SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.----)
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 Under Rule 14a-12
MUNICIPAL MORTGAGE & EQUITY, LLC
--------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
-----
----- Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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---- Fee paid previously with preliminary materials:
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---- Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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MUNICIPAL MORTGAGE & EQUITY, LLC
Baltimore, Maryland
May 8, 2003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of Common
Shares (the "Shareholders") of Municipal Mortgage & Equity, LLC, a Delaware
limited liability company (the "Company" or "MuniMae"), will be held on
Thursday, May 8, 2003, beginning at 9:00 a.m. at the offices of the Company,
which are located at:
Municipal Mortgage & Equity, LLC
218 N. Charles St., Suite 500
Baltimore, Maryland 21201
THE PURPOSE of the Annual Meeting will be:
1. To elect three members of the Board of Directors to hold office for
three-year terms expiring at the annual meeting held in 2006 or until
their respective successors are duly elected and qualified;
2. To consider and act upon any other matter which may properly come
before the meeting or any adjournment or postponement thereof.
All Shareholders are cordially invited to attend the Annual Meeting in
person. The record date for determining those Shareholders entitled to vote at
the Annual Meeting is March 21, 2003. A review of the Company's operations for
the year ended December 31, 2002 will be presented. A proxy statement, form of
proxy and a copy of the 2002 Annual Report to Shareholders are enclosed.
By Order of the Board of Directors,
William S. Harrison
Secretary
Baltimore, Maryland
March 26, 2003
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IMPORTANT - Whether or not you plan to attend the meeting in person, you can
help in the preparation for the meeting by completing and signing the enclosed
proxy and promptly returning it in the enclosed envelope. If you are unable to
attend the meeting, your shares will be voted as directed by your proxy. If you
do attend the meeting, you may vote your shares in any manner you choose even
though you have sent in your proxy.
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MUNICIPAL MORTGAGE & EQUITY, LLC
Corporate Office and Mailing Address:
218 North Charles Street, Suite 500
Baltimore, Maryland 21201
(443) 263-2900
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by Municipal Mortgage & Equity, LLC (hereinafter the "Company" or
"MuniMae") from holders of Common Shares (the "Shareholders") for the Annual
Meeting of Shareholders to be held on Thursday, May 8, 2003.
The Company will pay the cost of the solicitation of proxies. In addition
to solicitation by mail, proxies may be solicited in person and by telephone,
facsimile or similar methods by directors, officers and employees of the Company
without additional compensation. Brokers and other people in similar capacities
will be reimbursed for their reasonable expenses in forwarding proxy materials
to Shareholders who have a beneficial interest in Common Shares registered in
the names of nominees.
The enclosed proxy, if executed and returned, may be revoked at any time
prior to the meeting by executing a proxy bearing a later date or by written
notice to the Secretary of the Company. The power of the proxy holders will also
be revoked if the Shareholder executing the proxy appears at the meeting and
elects to vote in person. Executed proxies confer upon the persons appointed as
proxies discretionary authority to vote on all matters which may properly come
before the meeting, including motions to adjourn the meeting for any reason.
In accordance with the Company's By-Laws, the share transfer records were
compiled on March 21, 2003, the record date set by the Board of Directors for
determining the Shareholders entitled to notice of, and to vote at, this meeting
and any adjournment or postponement thereof. On that date, there were 28,850,962
outstanding Common Shares. The holders of the outstanding Common Shares at the
close of business on March 21, 2003 will be entitled to one vote for each share
held by them as of such date.
The presence of the holders of a majority of the issued and outstanding
Common Shares entitled to vote at the Annual Meeting, either in person or
represented by properly executed proxies, is necessary to constitute a quorum
for the transaction of business at the Annual Meeting. If there are not
sufficient shares represented in person or by proxy at the meeting to constitute
a quorum, the meeting may be postponed or adjourned in order to permit further
solicitation of proxies by the Company. Proxies given pursuant to this
solicitation and not revoked will be voted at any postponement or adjournment of
the Annual Meeting in the manner described above.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the Annual Meeting, who will determine
whether or not a quorum is present. An abstention is deemed "present" at the
Annual Meeting but is not deemed a "vote cast." Under the rules of the New York
Stock Exchange (the "Exchange"), brokers holding shares for beneficial owners
have authority to vote on certain matters when they have not received
instructions from the beneficial owners, and do not have such authority as to
certain other matters (so-called "broker non-votes"). As a result, abstentions
and broker non-votes are not included in the tabulation of the voting results on
the election of directors or issues requiring approval of a majority of the
votes cast and, therefore, do not have the effect of votes in opposition. Broker
non-votes and the shares as to which a Shareholder abstains are included in
determining whether a quorum is present. Broker non-votes and abstentions,
however, have the effect of a vote against any proposal for which a majority of
the outstanding shares must vote in favor.
This proxy statement and the enclosed proxy are first being sent or given
to Shareholders on or about April 4, 2003.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Company's Amended and Restated Certificate of Formation and Operating
Agreement (the "Operating Agreement") provides that the Board of Directors shall
consist of at least five and no more than 15 members, with the number of seats
on the Board to be determined from time to time by resolution of the Board. The
number of directors on the Board is currently set at ten, with (i) nine of the
directors divided into three classes, the members of which are elected by the
holders of the Common Shares for staggered three-year terms, and (ii) one
director (the "Specially Appointed Director") who may be appointed by the
Dissolution Shareholder (see "Certain Relationships and Related Transactions").
As of the date of this proxy statement, the seat reserved for the Specially
Appointed Director is vacant. The terms of three directors, Messrs. Berndt,
Hillman and Falcone, expire in 2003. Messrs. Berndt and Hillman, directors since
August 1996, and Mr. Falcone, a director since October 1999, have been nominated
for re-election at the Annual Meeting. Effective January 24, 2003, Mr. William
L. Jews resigned from the board of directors due to personal reasons and other
commitments. Mr. Eddie C. Brown was appointed by the Board of Directors to
replace Mr. Jews effective March 25, 2003. Mr. Brown's biography is contained
below.
The names, ages, terms of office and certain other information as of March
26, 2003 with respect to the persons nominated for election as directors and
other persons serving as directors are as follows:
Information Concerning Nominees for Election for Terms Expiring in 2006:
Richard O. Berndt, age 60, a director of the Company since August 1996, has
-----------------
been the managing partner of the Baltimore law firm of Gallagher Evelius & Jones
LLP since 1976. Mr. Berndt has extensive experience in corporate and real estate
law. Mr. Berndt serves on the Board of Mercantile Bankshares, Board of Financial
Administration for the Archdiocese of Baltimore and Mercy Medical Center, Inc.
Gallagher Evelius & Jones LLP provides corporate and real estate related legal
services to the Company.
Robert S. Hillman, age 64, a director of the Company since August 1996, has
-----------------
been a director and president of H & V Publishing, Inc. since 1999. Prior to his
position at H & V Publishing, Inc., Mr. Hillman was a member of the law firm of
Whiteford, Taylor and Preston, L.L.P. from 1986 to 2000. Formerly the Executive
Partner of the 135-attorney firm, Mr. Hillman has extensive experience in
municipal finance, real estate, labor and employment law. He is presently
Chairman of the Board of the Babe Ruth Museum and is a trustee of the Enoch
Pratt Free Library.
Michael L. Falcone, age 41, a director of the Company since October 1999,
-------------------
has been the President and Chief Operating Officer of the Company since 1997.
Prior to his appointment as President and Chief Operating Officer, Mr. Falcone
served as Executive Vice President from November 1996 to December 1997 and
Senior Vice President from August 1996 to November 1996. Mr. Falcone is
responsible for the operations of the Company focusing on strategic planning and
business development as well as the management of the day-to-day activities of
the Company. Prior to joining the Company, he was a Senior Vice President of
Shelter Development Corporation, where he was employed from 1983 to 1996. Mr.
