MUNICIPAL MORTGAGE & EQUITY, LLC
Baltimore, Maryland
May 9, 2002
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 May 9,
2002, beginning at 9:00 a.m. at the offices of the Company:
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 2005 or until their
respective successors are duly elected and qualified;
2. To consider and act upon a proposal to approve the restatement, as
recommended by the Board of Directors, of the Company's Amended and
Restated Certificate of Formation and Operating Agreement (the "Operating
Agreement") in order to eliminate provisions that relate to classes of
shares that have been fully redeemed;
3. 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 18, 2002. A review of the Company's operations for
the year ended December 31, 2001 will be presented. A proxy statement, form of
proxy and a copy of the 2001 Annual Report to Shareholders are enclosed.
By Order of the Board of Directors,
William S. Harrison
Secretary
Baltimore, Maryland
March 28, 2002
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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 filling in and signing the enclosed
proxy and promptly returning it in the enclosed envelope. If you are unable to
attend, your shares will be voted as directed by your proxy. If you do attend
the meeting, you may vote your shares even though you have sent in your proxy.
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1
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 May 9, 2002.
The Company will pay the cost of the solicitation of proxies. In addition
to solicitation by mail, proxies may be solicited in person by directors,
officers and employees of the Company without additional compensation, and by
telephone, telegram, facsimile or similar methods. Brokers and other persons
will be reimbursed for their reasonable expenses in forwarding proxy materials
to Shareholders who have a beneficial interest in Common Shares registered in
the names of nominees.
The enclosed proxy, if executed and returned, may be revoked at any time
prior to the meeting by executing a proxy bearing a later date or by written
notice to the Secretary of the Company. The power of the proxy holders will also
be revoked if the Shareholder executing the proxy appears at the meeting and
elects to vote in person. Executed proxies confer upon the persons appointed as
proxies discretionary authority to vote on all matters which may properly come
before the meeting, including motions to adjourn the meeting for any reason.
In accordance with the Company's By-Laws, the share transfer records were
compiled on March 18, 2002, 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 25,203,196
outstanding Common Shares. The holders of the outstanding Common Shares at the
close of business on March 18, 2002 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. 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").
An abstention is deemed "present" but is not deemed a "vote cast." A broker
non-vote occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power on that item and has not received instructions from the beneficial
owner. 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,
including Proposal 2 to approve the restatement of the Operating Agreement.
This proxy statement and the enclosed proxy are first being sent or given
to Shareholders on or about April 8, 2002.
2
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. Joseph, Baum
and Banks, expire in 2002. Messrs. Joseph and Baum, directors since 1996, and
Mr. Banks, a director since October 1999, have been nominated for re-election at
the Annual Meeting.
The names, ages, terms of office and certain other information as of March
28, 2002 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 2005:
Mark K. Joseph, age 63, 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 60, 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. Since 1992, Mr.
Baum has also been Chairman of the Morgan Group, Inc., in Elkhart, Indiana.
Morgan is the nation's leader in providing transportation and other services to
the manufactured housing and recreational vehicle industries. 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 57, a director of the Company and Senior Vice
President since October 1999, is Executive Vice Chair of the Company and has
held that title since July 2001. Previously he was Chairman and Chief Executive
Officer of The Midland Companies ("Midland"), a wholly owned subsidiary 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 has been involved in
real estate lending and mortgage banking since 1970 and is an investment advisor
registered with the Securities and Exchange Commission and holds four different
securities licenses. Mr. Banks is a trustee for the Midland Affordable Housing
Group Trust ("MAHGT"), a pension fund that provides debt financing for the
Company's customers, and Chairman and Chief Executive Officer of The Midland
Multifamily Equity Real Estate Investment Trust ("MMER"). Mr. Banks is also a
board member of United Financial Holdings, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES AS DIRECTORS
Information Concerning Directors whose Terms Expire in 2003:
Richard O. Berndt, age 59, 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, Financial
Administration for the Archdiocese of Baltimore, Mercy Medical Center, Inc. and
Johns Hopkins Medicine. Gallagher, Evelius & Jones, LLP provides corporate and
real estate related legal services to the Company.
