other awards; (iii) determine
the number of shares of Common Stock or rights covered by an award; and (iv)
determine the terms and conditions of any awards granted under the Incentive
Plan, including, any restrictions or limitations on transfer, any vesting
schedules or the acceleration thereof, and any forfeiture or termination
provisions (or waivers thereof) including, but not limited to, in connection
with a determination that an Incentive Plan participant has been terminated for
cause (as defined in the Incentive Plan). Other than with respect to the grant
of non-discretionary stock options to non-employee directors as described above,
the exercise price at which shares of Common Stock may be purchased pursuant to
the grant of stock options under the Incentive Plan is required to be determined
by the Compensation Committee at the time of grant in its discretion, which
discretion includes the ability to set an exercise price that is below the fair
market value of the shares of Common Stock covered by such grant at the time of
grant. In addition, unless otherwise provided by the Compensation Committee in
an award agreement, all restrictions relating to the continued performance of
services and/or the achievement of performance objectives will immediately lapse
upon a change in control of the Company.
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the total number of shares of Common Stock that have been
reserved and available for issuance under the Incentive Plan is the greater of
500,000 or 5% of the total number of shares of Common Stock outstanding on a
fully diluted basis, assuming, if applicable, the conversion of all warrants and
convertible securities into Common Stock. Subject to shareholder approval, the
number of shares of Common Stock reserved and available for issuance under the
Incentive Plan will be increased to 9.5% of the total number of shares of Common
Stock outstanding on a fully-diluted basis. No awards may be granted under the
Incentive Plan to any person who, assuming exercise or settlement of all options
and rights held by such person, would own or be deemed to own more than 9.8% in
number of shares or value of any class of capital stock of the Company.
The Incentive Plan may be amended, altered, suspended, discontinued, or
terminated by the Board of Directors without stockholder approval unless such
approval is required by law or regulation or under the rules of any stock
exchange or automated quotation system on which the Common Stock is then listed
or quoted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
UNDER THE PLAN.
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<PAGE>
PROPOSAL IV
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The accounting firm of Deloitte & Touche LLP ("D&T") has served as the
Company's independent auditors since the Company's formation in November 1996.
During such time, it has performed services of an accounting and auditing nature
for the Company. Representatives of D&T are expected to be present at the
meeting, will have the opportunity to make a statement and are expected to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR
THE YEAR 1999.
OTHER BUSINESS
As of the date of this Proxy Statement, management is not aware of any
other matters that will be presented by management for consideration at the
Annual Meeting. If any other matters properly come before the meeting, the
persons named as proxies in the enclosed form of proxy intend to vote in
accordance with their judgment on the matters presented.
PROPOSALS OF STOCKHOLDERS
Proposals, if any, of stockholders of the Company intended to be presented
at the 2000 Annual Meeting of Stockholders must be received by the Company for
inclusion in the appropriate proxy materials no later than December 1, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, during the fiscal year ended December 31, 1998,
all filing requirements under Section 16(a) of the Securities Exchange Act of
1934, as amended, applicable to its officers, directors and greater than ten
percent stockholders were complied with on a timely basis except for Mr. Segalas
who filed a late Form 5 disclosing the disposition of 7,000 shares of Common
Stock.
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<PAGE>
OTHER MATTERS
On written request, the Company will provide without charge to each record
or beneficial holder of the Company's Common Stock as of March 15, 1999, a copy
of the Company's Annual Report on Form 10-K for the year ended December 31,
1998, as filed with the Securities and Exchange Commission. Requests should be
addressed to Mr. Timothy J. Guba, President, Annaly Mortgage Management, Inc.,
12 East 41st Street, Suite 700, New York, New York 10017.
By Order of the Board of Directors,
/s/ Michael A. J. Farrell
Michael A. J. Farrell
Chairman of the Board and Chief
Executive Officer
March 31, 1999
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<PAGE>
Annex A
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ANNALY MORTGAGE MANAGEMENT, INC.