Falcone is a trustee for Midland Affordable Housing Group Trust ("Group Trust"),
a pension fund that provides debt financing for the Company's customers, and a
trustee of The Midland Multifamily Equity Real Estate Investment Trust ("MMER").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES AS DIRECTORS
Information Concerning Directors whose Terms Expire in 2004:
Carl W. Stearn, age 70, has been a director of the Company since August
--------------
1996. Mr. Stearn is Chairman of the Executive Committee of Provident Bankshares
Corporation. From 1990 until his retirement on April 15, 1998, Mr. Stearn was
the Chairman and Chief Executive Officer of Provident Bankshares Corporation and
Chief Executive Officer of Provident Bank of Maryland. Mr. Stearn serves on the
board of visitors of the University of Maryland School of Medicine and on the
board of directors of Project Life.
Douglas A. McGregor, age 61, has been a director of the Company since
--------------------
October 1999. In October 2002, Mr. McGregor retired as Vice Chairman and Chief
Operating Officer of The Rouse Company, a position he held since 1998. Mr.
McGregor had been with The Rouse Company since 1972. Mr. McGregor has extensive
experience in real estate development and management. Mr. McGregor is a trustee
of the International Council of Shopping Centers.
Eddie C. Brown, age 62, was appointed as a director of the Company
----------------
effective March 25, 2003. Mr. Brown is founder, President and a member of the
board of directors of Brown Capital Management, Inc., an investment management
firm, which manages money for institutions and wealthy individuals. Mr. Brown
has served in this capacity since July 1983. Mr. Brown also serves on the Boards
of the Greater Baltimore Committee, East Baltimore Development Inc. and The
Walters Art Museum.
Information Concerning Directors whose Terms Expire in 2005:
Mark K. Joseph, age 64, has served as Chairman of the Board and Chief
---------------
Executive Officer of the Company since August 1996. He also served as the
President and a director of the Managing General Partner of the SCA Tax Exempt
Fund Limited Partnership, the Company's predecessor (the "Predecessor"), from
1986 through 1996. Mr. Joseph is Chairman of the Board and founder of The
Shelter Group, a real estate development and property management company. Mr.
Joseph serves on the Boards of the Greater Baltimore Committee, Provident
Bankshares Corporation and the Associated Jewish Charities. Mr. Joseph is also
the President and one of six directors of the Shelter Foundation, a public
non-profit foundation that provides housing and related services to families of
low and moderate income.
Charles C. Baum, age 61, a director of the Company since August 1996, has
---------------
been Chief Financial Officer of United Holdings Co., Inc. and its predecessors
since 1973. United Holdings was involved in the metal business until 1990 when
it shifted its focus to investing in real estate and securities. Mr. Baum is
also a director of Gabelli Group Capital Partners (an investment advisor) and
Shapiro, Robinson & Associates (a firm that represents professional athletes).
Robert J. Banks, age 58, a director of the Company since October 1999, has
---------------
been Vice Chairman of the Company since July 2001. Previously he was Chairman
and Chief Executive Officer of The Midland Companies ("Midland"), which became a
wholly owned subsidiary of the Company in 1999, and Senior Vice President of the
Company. Mr. Banks was hired by Midland in 1973 and became President and Chief
Operating Officer in 1981. In 1988, Mr. Banks became the majority owner and the
Chairman and Chief Executive Officer of Midland. Mr. Banks is a trustee for the
Group Trust and Chairman and Chief Executive Officer of MMER. Mr. Banks is also
a board member of United Financial Holdings, Inc. and the Florida Gulf Coast
Museum of Art.
Information Concerning the Board of Directors:
During 2002, the Board of Directors held six regular meetings (including
one telephonic meeting) and five special meetings (three telephonic). Each
director attended at least 75% of the aggregate of the total number of meetings
held by the Board of Directors and the total number of meetings held by all
committees of the Board of Directors on which he served. The Board has
established the following committees:
1. Compensation Committee. The Compensation Committee, composed of
-----------------------
Messrs. Hillman (Chairman), Stearn, Baum and McGregor, met two times
in 2002. Its functions are to determine the compensation of certain
officers of the Company, including but not limited to base
compensation, incentive compensation and bonus compensation.
2. Audit Committee. The Audit Committee, composed of Messrs. Stearn
----------------
(Chairman), Baum and Hillman met seven times during 2002 (two
telephonic). Its duties are to assist the Board of Directors in
fulfilling its financial oversight responsibilities, to select an
independent accountant for the Company and to oversee the work of such
independent accountant. Effective March 25, 2003, Mr. Brown was
appointed to the Audit Committee.
3. Share Incentive Committee. The Share Incentive Committee, a
----------------------------
subcommittee of the Compensation Committee, met immediately following
each Compensation Committee meeting. Its functions are to determine
awards under the Company's Share Incentive Plans. The Share Incentive
Committee is composed of Messrs. Hillman and Baum.
4. Governance Committee. The Governance Committee, composed of Messrs.
--------------------
McGregor (Chairman), Baum and Hillman, met one time in 2002. Its
functions are to identify individuals qualified to become members of
the Board of Directors and develop and recommend to the Board of
Directors a set of corporate governance principles applicable to the
Company.
Vote Required for Approval
The affirmative vote of a majority of the holders of the outstanding Common
Shares present in person or represented by duly executed proxies at the Annual
Meeting is necessary for the election of a nominee as a director of the Company.
Shares represented by an executed proxy in the form enclosed will, unless
otherwise directed, be voted for the election of the three persons nominated to
serve as directors. Shares represented by proxies which are marked "WITHHOLD"
will be excluded entirely from the vote and will have no effect.
Compensation of Directors
The Company pays its directors who are not officers of the Company fees for
their services as directors. From time to time, the Board of Directors may
change this compensation. During 2002, the directors received annual
compensation of $16,000 plus a fee of $1,000 for attendance in person at each
meeting of the Board of Directors, including committee meetings, and $500 for
telephonic board meetings. Officers of the Company who also serve as directors
are not paid any director fees.