3
Robert S. Hillman, age 62, a director of the Company since August 1996, is
a director and president of H & V Publishing, Inc. since 1999 and is a labor
relations consultant for the City of Baltimore. 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., which has offices in Baltimore, Maryland and Washington,
D.C. 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 40, a director since October 1999, has been the
President and Chief Operating Officer of the Company since 1997. Prior to his
appointment as President and Chief Operating Officer, Mr. Falcone served as
Executive Vice President from November 1996 to December 1997 and Senior Vice
President from August 1996 to November 1996. Mr. Falcone is responsible for the
operations of the Company focusing on strategic planning and business
development as well as the management of the day-to-day activities of the
Company. Prior to joining the Company, he was a Senior Vice President of Shelter
Development Corporation, where he was employed from 1983 to 1996. Mr. Falcone is
a trustee for the MAHGT and the MMER.
Information Concerning Directors whose Terms Expire in 2004:
William L. Jews, age 50, a director of the Company since August 1996, has
been President and Chief Executive Officer of CareFirst Blue Cross Blue Shield
since the merger between Blue Cross/Blue Shield of Maryland and Blue Cross/Blue
Shield of National Capital Area on January 16, 1998. Prior to the merger, Mr.
Jews was President and Chief Executive Officer of Blue Cross/Blue Shield of
Maryland since 1993. Mr. Jews has been the Chief Executive Officer of Carefirst
Blue Cross Blue Shield of Delaware since March 2000. Mr. Jews serves on the
boards of directors of MBNA Corporation, Choice Hotels International, Inc., The
Ryland Group, Inc. and EcoLab, Inc. He is also a governor of The Federal Reserve
Bank.
Carl W. Stearn, age 69, 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 60, a director of the Company since October 1999,
is Vice Chairman and Chief Operating Officer for The Rouse Company. Mr. McGregor
has been with The Rouse Company since 1972 and assumed his current position in
1998. Mr. McGregor has extensive experience in real estate development and
management. Mr. McGregor is a trustee of the International Council of Shopping
Centers.
Information Concerning the Board of Directors:
During 2001, the Board of Directors held six regular meetings (one
telephonic) and two telephonic special meetings. There were four committee
meetings (two telephonic) during 2001. Each director attended at least 75% of
the aggregate of the total number of meetings held by the Board of Directors and
the total number of meetings held by all committees of the Board of Directors on
which he served. The Board has established certain committees as follows:
1. Compensation Committee. The Compensation Committee, composed of
Messrs. Hillman (Chairman), Stearn, Baum and McGregor, met three times
in 2001 (two telephonic). 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), Jews, and Baum, met once during 2001. 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.
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.
The Company does not have a standing nominating committee of the Board of
Directors, or any committee performing a similar function.
4
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 2001, the directors received annual
compensation of $16,000 plus a fee of $1,000 for attendance 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, 2001, there were 110,185 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.
5
PROPOSAL TO APPROVE THE RESTATEMENT OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF FORMATION AND OPERATING
AGREEMENT
(Proposal No. 2)
The following is a brief description of the material effects of the restatement
of the Operating Agreement. The description is qualified in its entirety by
reference to such Operating Agreement, a copy of which is attached hereto as
Appendix A.
Most public companies are governed by articles of incorporation, which are
typically fairly brief. Because we are a limited liability company, we are
governed by an Operating Agreement. The operating agreement addresses various
issues arising from the fact that we are a limited liability company, such as
allocations of income, which corporations do not face. Our
current operating agreement includes a number of provisions that are no longer
relevant due to the evolution of the Company and its capital structure. These
provisions relate to our transformation from the Predecessor, including the
creation at our formation of our Preferred Shares, Preferred Capital
Distribution Shares and Term Growth Shares. In January 2002, we redeemed all of
the outstanding preferred securities. As required by our current operating
agreement, this caused the simultaneous redemption of all of the Term Growth
Shares.