PROPOSED AMENDMENT TO BY-LAWS
The Company's by-laws would be amended by amending and restating Article
IV, Section 1 of the Company's by-laws to read as follows:
"SECTION 1. Number, Classification, Election and Term. The affairs of the
-----------------------------------------
Corporation shall be under the direction and control of a Board of
Directors which shall be composed of nine (9) directors who shall hold
office until their respective successors are duly chosen and qualified.
The number of directors shall be increased or decreased from time to time
by vote of a majority of the entire Board of Directors; provided, however,
that the number of directors may not exceed fifteen (15) nor be less than
three (3) except as permitted by law.
The Board of Directors shall be divided into three classes, consisting of
three Class I Directors, three Class II Directors and three Class III
Directors. Each Class I Director shall serve through the Corporation's
annual meeting in 2000 and thereafter, if reelected by the stockholders of
the Corporation, for successive periods of three years, and until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. Each Class II Director shall serve through the Corporation's
annual meeting in 2001 and thereafter, if reelected by the stockholders of
the Corporation, for successive periods of three years, and until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. Each Class III Director shall serve through the Corporation's
annual meeting in 2002 and thereafter, if reelected by the stockholders of
the Corporation, for successive periods of three years, and until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office.
At all times a majority of the Board of Directors shall be Independent
Directors. "Independent Director" means a director of the Corporation who
is not an officer or employee of the Corporation, any affiliate of the
Corporation or Fixed Income Discount Advisory Company."
<PAGE>
Annex B
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Under the proposed amendment to the Incentive Plan, Section 4(a) of the
Incentive Plan would be amended to read as follows:
(a) Amount of Stock Reserved. The total number of shares of Stock reserved
------------------------
and available for issuance under the Plan shall be nine and one-half
percent (9.5%) of the total number of shares of Stock outstanding (on a
fully diluted basis, assuming, if applicable, the conversion of all
warrants and convertible securities into Stock), in the aggregate. The
total number of shares of Stock that may be delivered upon exercise of an
ISO shall not exceed nine and one-half percent (9.5%) of the total number
of shares of Stock outstanding (on a fully diluted basis, assuming, if
applicable, the conversion of all warrants and convertible securities into
Stock), in the aggregate. If an Award valued by reference to Stock may
only be settled in cash, the number of shares to which such Award relates
shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
The following is the complete text of the Company's Long-Term Stock
Incentive Plan:
ANNALY MORTGAGE MANAGEMENT, INC.
LONG-TERM STOCK INCENTIVE PLAN
l. Purpose. The purpose of this Long-Term Stock Incentive Plan (the "Plan") of
-------
Annaly Mortgage Management, Inc., a Maryland corporation, is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain, and reward directors, officers and other key employees and consultants
of the Company and its subsidiaries and to enable such persons to acquire or
increase a proprietary interest in the Company, thereby promoting a closer
identity of interests between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including Stock
-----------
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents, Non-
Employee Directors Options, and Other Stock-Based Awards, are set forth in
Section 6 of the Plan. Such awards, together with any other right or interest
granted to a Participant under the Plan, are termed "Awards." For purposes of
the Plan, the following additional terms shall be defined as set forth below:
"Award Agreement" means any written agreement, contract, or other instrument
or document evidencing an Award.
"Beneficiary" shall mean the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under
this Plan upon such Participant's death or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons,
trust, or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
"Affiliate" has the meanings set forth in Rule 12b-2 of the 1934 Act.
"Board" means the Board of Directors of the Company.
<PAGE>
"Cause" shall mean Cause as defined in any employment or severance agreement
then in effect between the Participant and the Company or any subsidiary, or if
not defined therein or if there shall be no such agreement, shall mean: (i) the
willful and continued failure by the Participant to substantially perform his or
her duties for the Company (other than any such failure resulting from the
Participant's incapacity due to physical or mental illness), (ii) the willful
engaging by the Participant in misconduct which is materially and financially
injurious to the Company, or (iii) the Participant's conviction of a felony.
"Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company or
any of its subsidiaries or Affiliates, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of either the
then outstanding shares of common stock of the Company, or the then
outstanding voting securities entitled to vote generally in the election of
directors: or
(ii) the date the individuals who constitute the Board as of the date of
this Agreement, or who become directors upon or prior to the first offering
of shares of the Company's Stock (the "Incumbent Board") cease for any
reason to constitute at least a majority of the members of the Board,
provided that any person becoming a director subsequent to the effective
date of this Agreement whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than any individual
whose nomination for election to Board membership was not endorsed by the
Company's management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) the consummation of a merger, consolidation, recapitalization,
reorganization, sale or disposition of all or a substantial portion of the
Company's assets, or the issuance of shares of stock of the Company in
connection with the acquisition of the stock or assets of another entity,
provided, however, that a Change in Control shall not occur under this
clause (iii) if consummation of the transaction would result in at least 50%
of the total voting power represented by the voting securities of the
Company (or, if not the Company, the entity that succeeds to all or
substantially all of the Company's business) outstanding immediately after
such transaction being beneficially owned (within the meaning of Rule 13d-3
promulgated pursuant to the Exchange Act) by at least 50% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the
transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
"Committee" means the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan and,
until the Board shall have designated the Compensation Committee, the entire
Board.
"Common Stock" means the shares of common stock, par value $.01 per share,
of the Company.
"Company" means Annaly Mortgage Management, Inc., a corporation organized
under the laws of the State of Maryland, and any successor thereto; provided
that unless otherwise provided in this Plan, all references in this Plan to
employment by the Company shall include employment by any subsidiary of the
-2-
<PAGE>
Company, and all references to termination of employment with the Company shall
include the sale of a subsidiary of the Company by which the Participant was
employed.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time. References to any provision of the Exchange Act shall be deemed to
include rules thereunder and successor provisions and rules thereto.
"Fair Market Value" means, with respect to Stock, Awards, or other property,
(a) if the Stock is listed on a securities exchange or is traded over the NASDAQ
National Market System, the closing sales price of the Stock on such exchange or
over such system on such date or, in the absence of reported sales on such date,
the closing sales price on the immediately preceding date on which sales were
reported, or (b) if the Stock is not listed on a securities exchange or traded
over the NASDAQ National market System, the mean between the bid and offered
prices of the Stock as quoted by the National Association of Securities Dealers
through NASDAQ for such date, provided, that if the Committee determines that
the fair market value of the Stock is not properly reflected by such NASDAQ
quotations, the "Fair Market Value" of the Stock will mean the fair market value
as determined by such other method as the Committee determines in good faith to
be reasonable.
"ISO" means any Option intended to be and designated as an incentive stock
option within the meaning of Section 422 of the Code.
"Non-Employee Director" shall mean a member of the Board who is not
otherwise an employee of the Company or any subsidiary.
"Participant" means a person who, at a time when eligible under Section 5
hereof, has been granted an Award under the Plan.
"Rule 16b-3" means Rule 16 b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
"Stock" means the Common Stock and such other securities as may be
substituted for Stock or such other securities pursuant to Section 4.
3. Administration.
--------------
(a) Authority of the Committee. The Plan shall be administered by the
--------------------------
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award,
and waivers or accelerations thereof, and waivers of or modifications to
performance conditions relating to an Award, based in each case on such
considerations as the Committee shall determine), and all other matters to
be determined in connection with an Award;
-3-
<PAGE>
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may
be paid, in cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any function
of the Committee under the Plan, including without limitation for the purpose of
ensuring that transactions under the Plan by Participants who are then subject
to Section 16 of the Exchange Act in respect of the Company are exempt under
Rule 16b-3. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board.
(b) Manner of Exercise of Committee Authority. Unless authority is
-----------------------------------------
specifically reserved to the Board under the terms of the Plan, the Company's
Articles of Incorporation or Bylaws, or applicable law, the Committee shall have
sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any subsidiary of the Company the authority,
subject to such terms as the Committee shall determine, to perform
administrative functions and to perform such other functions as the Committee
may determine.