In addition, non-employee directors are granted options for Common Shares
and may elect to receive Common Shares or deferred Common Shares in lieu of fees
under the 1996 Non-Employee Directors' Share Plan (the "1996 Directors' Plan"),
the 1998 Non-Employee Directors' Share Plan (the "1998 Directors' Plan") and the
2001 Non-Employee Directors' Share Plan (the "2001 Directors' Plan," and
collectively with the 1996 Directors' Plan and the 1998 Directors' Plan, the
"Directors' Plans"). Under the 1996 Directors' Plan, each non-employee director
was granted an option to purchase 2,500 Common Shares following the merger of
the Predecessor with the Company. Effective January 1, 2000, the Directors'
Plans were amended to provide that each non-employee director receive an option
to purchase 7,000 Common Shares upon his initial election or appointment and an
option to purchase 5,000 Common Shares on the date of each Annual Meeting of
Shareholders. These options have and will have exercise prices equal to the fair
market value of Common Shares on the date of grant, and expire and will expire
at the earlier of 10 years after the date of grant or one year after the
optionee ceases serving as a director. Options received upon initial election or
appointment will become exercisable in three equal installments commencing at
the earlier of: (a) the next anniversary of the director's initial election, or
(b) the next Annual Meeting of Shareholders. Options received on the date of
each Annual Meeting of Shareholders become exercisable at the earlier of: (a)
the next anniversary of the option grant, or (b) the next Annual Meeting of
Shareholders. These options are subject to earlier exercisability in the event
of death, disability, or a change in control (as defined in the Directors'
Plans), and will be forfeited in the event of cessation of service as a director
within 10 months after the date of grant. The Directors' Plans also permit a
non-employee director to elect to be paid any directors' fees in the form of
Common Shares or deferred Common Shares ("Deferred Shares"). A director who
makes the election to receive Common Shares will receive Common Shares having a
fair market value at the time of issuance equal to the amount of fees he has
elected to forego, with such shares issuable at the time the fees otherwise
would have been paid. At any date on which fees are payable to a director who
elected to defer fees in the form of Deferred Shares, the Company will credit
such director's deferral account with a number of Deferred Shares equal to the
number of Common Shares having an aggregate fair market value at that date equal
to the fees that otherwise would have been payable at such date. Whenever
distributions are made, the deferral account of a director who elected to
receive Deferred Shares will be credited with distribution equivalents having a
value equal to the amount of the distribution paid on a single Common Share
multiplied by the number of Deferred Shares credited to his deferral account as
of the record date for such dividend. These distribution equivalents will be
credited to the deferral account as a number of Deferred Shares determined by
dividing the aggregate value of the distribution equivalents by the fair market
value of a Common Share at the payment date of the distribution. A total of
100,000 Common Shares are reserved for grants under the 1996 Directors' Plan and
1998 Directors' Plan and 150,000 Common Shares are reserved for grants under the
2001 Directors' Plan. As of December 31, 2002, there were 71,047 shares
available under the Directors' Plans. The number and kind of shares reserved and
automatically granted under the Directors' Plans are subject to adjustment in
the event of share splits, share distributions and other extraordinary events.
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company as of
December 31, 2002 and provides certain information about each of them.
Current Position(s) with the Company
Name and Age and Past Business Experience
----------------------- ------------------------------------------------------
Mark K. Joseph, 64 Chairman of the Board and Chief Executive Officer
of the Company since August 1996. (See description of
past business experience under "Election of Directors-
Information Concerning Directors whose Terms Expire in
2005.")
Robert J. Banks, 58 A board member of the Company since October 1999 and,
effective July 2001, Executive Vice Chair. Prior to
July 2001, Mr. Banks was Chairman and Chief Executive
Officer of Midland since 1993 and Senior Vice President
of the Company.(See description of past business exper-
ience under "Election of Directors - Information
Concerning Directors whose Terms Expire in 2005.")
Michael L. Falcone, 41 President and Chief Operating Officer of the Company
since December 1997 and a board member of the Company
since October 1999. Prior to his appointment as Presi-
dent and Chief Operating Officer, Mr. Falcone served as
Executive Vice President from November 1996 to December
1997 and Senior Vice President from August 1996 to Nov-
ember 1996. (See description of past business experi-
ence under "Election of Directors - Information Con-
cerning Nominees for Election for Terms Expiring in
2006.")
Keith J. Gloeckl, 52 Senior Vice President of the Company since October
1999 and Chief Investment Officer since July 2001.
Mr. Gloeckl has also been the President and Chief
Operating Officer of Midland since 1993. Mr. Gloeckl
is responsible for the origination of debt and equity
financings primarily related to multifamily apartment
communities.
Gary A. Mentesana, 38 Senior Vice President of the Company since May 1997
and Chief Capital Officer since July 2001. Prior to
his appointment as Senior Vice President and Chief Cap-
ital Officer, Mr. Mentesana served as Chief Financial
Officer from January 1998 through April 2001 and Vice
President from August 1996 to May 1997. Mr. Mentesana
is responsible for managing the capital market activi-
ties of the Company. Mr. Mentesana is a certified pub-
lic accountant.
William S. Harrison, 39 Senior Vice President, Chief Financial Officer and Sec-
retary of the Company since April 2001. Mr. Harrison is
responsible for the financial operations of the Company.
As president of Strategic Business Services, Inc., a
consulting firm he founded in 2000, Mr. Harrison provid-
ed consulting services to the Company from November 2000
through April 2001. In 1999, Mr. Harrison served as
Treasurer and Senior Vice President, Mergers & Acquisi-
tions, of Promus Hotels Corporation and was employed in
the Strategic Planning Department of USF&G Corporation
from 1996 to 1998.
Charles M. Pinckney, 45 Senior Vice President since October 2002 and head
of the Structured Finance Group. Mr. Pinckney joined
the Company in May 2000 when MuniMae bought Whitehawk
Capital, a business Mr. Pinckney co-founded in 1997
which was engaged in structured finance activities.
Mr. Pinckney is responsible for finding specialty in-
vestment opportunities and the capital to fund those
opportunities.
EXECUTIVE COMPENSATION
Employment Agreements
In 1999, Mark K. Joseph, Michael L. Falcone, Gary A. Mentesana, Robert J.
Banks and Keith J. Gloeckl and, in April 2001, William S. Harrison (each an
"Officer" and collectively, the "Officers"), entered into employment agreements
with the Company. The agreements between the Company and Messrs. Joseph,
Falcone, Mentesana and Banks expired between December 2002 and February 2003,
while the agreements between the Company and Messrs. Gloeckl and Harrison will
expire in April 2003 and October 2003, respectively. The terms of the expired
and existing agreements are described below:
The terms of the agreements for Messrs. Joseph, Falcone and Mentesana were
three years. The agreements provided for annual base compensation in the amounts
of $250,000, $250,000, and $160,000, respectively, with allowance for cost of
living adjustments and annual cash bonuses (or incentive compensation) of up to
150% for Mr. Joseph and 100% for Messrs. Falcone and Mentesana. The agreements
further provided for total compensation goals equal to $675,000 and $650,000 for
Messrs. Joseph and Falcone, respectively, and $350,000 for Mr. Mentesana based
on achievement of certain performance goals by the individual and the Company.
Effective January 1, 2002, Mr. Mentesana's base compensation was adjusted to
$240,000 to reflect his role as Chief Capital Officer assumed in July 2001. Each
of the employment agreements provided for certain severance payments in the
event of disability or termination by the Company without cause equal to base
compensation for the longer of the balance of the employment term or 36 months
for Mr. Joseph and 18 months for Messrs. Falcone and Mentesana. Additionally,
upon an employee's death, his estate shall receive two years' base compensation.
The agreements also contained provisions which provide such officers with
substantial payments should their employment terminate as a result of a change
in control. The terms of new employment agreements for these officers and Mr.
Pinckney are currently under negotiation and will be presented to the
Compensation Committee for approval at its next regularly scheduled meeting.
The agreement for Mr. Harrison is for a term of two years and provides for
annual base compensation in the amount of $225,000, with allowance for cost of
living adjustments and annual cash bonuses (or incentive compensation) of up to
100%. The agreement further provides for total compensation goals equal to
$350,000 in year one and $400,000 in year two. Mr. Harrison's employment
agreement also provides for certain severance payments in the event of
disability or termination by the Company without cause equal to base
compensation for the longer of the balance of the employment term or 18 months.
The agreement contains provisions which provide such officer with substantial
payments should his employment terminate as a result of a change in control.
The terms of the agreements for Messrs. Banks and Gloeckl are four years.
Each of the agreements provides for annual base compensation in the amount of
$250,000, with allowance for cost of living adjustments not less than 5% per
year. Annual cash bonuses (or incentive compensation) for Mr. Banks and Mr.