All of the provisions in our operating agreement relating to the preferred
securities and the Term Growth Shares ceased to be effective upon redemption of
the preferred securities and Term Growth Shares, including provisions relating
to limitations on redemptions of equity that ranks junior to the preferred
securities, special voting rights, priority allocations of income and rights
with respect to the bonds originally owned by our predecessor. We are
recommending adopting a restated operating agreement in which the only changes
will be to eliminate provisions that relate to classes of shares that have been
fully redeemed and events that have already occurred, and thus are no longer
effective. Removing the provisions that do not have any effect will
significantly simplify our operating agreement.
We have included a copy of our restated operating agreement, marked to show
the differences from our present operating agreement, in Appendix A to this
proxy statement. This summary of the changes is qualified by the language in
Appendix A, which we encourage you to review.
We believe making these changes will result in a simplified operating
agreement, without affecting the rights or privileges of our shareholders or the
rules or regulations of our business.
Vote Required for Approval
The affirmative vote of a majority of the holders of the outstanding Common
Shares is necessary for the restatement of the Operating Agreement. Shares
represented by an executed proxy in the form enclosed will, unless otherwise
directed, be voted for the election of this proposal. Shares represented by
proxies which are marked "WITHHOLD" will be excluded entirely from the vote and
will have no effect. Shares that are not represented at the Annual Meeting will
have the effect of votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THIS PROPOSAL
6
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company and
provides certain information about each of them.
Current Position(s) with the Company
Name and Age and Past Business Experience
----------------------- -------------------------------------------------------------------------
Mark K. Joseph, 63 Chairman of the Board and Chief Executive Officer of the Company since
August 1996. (See description of past business experience in the
Summary of Proposal 1.)
Robert J. Banks, 57 Senior Vice President and 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 The
Midland Companies since 1993. (See description of past business
experience in the Summary of Proposal 1.)
Michael L. Falcone, 40 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 President and Chief Operating Officer, Mr. Falcone
served as Executive Vice President from November 1996 to December 1997
and Senior Vice President from August 1996 to November 1996. (See
description of past business experience in the Summary of Proposal 1.)
Keith J. Gloeckl, 51 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 The Midland Companies since
1993. Mr. Gloeckl is responsible for the origination of debt and
equity financings primarily related to multifamily apartment
communities.
William S. Harrison, 38 Senior Vice President, Chief Financial Officer and Secretary 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 provided consulting services to the Company from November
2000 through April 2001. In 1999, Mr. Harrison served as Treasurer and
Senior Vice President, Mergers & Acquisitions, of Promus Hotels
Corporation and was employed in the Strategic Planning Department of
USF&G Corporation from 1996 to 1998.
Gary A. Mentesana, 37 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 Capital 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 activities of the Company. Between
1988 and 1996, he performed similar functions and was responsible for
financial reporting for the managing general partner of the
Predecessor. Mr. Mentesana is a certified public accountant.
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 specifics of the agreements are as follows:
The terms of the agreements for Messrs. Joseph, Falcone and Mentesana are
three years and two years for Mr. Harrison. The agreements provide for annual
base compensation in the amounts of $250,000, $250,000, $160,000 and $225,000,
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, Mentesana and Harrison. The agreements further provide for
total compensation goals equal to $675,000 and $650,000 for Messrs.
7
Joseph and Falcone, respectively, and $350,000 for Messrs. Mentesana and
Harrison, respectively, based on achievement of certain performance goals by the
individual and the Company. Each of the employment agreements provides for
certain severance payments in the event of disability or termination by the
Company without cause equal to base compensation for the longer of the balance
of the employment term or 36 months for Mr. Joseph and 18 months for Messrs.