(c) Limitation of Liability. Each member of the Committee shall be entitled
-----------------------
to, in good faith, rely or act upon any report or other information furnished to
him by any officer or other employee of the Company or any subsidiary, the
Company's independent certified public accountants, or any executive
compensation consultant, legal counsel, or other professional retained by the
Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. Stock Subject to Plan.
---------------------
-4-
<PAGE>
(a) Amount of Stock Reserved. The total number of shares of Stock reserved
------------------------
and available for issuance under the Plan shall be the greater of five hundred
thousand (500,000) shares or five percent (5%) of the total number of shares of
Stock outstanding (on a fully diluted basis, assuming, if applicable, the
conversion of all warrants and convertible securities into Stock), in the
aggregate. The total number of shares of Stock that may be delivered upon
exercise of an ISO shall not exceed the greater of five hundred thousand
(500,000) shares or five percent (5%) of the total number of shares of Stock
outstanding (on a fully diluted basis, assuming, if applicable, the conversion
of all warrants and convertible securities into Stock), in the aggregate. If
an Award valued by reference to Stock may only be settled in cash, the number of
shares to which such Award relates shall be deemed to be Stock subject to such
Award for purposes of this Section 4(a). Any shares of Stock delivered pursuant
to an Award may consist, in whole or in part, of authorized and unissued shares
or treasury shares.
(b) Adjustments. In the event that any dividend or other distribution
-----------
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall adjust any or all of (i) the number and kind
of shares of Stock reserved and available for Awards under Section 4(a), (ii)
the number and kind of shares of outstanding Restricted Stock or other
outstanding Award in connection with which shares have been issued, (iii) the
number and kind of shares that may be issued in respect of other outstanding
Awards, and (iv) the exercise price, grant price, or purchase price relating to
any Award, (v) the number of shares with respect to which Awards may be granted
or measured in any calendar year, as set forth in Section 4(b).
5. Eligibility. Non-Employee Directors, executive officers and other key
-----------
employees of the Company and its subsidiaries (including any director or officer
who is also an employee), and persons who provide consulting or other services
to the Company deemed by the Committee to be of substantial value to the
Company, are eligible to be granted Awards under the Plan; provided, that, only
executive officers and other key employees of the Company and its subsidiaries
(including any director or officer who is also an employee) are eligible to be
granted ISOs under the Plan. In addition, a person who has been offered
employment by the Company or its subsidiaries is eligible to be granted an Award
under the Plan, provided that such Award shall be canceled if such person fails
to commence such employment, and no payment of value may be made in connection
with such Award until such person has commenced such employment.
6. Specific Terms of Awards.
------------------------
(a) General. Awards may be granted on the terms and conditions set forth in
-------
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment or service of the
Participant. Except as provided in Sections 6(e), 6(g), or 7(a), or to the
extent required to comply with requirements of the Corporations and Associations
Article of the Annotated Code of Maryland that lawful consideration be paid for
Stock, only services may be required as consideration for the grant (but not the
exercise) of any Award.
(b) Stock Options. The Committee is authorized to grant options to purchase
-------------
shares of Stock ("Options") to Participants (including "reload" Options
automatically granted to offset specified exercises of Options) on the following
terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
--------------
under an Option shall be determined by the Committee and set forth in an Award
Agreement.
-5-
<PAGE>
(ii) Time and Method of Exercise. The Committee shall determine and set
---------------------------
forth in an Award Agreement the time or times at which an Option may be
exercised in whole or in part, the methods by which such exercise price may be
paid or deemed to be paid, the form of such payment, including, without
limitation, cash, Stock, other Awards or awards granted under other Company
plans, or other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis, such as through "cashless
exercise" arrangements, to the extent permitted by applicable law), and the
methods by which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply in
----
all respects with the provisions of Section 422 of the Code, including but not
limited to the requirement that no ISO shall be granted with an exercise price
less than 100% (110% for an individual described in Section 422(b)(6) of the
Code) of the Fair Market Value of a share of Stock on the date of grant and
granted no more than ten years after the effective date of the Plan. Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating to
ISOs shall be interpreted, amended, or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify either the
Plan or any ISO under Section 422 of the Code, unless requested by the
affected Participant.