Gloeckl are based on the Company's incentive compensation plan; however, no
incentive compensation will be paid in any year in which Midland does not
achieve certain earn-out target goals for such year. Messrs. Banks and Gloeckl
were also awarded options to purchase up to 87,500 Common Shares. Each of the
employment agreements provides for certain severance payments in the event of
disability or termination by the Company without cause equal to base
compensation for the balance of the employment term. Further, Mr. Banks'
agreement was amended to reflect an initial term of 39 months, which expired in
February 2003. The terms of a new employment agreement for Mr. Banks are
currently under negotiation and will be presented to the Compensation Committee
for approval at its next regularly scheduled meeting.
Pursuant to the employment agreements, the Company generally will have
"cause" to terminate an Officer if such person: (i) engages in acts or omissions
with respect to the Company which constitute intentional misconduct or a knowing
violation of law; (ii) personally receives a benefit of money, property or
services from the Company or from another person dealing with the Company in
violation of law; (iii) breaches his non-competition agreement with the Company;
(iv) breaches his duty of loyalty to the Company; (v) engages in gross
negligence in the performance of his duties; or (vi) repeatedly fails to perform
services that have been reasonably requested of him by the Board of Directors
following applicable notice and cure periods and which are consistent with the
terms of his employment agreement.
Each Officer will have "good reason" to terminate his employment with the
Company in the event of any reduction in his base compensation without his
consent, any material breach or default by the Company under his employment
agreement, any substantial diminution in his duties, any requirement to perform
an act which would violate criminal law or any requirement to perform an act not
in the best interests of the Company and its Shareholders.
As part of their employment agreements, each of the Officers was bound by a
limited non-competition covenant with the Company which prohibits each of them,
without prior written consent of the Board of Directors, from engaging in or
carrying on, directly or indirectly, whether as an advisor, principal, agent,
partner, officer, director, employee, shareholder, associate or consultant of or
to any person, partnership, corporation or any other business entity which is
engaged in the business of financing or asset management of multifamily
apartment properties financed by tax-exempt bonds, except by or through the
Company, for 12 months following the termination of employment with the Company
for Messrs. Joseph, Falcone, Mentesana and Harrison and 24 months following the
termination of employment with the Company for Messrs. Banks and Gloeckl;
provided, however, if such Officer's employment is terminated by the Company
without "cause" or by the employee for "good reason," the covenant not to
compete would terminate upon termination of employment. Certain of the
agreements may contain other exceptions.
Summary Compensation Table
The following table sets forth the annual compensation paid or accrued by
the Company during the last three years to the Chief Executive Officer and to
each of the Company's other four most highly compensated officers.
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------- ---------------
Other Annual Share All Other
Name and Principal Position Year Salary Bonus Compensation (1) Options Compensation
---------------------------------- ------- ------------- ------------ ------------------- --------------- --------------
Mark K. Joseph . . . . . . . . . 2002 $275,133 $ 60,000 $ 18,462 - $ 774 (2)
Chairman of the Board and Chief 2001 250,000 100,000 16,237 - 774 (2)
Executive Officer 2000 248,077 100,000 10,506 - 774 (2)
Robert J. Banks . . . . . . . . 2002 275,600 50,000 - - 2,955 (3)
Executive Vice Chair 2001 266,094 90,000 - - 3,114 (3)
2000 252,897 90,000 - 87,500 3,516 (3)
Michael L. Falcone . . . . . . . 2002 275,132 60,000 17,413 - 2,940 (4)
President and Chief Operating 2001 250,000 100,000 19,278 - 2,940 (4)
Officer 2000 248,711 90,000 10,590 - 2,939 (4)
Keith J. Gloeckl . . . . . . . . 2002 275,600 50,000 - - 2,712 (5)
Senior Vice President and Chief 2001 266,094 90,000 - - 2,712 (5)
Investment Officer 2000 252,897 90,000 - 87,500 3,245 (5)
Gary A. Mentesana . . . . . . . 2002 238,462 40,000 13,510 - 2,939 (6)
Senior Vice President and Chief 2001 160,000 80,000 13,964 - 2,939 (6)
Capital Officer 2000 159,731 80,000 8,560 - 2,804 (6)
(1) The amounts indicated for each officer are reimbursements during the
fiscal year for the payment of taxes.
(2) The amounts indicated include $99 per year for 2002, 2001 and 2000 for
the dollar value of insurance premiums paid by the Company with
respect to term life insurance that benefits Mr. Joseph and $675 for
group long-term disability insurance in 2002, 2001 and 2000 that
benefits Mr. Joseph.
(3) The amounts indicated include $2,250 per year for 2002, 2001 and 2000
related to the Company's contribution to Mr. Banks' individual
retirement account, $30 for 2002 and 2001 and $685 for 2000 for the
dollar value of insurance premiums paid by the Company with respect to
term life insurance that benefits Mr. Banks and $675, $834 and $581
for 2002, 2001 and 2000, respectively, for group long-term disability
insurance that benefits Mr. Banks.
(4) The amounts indicated include $2,250 per year for 2002, 2001 and 2000
related to the Company's contribution to Mr. Falcone's individual
retirement account; $15 for 2002 and 2001 and $14 for 2000 for the
dollar value of insurance premiums paid by the Company with respect to
term life insurance that benefits Mr. Falcone; and $675 for group
long-term disability insurance in 2002, 2001 and 2000 that benefits
Mr. Falcone.
(5) The amounts indicated include $2,250 per year for 2002, 2001 and 2000
related to the Company's contribution to Mr. Gloeckl's individual
retirement account, $16 for 2002 and 2001 and $685 for 2000 for the
dollar value of insurance premiums paid by the Company with respect to
term life insurance that benefits Mr. Gloeckl; and $446 for 2002 and
2001 and $310 for 2000 for group long-term disability insurance that
benefits Mr. Gloeckl.
(6) The amounts indicated include $2,250 per year for 2002, 2001 and 2000
related to the Company's contribution to Mr. Mentesana's individual
retirement account, $14 for 2002, 2001 and 2000 for the dollar value
of insurance premiums paid by the Company with respect to term life
insurance that benefits Mr. Mentesana; and $675 for 2002 and 2001 and
$540 for 2000 for group long-term disability insurance that benefits
Mr. Mentesana.
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth for the CEO and the other named executive
officers of the Company: (i) the number of shares awarded during fiscal year
2002; (ii) the performance or other time period until payout or maturation of
the award; and (iii) the estimated future payouts under non-stock price-based
plans.
Estimated
Performance Future
or Other Payouts under
Number of Shares, Period Until Non-stock
units or other Maturation Price-based
Name rights (1) or Payout (2) Plans (3)
-------------------------- ------------------ ----------------- --------------
Mark K. Joseph 11,881 36 months $ 303,084
Robert J. Banks 1,980 36 months 50,510
Michael L. Falcone 10,891 36 months 277,829
Keith J. Gloeckl 1,980 36 months 50,510
Gary A. Mentesana 4,356 36 months 111,122
William S. Harrison 1,782 36 months 45,459
(1) A total of 37,870 Deferred Shares were awarded in fiscal year 2002,
with 32,870 Deferred Shares vesting over 36 months beginning February
1, 2002 and the remaining 5,000 shares vesting over four years
beginning May 20, 2003. As of the end of fiscal year 2002, the
aggregate Deferred Share holdings consisted of 448,078 shares worth
$11,430,470 at the then current market value (as represented by the
closing price of the Company's Common Shares on December 31, 2002 of
$25.51). Such amounts included $3,069,746 for Mr. Joseph (120,335
shares); $50,510 for Mr. Banks (1,980 shares); $2,232,865 for Mr.
Falcone (87,529 shares); $50,510 for Mr. Gloeckl (1,980 shares);
$1,120,527 for Mr. Mentesana (43,925 shares); and $173,009 for Mr.