Falcone, Mentesana and Harrison. Additionally, upon an employee's death, his
estate shall receive two years' base compensation. The agreements also contain
provisions which provide such officers with substantial payments should their
employment terminate as a result of a change in control.
The terms of the agreements for Messrs. Banks and Gloeckl are four years.
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. In addition, all earn-out
shares (as defined in the Stock Purchase and Contribution Agreement dated
September 30, 1999 by and between the Company and Messrs. Banks, Gloeckl and Mr.
Ray F. Mathis, the "Stock Purchase Agreement") which have been earned through
the date of termination and may become payable, shall be immediately and
irrevocably issued to them in the event of disability or termination by the
Company without cause. In the event of death, an employee's agreement is
terminated; however, his estate shall be entitled only to the balance of the
earn-out shares described in, and earned pursuant to, the Stock Purchase
Agreement. Effective June 2001 and August 2001, Mr. Banks' and Mr. Gloeckl's
agreements were amended to eliminate the earn-out target goals defined in the
Stock Purchase Agreement. Further, Mr. Banks' agreement was amended to reflect
an initial term of 39 months.
Pursuant to the employment agreements, the Company generally will have
"cause" to terminate an Officer if such person: (i) engages in acts or omissions
with respect to the Company which constitute intentional misconduct or a knowing
violation of law; (ii) personally receives a benefit of money, property or
services from the Company or from another person dealing with the Company in
violation of law; (iii) breaches his non-competition agreement with the Company;
(iv) breaches his duty of loyalty to the Company; (v) engages in gross
negligence in the performance of his duties; or (vi) repeatedly fails to perform
services that have been reasonably requested of him by the Board of Directors
following applicable notice and cure periods and which are consistent with the
terms of his employment agreement. Each of Messrs. Banks and Gloeckl shall
continue to be entitled to earn-out shares to the extent provided in the Stock
Purchase Agreement regardless of whether such Officer has been terminated for
cause.
Each Officer will have "good reason" to terminate his employment with the
Company in the event of any reduction in his base compensation without his
consent, any material breach or default by the Company under his employment
agreement, any substantial diminution in his duties, any requirement to perform
an act which would violate criminal law or any requirement to perform an act not
in the best interests of the Company and its Shareholders. Each of Messrs. Banks
and Gloeckl shall be entitled to all earn-out shares (defined in the Stock
Purchase Agreement), which have been earned through the date of termination and
may become payable and such shares shall be immediately and irrevocably issued
to each of them.
As part of their employment agreements, each of the Officers is bound by a
limited non-competition covenant with the Company which prohibits each of them,
without prior written consent of the Board of Directors, from engaging in or
carrying on, directly or indirectly, whether as an advisor, principal, agent,
partner, officer, director, employee, shareholder, associate or consultant of or
to any person, partnership, corporation or any other business entity which is
engaged in the business of financing or asset management of multifamily
apartment properties financed by tax-exempt bonds, except by or through the
Company, for 12 months following the termination of employment with the Company
for Messrs. Joseph, Falcone, 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 will terminate upon termination of employment. Certain of the agreements
may contain other exceptions.