(iv) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee and set forth in an Award Agreement, upon termination of a
Participant's employment with the Company and its subsidiaries, such
Participant may exercise any Options during the three month period following
such termination of employment (if such three-month period does not exceed the
remaining term of the Option), but only to the extent such Option was
exercisable immediately prior to such termination of employment.
Notwithstanding the foregoing, if such termination is for Cause, all Options
held by the Participant shall immediately terminate.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs to
-------------------------
Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
----------------
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant
price of the SAR as determined by the Committee as of the date of grant of the
SAR, which, except as provided in Section 7(a), shall be not less than the
Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine and set forth in an
-----------
Award Agreement the time or times at which an SAR may be exercised in whole or
in part, the method of exercise, method of settlement, form of consideration
payable in settlement, method by which Stock will be delivered or deemed to be
delivered to Participants, whether or not an SAR shall be in tandem with any
other Award, and any other terms and conditions of any SAR. Limited SARs that
may only be exercised upon the occurrence of a Change in Control may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine. Limited SARs may be either freestanding or in tandem
with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
----------------
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
----------------------
restrictions on transferability and other restrictions, if any, as the
Committee may impose and set forth in an Award Agreement, which restrictions
may lapse separately or in combination at such times, under such
-6-
<PAGE>
circumstances, in such installments, or otherwise, as the Committee may
determine. Except to the extent restricted under the terms of the Plan and
any Award Agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder including,
without limitation, the right to vote Restricted Stock or the right to receive
dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee and set
----------
forth in an Award Agreement, upon termination of employment or service (as
determined under criteria established by the Committee) during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company; provided,
---------
however, that the Committee may provide, by rule or regulation or in any Award
-------
Agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock will be waived in whole or
in part in the event of termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan may
----------------------
be evidenced in such manner as the Committee shall determine. If certificates
representing Restricted Stock are registered in the name of the Participant,
such certificates shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock, the Company
shall retain physical possession of the certificate, and the Participant shall
have delivered a stock power to the Company, endorsed in blank, relating to
the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either paid
---------
at the dividend payment date in cash or in shares of unrestricted Stock having
a Fair Market Value equal to the amount of such dividends as the Committee
shall determine or permit the Participant to elect. Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
--------------
Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Delivery of Stock will occur upon
----------------------
expiration of the deferral period specified in an Award Agreement for an Award
of Deferred Stock by the Committee (or, if permitted by the Committee, as
elected by the Participant). In addition, Deferred Stock shall be subject to
such restrictions as the Committee may impose and set forth in an Award
Agreement, if any, which restrictions may lapse at the expiration of the
deferral period or at earlier specified times, separately or in combination,
in installments, or otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee and set
----------
forth in an Award Agreement, upon termination of employment or service (as
determined under criteria established by the Committee) during the applicable
deferral period or portion thereof to which forfeiture conditions apply (as
provided in the Award Agreement evidencing the Deferred Stock), all Deferred
Stock that is at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided, however, that the
-----------------
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
--------------------------------------------------
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee and set forth in an Award
Agreement.