Harrison (6,782 shares). Distributions are paid only with respect to
the portion of the shares which have vested and become nonforfeitable
in accordance with the share agreements. The Deferred Share agreements
also provide for accelerations of vesting on a discretionary basis,
upon a change in control and death or disability.
(2) The shares become vested and nonforfeitable cumulatively to the extent
of one-fourth of such Deferred Shares on each of February 1, 2002,
February 1, 2003, February 1, 2004 and February 1, 2005 for so long as
the officers remain in the continuous employ of the Company.
(3) The amounts indicated represent the fair market value of the Deferred
Shares awarded on December 31, 2002 at the then closing price of the
Company's Common Shares on such date.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table sets forth for the CEO and the other named executive
officers of the Company: (i) the total number of unexercised options held at the
end of fiscal year 2002; and (ii) the aggregate dollar value of in-the-money
unexercised options held at the end of fiscal year 2002.
Number of Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired on Value Held at Fiscal Y/E @ December 31, 2002 (1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------------------- ------------ ------------ -------------- --------------- --------------- --------------
Mark K. Joseph - $ - 179,815 - $1,552,703 $ -
Robert J. Banks - - 43,750 43,750 295,750 295,750
Michael L. Falcone - - 94,862 - 819,133 -
Keith J. Gloeckl 32,500 193,255 11,250 43,750 76,050 295,750
Gary A. Mentesana - - 44,431 - 383,662 -
William S. Harrison - - 33,333 16,667 98,666 49,334
(1) Value of unexercised "in-the-money" options is the difference between
the market price of the shares on December 31, 2002 ($25.51 per share)
and the exercise price of the option, multiplied by the number of
shares subject to the option. Options are only "in-the-money" if the
fair market value of the underlying security exceeds the price of the
option.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee met two times in 2002. Executive compensation
continued to reflect the recommendations of an independent consultant hired in
1999 to assist in the determination of executive compensation. The
recommendations were based on survey data prepared by nationally recognized real
estate compensation consultants. Based on discussions with the Compensation
Committee and the Company's acquisition of Midland, the consultants decided that
each position within the Company's organization should be benchmarked against
its own unique peer group, depending upon the roles and responsibilities of the
position. The consultants established custom peer groups from two categories of
companies: multifamily Real Estate Investment Trusts ("REITs") and specialty
finance and investment companies. As a result, the CEO, Chief Operating Officer
and Chief Financial Officer of the Company were compared to the multifamily
REITs, while the other executives of the Company were compared to the specialty
finance and investment companies. Subsequently in 2001, the Company requested
the consultants to perform a competitive benchmarking analysis for senior
management of the Company. As a result, the study concluded that the Chief
Financial Officer, Chief Capital Officer and Chief Investment Officer should be
compared to a peer group consisting of various mortgage and specialty real
estate finance companies. For 2002, the Compensation Committee concluded that
the study results from 1999 and 2001 were still appropriate for these executive
officers.
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of share options and Deferred Shares, and various benefits, including
medical and life insurance plans, generally available to all employees of the
Company.
Executive Compensation
The Company is committed to establishing and maintaining an organization
and culture where all employees are equitably rewarded for their contribution to
the success of the Company. The compensation program created has as its basis a
strong pay-for-performance approach designed to foster and reward individual
entrepreneurial action and resourcefulness within a team environment. The
Company's overall compensation policy is designed to provide a reward structure
that will motivate the executives to assist in achieving strategic and financial
goals, retain and attract competent personnel and link the interests of
management and shareholders through equity-based compensation.
Base Salary. The Company generally establishes base salaries for executive
officers, including the CEO, at amounts that fall at or below the market median
determined by the consultants. This conservative position has allowed the
Company to create long-term incentive opportunities that are at or somewhat
above average. The Company provides for individual adjustments to base salary
for changes in the market, expansion of job responsibilities and/or the
executive's contribution to the financial success of the Company. The base
salaries of the executive officers fall between the 25th percentile and the
median, and lower for the CEO and Chief Capital Officer. As a result of the 2001
study, the Company determined that the base salary of $160,000 for the Chief
Capital Officer ranked in the lowest quartile for his peer group and effective
January 1, 2002 adjusted the Chief Capital Officer's base salary to $240,000.
Annual cash compensation (base salary and bonus) for all other officers is
currently within the competitive ranges of the Company's peer groups. The
Company has reviewed and will continue to periodically review the benchmark
salary ranges to maintain continued market competitiveness.
Annual Incentive. The Company paid incentive compensation to the officers
listed above during 2002. The incentive compensation plan provides incentives to
executive officers based on the achievement of qualifying operating profit
goals. The Compensation Committee awards annual bonuses to officers other than
the CEO based on the recommendations of the CEO; for the CEO, annual bonuses are
determined solely by the Compensation Committee. Based on the consultant's
report, the Compensation Committee established three profit ranges, threshold,
target and superior, to be used to determine bonus awards.
The threshold performance range signifies a solid achievement but falls
short of budget expectations. The target performance range signifies a stretch
achievement that means achieving the business plan and internal budget goals.
Finally, the superior performance range signifies an exceptional achievement
toward realizing the long-term objectives of the Company and would significantly
exceed budget expectations. The threshold, target and superior ranges are based
exclusively on achievement of cash flow per share goals, taking into account the
payment of all bonuses. The plan provides for incentive ranges as a percentage
of base salary to determine annual bonuses within each profit range.
For 2002, the Company achieved threshold performance, and therefore, annual
bonuses were paid to the executives, as well as employees, for performance under
the plan in the threshold performance range, as disclosed in the Summary
Compensation Table.
Long-term Incentive. The Company established the 1996 Share Incentive Plan
(the "1996 Plan") prior to the merger with the Predecessor in August 1996. In
June 1998 and July 2001, Shareholders approved the 1998 Share Incentive Plan
(the "1998 Plan") and the 2001 Share Incentive Plan (the "2001 Plan" and,
collectively with the 1996 Plan and 1998 Plan, the "Plans"), respectively. The
Plans provide a means to attract, retain and reward executive officers and other
key employees of the Company, to link employee compensation to measures of the
Company's performance, and to promote ownership of a greater proprietary
interest in the Company. The Plans authorize grants of a broad variety of
awards, including non-qualified stock options, stock appreciation rights,
restricted shares, Deferred Shares and shares granted as a bonus or in lieu of
other awards. Any restricted share or Deferred Share awards need to be approved
or ratified by the Share Incentive Committee (the "Committee"). Initially,
883,033, 839,000 and 900,000 Common Shares are reserved for issuance in
connection with awards under the 1996 Plan, the 1998 Plan and 2001 Plan,
respectively, except that shares issued as restricted shares and shares issued
as awards other than options (including restricted shares) are limited to 20%
and 40% of the total number of Common Shares reserved under the Plans,
respectively. Shares subject to forfeited or expired awards, or relating to
awards settled in cash or otherwise terminated without issuance of shares to the
participant become available again under the Plans. As of December 31, 2002
there were 967,485 shares available under the Plans.
The Plans are administered by the Committee, which must consist of two or
more independent directors. As of the date hereof, the Board has appointed
Robert S. Hillman and Charles C. Baum as members of the Committee. This
Committee is authorized to select from among the eligible employees of the
Company the individuals to whom awards are to be granted and to determine the
number of shares to be subject thereto and the terms and conditions thereof. The
Committee may condition the grant, vesting, exercisability or settlement of any
award on the achievement of specified performance objectives. Awards may be
settled in cash, Common Shares, other awards or other property, in the
discretion of the Committee. The Committee is also authorized to adopt, amend
and rescind rules relating to the administration of the Plans. The exercise
price of stock options granted will be at least equal to 100% of the fair market
value of Common Shares on the grant date. No member of the Committee will be
eligible to participate in the Plan. The Committee may adjust the number of
shares reserved under the Plans and the number of shares relating to outstanding
awards and related terms to reflect stock splits, dividends, and other
extraordinary corporate events.