8
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 ............................... 2001 $250,000 $100,000 $ 16,237 -- $ 774(2)
Chairman of the Board and Chief ........... 2000 248,077 100,000 10,506 -- 774(2)
Executive Officer ......................... 1999 150,000 150,000 8,282 -- 2,026(2)
Robert J. Banks .............................. 2001 266,094 90,000 -- -- 3,114(3)
Executive Vice Chair and Senior ........... 2000 252,897 90,000 -- 87,500 3,516(3)
Vice President ............................ 1999 47,400 -- -- -- 13,500(3)
Michael L. Falcone ........................... 2001 250,000 100,000 19,278 -- 2,940(4)
President and Chief Operating ............. 2000 248,711 90,000 10,590 -- 2,939(4)
Officer ................................... 1999 183,000 150,000 8,288 -- 2,026(4)
Keith J. Gloeckl ............................. 2001 266,094 90,000 -- -- 2,712(5)
Senior Vice President and Chief ........... 2000 252,897 90,000 -- 87,500 3,245(5)
Investment Officer ........................ 1999 47,462 -- -- -- 13,500(5)
William S. Harrison (6) ...................... 2001 173,077 80,000 8,612 50,000 450(7)
Senior Vice President, Chief .............. 2000 -- -- -- -- --
Financial Officer and Secretary ........... 1999 -- -- -- -- --
(1) The amounts indicated for each officer are reimbursements during the fiscal
year for the payment of taxes.
(2) The amounts indicated include $2,000 for 1999 related to the Company's
contribution to Mr. Joseph's individual retirement account and $99, $99 and
$26 for 2001, 2000 and 1999, respectively, 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 2001 and 2000 that benefits Mr. Joseph.
(3) The amounts indicated include $2,250, $2,250 and $13,500 for 2001, 2000 and
1999, respectively, related to the Company's contribution to Mr. Banks'
individual retirement account, $30 for 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 $834 and $581 for 2001 and 2000,
respectively, for group long-term disability insurance that benefits Mr.
Banks.
(4) The amounts indicated include $2,250, $2,250 and $2,000 for 2001, 2000 and
1999, respectively, related to the Company's contribution to Mr. Falcone's
individual retirement account; $15, $14 and $26 for 2001, 2000 and 1999,
respectively, 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 2001 and 2000 that
benefits Mr. Falcone.
(5) The amounts indicated include $2,250, $2,250 and $13,500 for 2001, 2000 and
1999, respectively, related to the Company's contribution to Mr. Gloeckl's
individual retirement account, $16 for 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 and $310 for 2001 and
2000, respectively, for group long-term disability insurance that benefits
Mr. Gloeckl.
(6) Mr. Harrison became an employee of the Company in April 2001. In 2000 and
2001 he provided consulting services to the Company for which he was paid
$110,000, but was not an employee.
(7) The amount indicated includes $450 for group long-term disability insurance
that benefits Mr. Harrison.
9
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth for the CEO and the other named executive
officers of the Company: (i) the number of shares awarded during fiscal year
2001; (ii) the performance or other time period until payout or maturation of
the award; and (iii) the estimated future payouts under non-stock price-based
plans.
Estimated
Performance Future
or Other Payouts Under
Number of Shares, Period Until Non-stock
Units or Other Maturation Price-based
Name Rights (#)(1) Or Payout(2) Plans ($)(3)
---- -------------- ------------- -------------
Mark K. Joseph 12,500 22 months $313,625
Michael L. Falcone 11,500 22 months 288,535
William S. Harrison 5,000 22 months 125,450
(1) A total of 63,050 Deferred Shares were awarded in fiscal year 2001, with
62,250 Deferred Shares vesting over 22 months beginning April 12, 2001 and
the remaining 800 shares over 37 months beginning November 30, 2001. As of
the end of fiscal year 2001, the aggregate Deferred Share holdings
consisted of 413,908 shares worth $10,384,952 at the then current market
value (as represented by the closing price of the Company's Common Shares
on December 31, 2001 of $25.09). Such amounts included $2,721,111 for Mr.
Joseph (108,454 shares); $1,922,847 for Mr. Falcone (76,638 shares); and
$125,450 for Mr. Harrison (5,000 shares). Distributions are paid only with
respect to the portion of the shares which have vested and become
nonforfeitable in accordance with the share agreements. The Deferred Share
agreements also provide for accelerations of vesting on a discretionary
basis, upon a change in control and death or disability.