-7-
<PAGE>
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
--------------------
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee, and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine, and set
forth in an Award Agreement, the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
(i) Non-Employee Directors Options. (a) Each Non-Employee Director shall
------------------------------
receive, without the exercise of the discretion of any person, (I) upon
appointment to the Board, a non-qualified stock option to purchase 5,000 shares
of Stock (the "Initial Director Options"), and (II) on June 26 of each year
during the term of the Plan, a non-qualified stock option under the Plan to
purchase 1,250 shares of Stock (the "Additional Director Options"). In the
event that there are not sufficient shares available under this Plan to allow
for the grant to each Non-Employee Director of an Option for the number of
shares provided herein, each Non-Employee Director shall receive an Option for
his pro rata share of the total number of shares of Stock available under the
Plan. The exercise price of each share of Stock subject to an Option granted to
a Non-Employee Director shall equal the Fair Market Value of a share of Stock on
the date such Option is granted or, if the Company consummates a private
placement of its Shares of Common Stock, the greater of such amount and the
offering price per share in connection with the first private placement
consummated by the Company. Each Option shall have a term of ten years from
its grant. Each Initial Director Option shall vest and become exercisable as to
one-quarter of the shares underlying the Option on each of the first, second,
third and fourth anniversaries thereof, respectively, provided, that the Non-
Employee Director to whom such Option has been awarded continues to serve as a
Non-Employee Director as of such vesting date. Each Additional Director Option
shall vest and become exercisable on the date of grant. Upon a Non-Employee
Director's cessation of service as a Non-Employee Director, the Option, to the
extent it was exercisable upon such cessation, shall remain vested and
exercisable for a period of one year or remainder of term, if less.
7. Certain Provisions Applicable to Awards.
---------------------------------------
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
------------------------------------------------------
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan or any award granted under any other plan of the Company,
any subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with
other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
-8-
<PAGE>
(b) Term of Awards. The term of each Award shall be for such period as may be
--------------
determined by the Committee and set forth in an Award Agreement; provided,
---------
however, that in no event shall the term of any ISO or an SAR granted in tandem
- - -------
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
----------------------------
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant or exercise of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) Rule 16b-3 Compliance.
---------------------
(i) Six-Month Holding Period. Unless a Participant could otherwise
------------------------
dispose of equity securities, including derivative securities, acquired under
the Plan without incurring liability under Section 16(b) of the Exchange Act,
equity securities acquired under the Plan must be held for a period of six
months following the date of such acquisition, provided that this condition
shall be satisfied with respect to a derivative security if at least six
months elapse from the date of acquisition of the derivative security to the
date of disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who is
---------------------------
then subject to Section 16 of the Exchange Act in respect of the Company, the
Committee shall implement transactions under the Plan and administer the Plan
in a manner that will ensure that each transaction by such a Participant is
exempt from liability under Rule 16b-3, except that such a Participant may be
permitted to engage in a non-exempt transaction under the Plan if written
notice has been given to the Participant regarding the non-exempt nature of
such transaction. The Committee may authorize the Company to repurchase any
Award or shares of Stock resulting from any Award in order to prevent a
Participant who is subject to Section 16 of the Exchange Act from incurring
liability under Section 16(b). Unless otherwise specified by the Participant,
equity securities, including derivative securities, acquired under the Plan
which are disposed of by a Participant shall be deemed to be disposed of in
the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
---------------
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and conditions, if any, under which the
loan or loans may be forgiven.
(f) Acceleration upon a Change of Control. Notwithstanding anything
-------------------------------------
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and/or restrictions relating to the continued
performance of services and/or the achievement of performance objectives with
respect to the exercisability or full enjoyment of an Award shall immediately
lapse upon a Change in Control, provided, that this Section 7(f) shall not be
applicable if it is intended that the transaction constituting such Change in
Control be accounted for as a pooling of interests under Accounting Principles
-9-
<PAGE>
Board Option No. 16 (or any successor thereto), and operation of this Section
7(f) would otherwise violate Paragraph 47(c) thereof.