During 2002, the Company awarded 37,870 Deferred Shares to certain
executives and employees based on their overall performance and contribution to
the success of the Company.
CEO Compensation
In determining the CEO's base salary and incentive compensation, the
Compensation Committee evaluates the compensation paid to chief executive
officers considered in the CEO's custom peer group. As a result of the 1999
survey, the Compensation Committee determined that the CEO's base salary of
$150,000 ranked in the lowest quartile among the Company's peer group. As a
result, the CEO's base salary was increased to $250,000 in 1999 and then to
$275,000 in January 2002 to reflect cost of living adjustments since 1999. The
CEO is eligible to receive awards under the Company's share incentive plan and
incentive compensation plan.
For the year ended December 31, 2002, the CEO received total cash payments
of $335,133 in salary and bonus (as shown in the Summary Compensation Table on
page 9). The Compensation Committee considered these 2002 payments appropriate
in light of Mr. Joseph's leadership and contributions to the overall long-term
strategy and growth of the Company. As also shown in the Long-Term Incentive
Plans Table (on page 10), Mr. Joseph was granted 11,881 Deferred Shares that
vest over 36 months for so long as Mr. Joseph remains in the continuous employ
of the Company.
RESPECTFULLY SUBMITTED,
COMPENSATION COMMITTEE
Mr. Robert S. Hillman, Chairman
Mr. Carl W. Stearn
Mr. Charles C. Baum
Mr. Douglas A. McGregor
Compensation Committee Interlocks and Insider Participation
No person who served as a member of the Compensation Committee during the
2002 fiscal year has ever been an officer or employee of the Company or any of
its subsidiaries. During fiscal year 2002, no executive officer of the Company
served as a director or member of the compensation committee of another entity,
one of whose directors or executive officers served as a director or member of
the Compensation Committee of the Company.
Performance Graph
The following table compares total shareholder returns for the Company at
December 31, 2002 to the Standard and Poors 500 Index ("S&P 500"), the National
Association of Real Estate Investment Trusts Index ("NAREIT") and the Lipper
Municipal Bond High Yield Index ("Lipper Bond") assuming a $100 investment made
on December 31, 1997 and assuming reinvestment of all dividends. The Company
does not believe that there are any other businesses or indices that reflect
both the same industry as that in which the Company operates and the same
"pass-through" tax status as that of the Company. The Company selected the
NAREIT and Lipper Bond indices because the NAREIT index consists of real estate
investment trusts which, like the Company, pass through the majority of their
income to their shareholders, albeit not tax-exempt income, and the Lipper Bond
index, which represents the performance of municipal bond issues.
Comparative Price Performance
Indexed Closing Prices
(Values Indexed to 100 as of December 31, 1997)
[OBJECT OMITTED]
1997 1998 1999 2000 2001 2002
MMA 100 93 110 138 161 172
S&P 500 100 128 155 141 125 99
NAREIT 100 81 76 96 110 116
LIPPER BOND 100 106 102 107 111 118
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of March 26, 2003, of each director
and nominee as director and all the executive officers and directors of the
Company as a group. The Company is not aware of any beneficial owners of more
than 5% of its Common shares. With respect to shares subject to options, only
those shares subject to options which are immediately exercisable or exercisable
within 60 days are listed below. Unless otherwise indicated, each Shareholder
has sole voting and investment power with respect to the shares beneficially
owned.
Common Shares
------------------------
Number of Percent of
Name Shares Class
--------------------------------------------------- ------------- ----------
Mark K. Joseph 1,159,012 (1) 4.02
Robert J. Banks 675,223 (2) 2.34
Michael L. Falcone 195,138 (2) *
Keith J. Gloeckl 177,794 (2) *
Gary A. Mentesana 91,928 (2) *
William S. Harrison 56,391 (2) *
Charles. M. Pinckney 1,943 *
Charles C. Baum 34,000 (3) *
Richard O. Berndt 26,502 (3) *
Eddie C. Brown - *
Robert S. Hillman 27,700 (3) *
Douglas A. McGregor 17,500 (3) *
Carl W. Stearn 77,789 (3) *
All directors and officers as a group (16 persons) 2,608,737 9.05
--------------------------------------------------
*Less than one percent.
(1) Included in Mr. Joseph's beneficial ownership of Common Shares are: (a)
179,815 Common Shares subject to options granted under the 1996 Plan and
(b) Common Shares held by certain entities controlled by Mr. Joseph
(detailed below). Certain limited partners in one such entity controlled by
Mr. Joseph are officers of the Company. As a result of their limited
partnership interest in that entity, such officers would be entitled to
receive the following allocation of shares. Accordingly, these shares are
not included in each officer's beneficial ownership above.
Michael L. Falcone 44,861 Common Shares
Gary A. Mentesana 11,758 Common Shares
(2) Included in each officer's beneficial ownership of Common Shares are Common
Shares subject to options granted under the 1996 and 1998 Plans as follows:
Shares Subject
To Options
---------------
Robert J. Banks 65,625
Michael L. Falcone 94,862
Keith J. Gloeckl 33,125
Gary A. Mentesana 44,431
William S. Harrison 50,000
(3) Included in each board member's beneficial ownership of Common Shares are
Common Shares subject to options granted under the 1996, 1998 and 2001
Directors' Share Plans as follows:
Shares Subject
To Options
---------------
Charles C. Baum 25,000
Richard O. Berndt 18,500
Robert S. Hillman 25,000
Douglas A. McGregor 17,500
Carl W. Stearn 25,000
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 1, 1996, the Company completed a merger (the "Merger") in which
the Company succeeded to the business of the Predecessor. The former general
partners of the Predecessor were responsible for initiating and structuring the
Merger. Mark K. Joseph, Chairman of the Board and Chief Executive Officer of the
Company, was a stockholder, director and officer of the former general partners
of the Predecessor.
At the time of the Merger, the Company designated Shelter Development
Holdings, Inc. ("Shelter Development") as the shareholder that has personal
liability for the obligations of the Company (the "Special Shareholder") and
whose death, retirement, resignation, expulsion, bankruptcy or dissolution would
result in the dissolution of the Company (the "Dissolution Shareholder") to
preserve its pass-through tax status under the tax laws in existence at that
time. Mr. Joseph and his immediate family members own 100% of Shelter
Development through a family limited partnership. In connection with the Merger,
Shelter Development received 26,729 Common Shares for its agreement to serve as
the Special Shareholder and Dissolution Shareholder. The Company does not
compensate Shelter Development annually for serving as the Special Shareholder
or Dissolution Shareholder. Nevertheless, the Dissolution Shareholder has the
right to appoint one director to the Company's Board of Directors so long as the
size of the Board is 10 persons or less, and two directors if the size of the
Board is more than 10 persons. In addition, if certain change-in-control
transactions occur that the Special Shareholder has not approved, the Special
Shareholder has the right to receive $1 million if it exercises its right to
withdraw as the Special Shareholder of the Company.