(2) The shares become vested and nonforfeitable cumulatively to the extent of
one-third of such Deferred Shares on April 12, 2001, one-third of such
Deferred Shares on February 23, 2002 and one-third of such Deferred Shares
on February 23, 2003 for so long as the officers remain in the continuous
employ of the Company.
(3) The amounts indicated represent the fair market value of the Deferred
Shares awarded on December 31, 2001 at the then closing price of the
Company's Common Shares on such date.
Options/SAR Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock
options to the Company's executive officers under the Company's 1998 Share
Incentive Plan during fiscal year ended December 31, 2001.
Individual Grants Potential Realizable
------------------------------------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Share
Shares Options/SARs Exercise Price Appreciation for
Underlying Granted to or Base Option Term (2)
Options Employees Price Per Expiration -------------------------
Name Granted(#)(1) in Fiscal Year Share($) Date 5%($) 10% ($)
-------------------- ------------ -------------- ----------- -------------- ---------- ----------
William S. Harrison 50,000 66.7% $22.55 April 12, 2011 $ 709,079 $1,796,945
(1) These options were granted pursuant to the 1998 Share Incentive Plan. The
options become exercisable up to one-third of the total number of shares
commencing on the date of grant, up to one-third of the total number of
shares commencing on February 23, 2002 and all remaining shares commencing
on February 23, 2003. Options shall become fully exercisable in the event
of death or disability; provided that, the options shall be exercisable
after termination for any reason other than death or disability only to the
extent that the option was exercisable at such date. In the event of a
change in control of the Company (as defined in the 1998 Share Incentive
Plan) at a time that the employee is employed by the Company, the option
shall become immediately and fully exercisable. In addition, the Company
may, in its sole discretion, at any time, upon written notice to the
employee, accelerate the exercisability of all or a specific portion of the
options. Generally, options expire ten years from the date of grant.
However, options will expire immediately upon the termination of employment
for cause and three months after termination of employment for reasons
other than death, disability or normal or early retirement. In the event of
death, disability or retirement, options will expire one year after such
event.
10
(2) The Potential Realizable Value is the product of (a) the difference between
(i) the market price per share at the grant date and the sum of (A) 1 plus
(B) the assumed rate of appreciation of the shares compounded annually over
the term of the option and (ii) the per share exercise price of the option
and (b) the number of shares underlying the option at December 31, 2001.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on share option exercises are dependent on a variety of
factors, including market conditions and the price performance of the
share. There can be no assurance that the rate of appreciation presented in
this table can be achieved.
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 four most highly
compensated executive officers of the Company: (i) the total number of
unexercised options held at the end of fiscal year 2001; and (ii) the aggregate
dollar value of in-the-money unexercised options held at the end of fiscal year
2001.
Number of Value of Unexercised
Unexercised Options In-The-Money Options
Shares Held at Fiscal Y/E (#) @ 12/31/01 ($) (1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------ ----------- ------------- ----------- -------------
Mark K. Joseph -- $ -- 179,815 -- $1,477,180 $ --
Robert J. Banks -- -- 43,750 43,750 277,375 277,375
Michael L. Falcone 40,000 290,730 94,862 -- 779,291 --
Keith J. Gloeckl -- -- 43,750 43,750 277,375 277,375
William S Harrison -- -- 16,667 33,333 42,333 84,667
(1) Value of unexercised "in-the-money" options is the difference between the
market price of the shares on December 31, 2001 ($25.09 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 three times in 2001 and determined executive
compensation in accordance with recommendations of an independent consultant
hired 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 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. For 2001, the Compensation Committee concluded
that the 1999 study was 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, 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.
11
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. 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 2001. 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 2001, the Company achieved target performance, and therefore, annual
bonuses were paid to the executives, as well as employees, for performance under
the plan in the target 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, 2001
there were 991,655 shares available under the Plans.
The Plans are administered by the Committee, which consists 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 2001, the Company awarded stock options to acquire up to 75,000
common shares and a total of 63,050 Deferred Shares to certain executives and
employees based on their overall performance and contribution to the success of
the Company.