8. General Provisions.
------------------
(a) Compliance With Laws and Obligations. The Company shall not be
------------------------------------
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system, or
any other law, regulation, or contractual obligation of the Company, until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the
------------------------------
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
---------
however, that such Awards and other rights (other than ISOs and SARs in tandem
- - -------
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(c) No Right to Continued Employment. Neither the Plan nor any action
--------------------------------
taken hereunder shall be construed as giving any employee the right to be
retained in the employ of the Company or any of its subsidiaries, nor shall it
interfere in any way with the right of the Company or any of its subsidiaries to
terminate any employee's employment at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
-----
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award, or any payroll or other payment
to a Participant amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
------------------------------
discontinue, or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
-----------------
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; provided, however, that, without
-----------------
-10-
<PAGE>
the consent of an affected Participant, no such action may materially impair the
rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or employee
------------------------------------------
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
---------------------------------------------
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
- - -----------------
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
--------------------------
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
--------------------
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction, and effect of the Plan, any
-------------
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the Corporations and Associations Article of the
Annotated Code of Maryland, without giving effect to principles of conflicts of
laws, and applicable federal law.
(k) Effective Date; Plan Termination. The Plan shall become effective as
--------------------------------
of the date of its adoption by the Board and shall continue in effect until
terminated by the Board, provided, however, that any Awards granted prior to the
approval of such adoption by the Company's stockholders shall be granted
conditional upon such approval.
-11-
<PAGE>
ANNALY MORTGAGE MANAGEMENT, INC.
Annual Meeting of Stockholders - May 17, 1999
Revoking all prior proxies, the undersigned hereby appoints Michael A. J.
Farrell, Timothy J. Guba and Wellington J. St. Claire, and each of them,
proxies, with full power of substitution, to appear on behalf of the undersigned
and to vote all shares of Common Stock, par value $.01 per share, of Annaly
Mortgage Management, Inc. (the "Company") that the undersigned is entitled to
vote at the Annual Meeting of Stockholders of the Company to be held at the
offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York
10178, on the 39th floor, commencing at 9:00 a.m., New York time, on May 17,
1999, and at any adjournment thereof, as fully and effectively as the
undersigned could do if personally present and voting, hereby approving,
ratifying and confirming all that said attorneys and agents or their substitutes
may lawfully do in place of the undersigned as indicated below.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
LISTED NOMINEES AS DIRECTORS, FOR THE PROPOSED AMENDMENT TO THE COMPANY'S BY-
LAWS TO ADOPT A CLASSIFIED BOARD OF DIRECTORS, FOR THE PROPOSAL TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED UNDER THE COMPANY'S LONG-TERM STOCK
INCENTIVE PLAN AND FOR THE PROPOSAL TO RATIFY THE SELECTION OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE CURRENT FISCAL YEAR.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
(Continued and to be signed on reverse side)
Please mark box [_] or [X] in blue or black ink.
1. Election of Directors:
[_] FOR all nominees [_] WITHHOLD AUTHORITY to [_] EXCEPTIONS
listed below vote for all nominees listed below
Nominees: KEVIN P. BRADY, SPENCER I. BROWNE, MICHAEL A. J. FARRELL, JOHN
S. GRACE, JONATHAN D. GREEN, TIMOTHY J. GUBA, JOHN A. LAMBIASE,
DONNELL A. SEGALAS, WELLINGTON J. ST. CLAIRE
(Instructions: To withhold authority to vote for any nominee, mark the
"Exceptions" box and write that nominee's name in the space provided below.)
2. Approval of an amendment to the Company's by-laws providing for the
classification of the Board of Directors into three classes.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Approval of an amendment to the Company's Long-Term Stock Incentive Plan to
increase the number of shares of Common Stock authorized thereunder to 9.5%
of the Company's outstanding Common Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Ratification of the selection of Deloitte & Touche LLP as independent
auditors for the Company for the current fiscal year.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournment
thereof.
Please sign exactly as your name
appears on the left. When signing
as an attorney, executor,
administrator, trustee or
guardian, please give your full
title. If shares are held
jointly, each holder should sign.
PLEASE CHECK HERE IF YOU PLAN TO
ATTEND THE ANNUAL MEETING [_]
Dated: ____________________, 1999
__________________________________
Signature
__________________________________
Signature (if held jointly)
Please sign, date and return the proxy card using the enclosed envelope.