Shelter Development is a minority shareholder and Mr. Joseph is an officer
of Shelter Properties, LLC (the "Shelter Group"), an entity that is responsible
for a full range of property management functions for certain properties that
serve as collateral for the Company's bond investments. Mr. Michael L. Falcone,
Chief Operating Officer of the Company, had an ownership interest in and was a
board member of this entity until he relinquished these positions in 2000. For
these services, the Shelter Group receives property management fees pursuant to
management fee contracts. Each affiliate property management contract is
presented to the independent members of the Company's Board of Directors for
approval with information documenting the comparability of the proposed fees to
those in the market area of the property. Mr. Joseph has agreed to abstain from
any involvement, as a partner in the Shelter Group, in the structuring or review
of any contracts or transactions between the property management company and the
Company. He has likewise agreed to excuse himself from review or involvement, as
an officer or director of the Company, in contracts and transactions involving
the Shelter Group. The Company's Board of Directors has approved all contracts
and transactions involving the Shelter Group and conducts an annual review of
all property management contracts between the Shelter Group and any properties
that collateralize the Company's investments. The purpose of this review is to
determine that these contracts are market rate for the region where the
properties are located. During 2002, there were 10 affiliated property
management contracts for properties that collateralize the Company's investments
with fees at or below market value. During the year ended December 31, 2002,
these fees totaled approximately $1.1 million.
In certain circumstances involving the Company's tax-exempt bonds,
borrowers have defaulted on their debt obligations to the Company. In such
circumstances the Company has, after evaluating its options, chosen not to
foreclose on the property. Instead, the Company has negotiated the transfer of a
property's deed in lieu of foreclosure to, or replaced the general partner of a
property with, an entity affiliated with the Company. The Company has done so in
order to preserve the original tax-exempt bond obligations and its participation
in cash flow from the property, consistent with its overall goal of providing
tax-exempt income to its shareholders.
Following the transfer of the property's deed to an affiliated entity,
that entity controls the collateral for certain investments held by the
Company. These affiliated entities are controlled by or managed by certain
officers of the Company. The following table outlines these affiliate
relationships at December 31, 2002:
Carrying Value
Number of of Company's
Properties Investment at
Owned (directly Dec. 31, 2002
Affiliate Entity or indirectly) (in millions)
---------------------------------------- ------------------ ---------------
SCA Successor, Inc. (1) 4 $ 53.6
SCA Successor II, Inc. (1) 12 51.8
MMA Affordable Housing Corporation (2) 2 47.7
MuniMae Foundation, Inc. (3)/
MMA Successor I, Inc. (1) 3 12.0
------- ---------
TOTAL 21 $165.1
======= =========
(1) These corporations are general partners of the operating partnerships whose
property collateralizes the Company's investments. Mr. Joseph controls the
general partners of these operating partnerships and is a limited partner
in eight of these partnerships. Mr. Falcone and Mr. William S. Harrison,
the Company's Chief Financial Officer and Senior Vice President, serve as
officers and directors of one such general partner. Ms. Angela A. Barone,
the Company's Vice President of Finance and Budgeting, serves as a director
in one such general partner.
(2) MMA Affordable Housing Corporation ("MMAHC") is a 501(c)(3) non-profit
entity organized to provide charitable donations on behalf of the Company.
Mr. Joseph is the Chairman and one of five directors of the MMAHC. Mr.
Falcone, Mr. Harrison, Mr. Gary A. Mentesana, the Company's Chief Capital
Officer, and Mr. Earl W. Cole, III, Senior Vice President of the Company,
are also officers and directors of MMAHC.
(3) MuniMae Foundation Inc., is a private non-profit entity organized to
provide charitable donations on behalf of the Company. Mr. Joseph is the
Chairman and one of four directors of the MuniMae Foundation. Mr. Falcone
and Mr. Mentesana are also officers and directors of the MuniMae
Foundation.
The officers of the Company who serve as directors or officers of the
affiliated entities listed above are not compensated for their services as
officer or director thereof, and do not derive any other economic benefit from
those entities except for Mr. Joseph, who controls SCA Successor I, Inc., SCA
Successor II, Inc. and MMA Successor I, Inc.
Such entities could have interests that do not fully coincide with, or even
are adverse to, the interests of the Company. Such entities could choose to act
in accordance with their own interests, which could adversely affect the
Company. Among the actions such entities could take might be selling a property,
thereby causing a redemption event, at a time and under circumstances that would
not be advantageous to the Company.
In 1998 and 1999, the Company sold certain taxable demand notes related to
11 operating partnerships whose general partners are controlled by Mr. Joseph
(as discussed above). In order to facilitate the sale of the demand notes, the
Company provided a guaranty on behalf of the operating partnerships for the full
and punctual payment of interest and principal due under the demand notes. These
taxable notes have a face amount of $16.2 million at December 31, 2002.
The Company has established relationships with pension funds through the
Group Trust and MMER. The Group Trust was established by a group of pension
funds for the purpose of investing in income-producing real estate investments.
The Group Trust provides loans and lines of credit to finance a variety of the
Company's loan products. MMER is a Maryland real estate investment trust
established by the same pension funds that participate in the Group Trust, plus
one other pension fund. MMER provides the Company short-term lines of credit to
finance the Company's lending activities, in addition to investing in
income-producing real estate partnerships. Midland is the investment manager for
the Group Trust and MMER and receives advisory fees for these services.
Furthermore, Midland earns origination fees on the placement of permanent loans
with the Group Trust. Midland also earns origination fees on the placement of
equity interests in real estate partnerships with MMER. The Company's fees
earned from the Group Trust and MMER for the year ended December 31, 2002 were
$2.5 million and $1.6 million, respectively.
As of December 31, 2002, the Company had $89.1 million outstanding on its
credit lines with the Group Trust and MMER. The Group Trust loans outstanding to
various subsidiaries of the Company totaled $128.2 million. For the year ended
December 31, 2002, the Company recorded interest expense on these borrowing
arrangements of $12 million.
The Group Trust and MMER engage in business transactions exclusively with
the Company. Four of the five trustees of the Group Trust (Mr. Falcone, Mr.
Robert J. Banks, the Company's Vice Chairman, Mr. Keith J. Gloeckl, the
Company's Chief Investment Officer, and Mr. Mentesana) are officers of the
Company. In addition, three of the six trustees of MMER (Messrs. Falcone, Banks
and Gloeckl) are Company officers. These officers are not paid for Group Trust
or MMER service. The Group Trust and MMER are deemed to be affiliates of the
Company.
Mr. Banks and Mr. Gloeckl hold limited partnership interests in various
limited partnerships that function as the general partner of certain syndicated
low-income housing tax credit funds. The Company is the general partner in these
limited partnerships. The limited partnerships are as follows: Midland Equity IV
LP, Midland Equity V LP, Midland Equity VI LP, Midland Equity VII LP, Midland
Equity VIII LP, Midland Equity IX LP and Midland Equity X LP. Mr. Banks and Mr.
Gloeckl are also invested in Midland Tax Credit Investors Partnership, which is
a general partnership that invests as a limited partner in certain syndicated
low-income tax credit funds.
Mr. Banks and Mr. Gloeckl own shares in three corporations that are
invested in real estate operating partnerships as the general partner. In
addition, Mr. Banks and Mr. Gloeckl are directly invested in a real estate
operating partnership as the general partner with Mr. Gloeckl acting as the
managing general partner. All four of the real estate operating partnerships are
involved in equity transactions with certain of the Company's low-income housing
tax credit funds.
In 2000 and 2001, prior to his employment with the Company, Mr. Harrison
provided consulting services to the Company through a corporation wholly owned
by Mr. Harrison. The Company paid approximately $31,000 and $79,000 in 2001 and
2000, respectively, for these services.
On October 20, 1999, the Company acquired Midland from Mr. Banks, Mr.