12
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. The CEO is eligible to
receive awards under the Company's share incentive plan and incentive
compensation plan.
For the year ended December 31, 2001, the CEO received total cash payments
of $350,000 in salary and bonus (as shown in the Summary Compensation Table on
page 9). The Compensation Committee considered these 2001 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 herein), Mr. Joseph was granted 12,500 Deferred Shares
that vest over 22 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
2001 fiscal year has ever been an officer or employee of the Company or any of
its subsidiaries. During fiscal year 2001, 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, 2001 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, 1996. The Company does not believe that there are any other
businesses or indices that reflect both the same industry as that in which the
Company operates and the same "pass-through" tax status as that of the Company.
Accordingly, the Company selected the NAREIT and Lipper Bond indices because the
NAREIT index consists of real estate investment trusts which, like the Company,
pass-through their income to their shareholders, although not tax-exempt income,
and the Lipper Bond index, which represents the performance of municipal bond
issues.
13
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL)
Comparative Price Performance
Indexed Closing Prices
(Values Indexed to 100 as of December 31, 1996)
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
MuniMae 100 132 124 145 180 209
S&P 500 100 133 170 205 187 166
NAREIT 100 119 96 90 114 131
Lipper Bond 100 110 116 112 117 122
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 28, 2002, of (i) each
director and nominee as director, (ii) all persons known by the Company to be
beneficial owners of more than 5% of its Common Shares and (iii) all the
executive officers and directors of the Company as a group. With respect to
shares subject to options, only those shares subject to options which are
immediately exercisable or exercisable within 60 days are listed below. Unless
otherwise indicated, each Shareholder has sole voting and investment power with
respect to the shares beneficially owned.
Common Shares
-----------------------------
Number of Percent of
Name Shares Class
---- --------- ----------
Mark K. Joseph 1,137,874(1) 4.39
Robert J. Banks 571,288(2) 2.21
Michael L. Falcone 239,858(2) *
Keith J. Gloeckl 219,363(2) *
Gary A. Mentesana 101,508(2) *
William S. Harrison 38,333(2) *
Charles C. Baum 24,000(3) *
Richard O. Berndt 15,876(3) *
Robert S. Hillman 17,700(3) *
William L. Jews 15,550(3) *
Douglas A. McGregor 7,500(3) *
Carl W. Stearn 66,165(3) *
All directors and officers as a group (14
persons) 2,485,015 9.59
*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 are officers
of the Company. As a result of their limited partnership interest in that
14
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 43,750
Michael L. Falcone 94,862
Keith J. Gloeckl 43,750
Gary A. Mentesana 44,431
William S. Harrison 33,333
(3) Included in each board member's beneficial ownership of Common Shares are
Common Shares subject to options granted under the 1996 and 1998 Directors'
Share Plans as follows:
Shares Subject
To Options
----------
Charles C. Baum 15,000
Richard O. Berndt 10,000
Robert S. Hillman 15,000
William L. Jews 15,000
Douglas A. McGregor 7,500
Carl W. Stearn 15,000
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.
As a result of the Merger, the former general partners (and their
affiliates) received certain economic benefits, including 1,000 Term Growth
Shares in exchange for their general partnership interests in the Predecessor
and 883,033 Common Shares in exchange for the contribution of their mortgage
acquisition and servicing activities that generate fees from the operating
partnerships that are the ultimate debtors on the Company's bond investments
(the "Operating Partnerships"). In connection with the Merger, the former
general partners retained an independent third party to render an opinion that
the allocation of the Common Shares and Term Growth Shares among the former
general partners and the BAC holders was fair from a financial point of view.