Gloeckl and Mr. Ray F. Mathis for approximately $45 million. Of this amount, the
Company paid approximately $23 million in cash and approximately $12 million in
Common Shares at the closing of the transaction. In addition, $3.33 million in
Common Shares is payable annually over a three-year period to Messrs. Banks and
Gloeckl if Midland meets certain performance targets, including minimum annual
contributions to cash available for distribution. In 2001, in order to increase
flexibility in operating Midland, the Company agreed with the former owners of
Midland that the payment of the last two installments would no longer be
conditioned on Midland meeting certain performance targets. In December 2002,
MuniMae made the final payment of Common Shares having a value of approximately
$3.3 million.
Until 2002, the Company owned a 75% interest in Whitehawk Capital, LLC and
Whitehawk Capital IV, LLC (collectively, "Whitehawk"). Prior to October 2002,
Mr. Charles M. Pinckney, Senior Vice President of the Company, was an employee
of Whitehawk. Mr. Pinckney and Mr. Mark S. Begeny, an employee of Whitehawk,
owned the remaining 25% interest in Whitehawk. During 2002, the Company
purchased the remaining 25% interest in Whitehawk from Messrs. Pinckney and
Begeny for a total purchase price of $1.2 million ($1.1 million in cash and $0.1
million in Common Shares of the Company). In addition, each of Mr. Pinckney and
Mr. Begeny receives $32,500 per year through 2010 from the Company for deferred
consulting fees earned prior to becoming employees of the Company.
The Company leases office space at market rates from an affiliate. Mr.
Joseph and Mr. Richard O. Berndt, a director of the Company, have ownership
interests in the partnership that leases the office space to the Company. For
the year ended December 31, 2002, the Company paid $230,000 in rental lease
payments under the lease agreement.
Mr. Berndt, a director of the Company since 1996, is the managing general
partner of the law firm of Gallagher, Evelius and Jones LLP ("GEJ"), which
provides corporate and real estate legal services to the Company. For the year
ended December 31, 2002, $1.2 million in legal fees to GEJ was generated by
transactions structured by the Company of which $0.8 million was directly
incurred by the Company. The total amount of $1.2 million represented 8% of
GEJ's total revenues for 2002.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's audited financial statements for the year ended December 31,
2002, have been provided to the Shareholders as part of the Annual Report to
Shareholders. PricewaterhouseCoopers LLP has acted as the Company's independent
accountants since the completion of the Merger in 1996 and also acted as the
independent accountants for the Predecessor since 1986. No election, approval or
ratification of independent accountants by the Shareholders is required. The
Audit Committee has selected the independent accountants for the fiscal year
ended December 31, 2003 at its March 2003 meeting. A representative of
PricewaterhouseCoopers LLP will be present at the Annual Meeting with the right
to make a statement if he or she so desires and will be available to respond to
appropriate questions by the Shareholders.
AUDIT INFORMATION
The Company's Board of Directors has adopted a written charter for its
Audit Committee. The Audit Committee consists of Messrs. Stearn (Chairman), Baum
and Hillman, all of whom are independent, as independence is defined in Sections
303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing standards.
Fees of Independent Public Accountants
Audit Fees. The aggregate amount of fees billed by PricewaterhouseCoopers
LLP for professional services rendered for the audit of the Company's annual
financial statements and the review of the financial statements included in the
Company's quarterly reports on Form 10-Q for the fiscal years ended December 31,
2002 and 2001 was $502,700 and $434,000, respectively.
Tax Fees. The tax services relate to nominee gathering services and
production of K-1s for investors, preparation of Federal and State tax returns,
earnings and profits studies and various other tax consultations. The aggregate
amount of fees billed by PricewaterhouseCoopers LLP for these services for 2002
and 2001 was $270,995 and $124,270, respectively.
Audit Related Fees. The audit related services primarily relate to comfort
letter procedures performed in conjunction with offerings of common shares. The
aggregate amount of fees billed by PricewaterhouseCoopers LLP for these services
for 2002 and 2001 was $40,260 and $99,694, respectively. There were no fees
billed for the design and implementation of financial information systems.
All Other Fees. PricewaterhouseCoopers LLP did not provide any products or
services to the Company during 2002 or 2001 other than those services discussed
above.
The Audit Committee is responsible for retaining and terminating the
Company's independent auditors and for approving the performance of any
non-audit services by the independent public accountants. In addition, the Audit
Committee is responsible for monitoring the independence and performance of the
Company's independent public accountants and internal audit function and for
presenting its conclusions with respect to the independent public accountants to
the full Board of Directors. Of the services described above, 100% were approved
by the Audit Committee.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Company's Audit Committee has reviewed and discussed the audited
financial statements with management. The Company's Audit Committee discussed
with the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit Committees). The Audit
Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
and has discussed with the independent auditors the auditors' independence from
the Company and its management. Additionally, the Audit Committee has reviewed
fees charged by the independent auditors and has monitored whether the non-audit
services provided by the independent auditors are compatible with maintaining
the independence of such auditors. Based upon its reviews and discussions, the
Audit Committee recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 for filing with the Securities and
Exchange Commission.
RESPECTIVELY SUBMITTED,
AUDIT COMMITTEE
Mr. Carl W. Stearn, Chairman
Mr. Charles C. Baum
Mr. Robert S. Hillman
Mr. Eddie C. Brown
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
the Company's outstanding Common Shares to file with the Securities and Exchange
Commission initial reports of ownership, reports of changes in ownership and
annual reports of ownership of Common Shares. Such executive officers, directors
and persons who own more than 10% of the Company's outstanding Common Shares are
required to furnish us with copies of all Section 16(a) forms they file. Based
solely on a review of copies of such reports of ownership furnished to the
Company, the Company believes that during 2002 all such reports were filed on a
timely basis, except as described below. Due to an administrative oversight,
each of Messrs. Harrison, Falcone and Mentesana reported one transaction on a
Form 5 that was not reported on a timely basis on a Form 4, Messrs. Banks and
Joseph reported two transactions on a Form 5 that were not reported on a timely
basis on a Form 4, Mr. Gloeckl reported three transactions on a Form 5 that were
not reported on a timely basis on a Form 4 and each of Messrs. Hillman, Baum,
McGregor, Stearn, Jews and Berndt reported ten transactions on a Form 5 that
were not reported on a timely basis on a Form 4.
OTHER BUSINESS
The Board of Directors is not aware of any other matters which may come
before the meeting. It is the intention of the persons named in the enclosed
proxy to vote all shares represented by proxies in accordance with their best
judgment if any other matters properly come before the meeting.
Whether or not you attend the Annual Meeting in person, please complete,
date and sign the enclosed proxy and return it promptly. If you attend the
meeting, you may vote your shares even though you may have sent in your proxy.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER WHO WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON SHARES ON THE RECORD DATE FURNISHED TO THE SECRETARY OF THE
COMPANY AT THE ADDRESS SET FORTH BELOW, THE COMPANY WILL PROVIDE WITHOUT CHARGE
A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002 INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL PROXY STATEMENT
Proposals by Shareholders intended to be presented at the Company's 2004
Annual Meeting, in order to be included in the 2003 Proxy Statement and proxy,
must be received by the Company at its principal corporate offices no later than
January 9, 2004. If a Shareholder notifies the Company after March 24, 2004 of
an intent to present a proposal at the Company's 2004 Annual Meeting, the
Company will have the right to exercise its discretionary voting authority with
respect to the proposal, without including information regarding the proposal in
its proxy materials.
Any Shareholder who intends to submit a proposal at the Company's Annual
Meeting in 2004 without including the proposal in the Company's proxy statement
for such Annual Meeting must notify the Company of such proposal not later than
the close of business on February 28, 2004 and not earlier than the close of
business on January 28, 2004.
MUNICIPAL MORTGAGE & EQUITY, LLC
218 N. Charles Street, Suite 500
Baltimore, Maryland 21201
Dated: March 26, 2003