At the time of the Merger, the Company designated Shelter Development
Holdings, Inc. ("Shelter Development") as the shareholder that has personal
liability for the obligations of the Company (the "Special Shareholder") and
whose death, retirement, resignation, expulsion, bankruptcy or dissolution would
result in the dissolution of the Company (the "Dissolution Shareholder") to
preserve its pass-through tax status under the tax laws in existence at that
time. Mr. Joseph is the beneficial owner of 100% of Shelter Development. In
connection with the Merger, Shelter Development received 26,729 Common Shares
for its agreement to serve as the Special Shareholder and Dissolution
Shareholder. The Company does not compensate Shelter Development annually for
serving as the Special Shareholder or Dissolution Shareholder. Nevertheless, the
Dissolution Shareholder has the right to appoint one director to the Company's
Board of Directors so long as the size of the Board is 10 persons or less, and
two directors if the size of the Board is more than 10 persons. In addition, if
certain change-in-control transactions occur that the Special Shareholder has
not approved, the Special Shareholder has the right to receive $1 million if it
exercises its right to withdraw as the Special Shareholder of the Company.
15
The Company leases office space 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 at market rates. For the
year ended December 31, 2001, the Company paid $208,000 in rental lease payments
under the lease agreement.
Mr. Joseph controls and is an officer of an entity that is responsible for
a full range of property management functions for certain properties that serve
as collateral for the Company's bond investments. Mr. Michael L. Falcone, Chief
Operating Officer of the Company, had an ownership interest in and was board
member of this entity until he relinquished these positions in 2000. For these
services the affiliates receive property management fees pursuant to management
fee contracts. Consistent with the Company's Operating Agreement, each affiliate
property management contract is presented to the independent members of the
Board of Directors for approval with information documenting the comparability
of the proposed fees to those in the market area of the property. During 2001,
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, 2001, these fees approximated $1.1 million.
Mr. Joseph controls the general partners of 20 of the operating
partnerships whose property collateralizes some of the Company's bonds and Mr.
Falcone serves as a director in three such general partners. Ms. Angela A.
Barone, the Company's Vice President of Finance and Budgeting, serves as an
officer in one such general partner. In order to preserve the loan obligations
and the participation in cash flow for the Company and thereby assure that the
Company will continue to recognize tax-exempt income, 14 of the 20 operating
partnerships were created as successors to the original borrowers. With respect
to the other 6 operating partnerships, an entity controlled by Mr. Joseph was
designated as the general partner of the original borrowing entities. However,
such entities could have interests that do not fully coincide with, or even are
adverse to, the interests of the Company. Such entities could choose to act in
accordance with their own interests, which could adversely affect the Company.
Among the actions such entities could desire to take might be selling a
property, thereby causing a redemption event, at a time and under circumstances
that would not be advantageous to the Company. Also, Mr. Joseph owns an indirect
interest in the general partners of the Southgate Crossings and Poplar Glen
operating partnerships.
In 1998 and 1999, the Company sold certain taxable demand notes related to
11 operating partnerships whose general partners are controlled by Mr. Joseph
(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.
At December 31, 2001, the Company owned all of the interests in a trust
that holds a $33.9 million bond collateralized by the Village of Stone Mountain.
In 2001, the Company negotiated a transfer of the Stone Mountain deed in lieu of
foreclosure to MMA Housing - Stone Mountain, LLC, a Maryland limited partnership
whose single member is MMA Affordable Housing Corporation. MMA Affordable
Housing Corporation 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 MMA Affordable Housing Corporation. Mr. Falcone,
Mr. Gary A. Mentesana, Chief Capital Officer of the Company, and Mr. Earl W.
Cole, III, Senior Vice President of a subsidiary company, are also officers and
directors of the MMA Affordable Housing Corporation. In conjunction with the
transfer of the ownership, the Company made a $1.8 taxable loan to the property.
Prior to 2001, the borrower of the $33.9 million mortgage revenue bond is the
Shelter Foundation, a public non-profit foundation that provides housing and
related services to families of low and moderate income. Mr. Joseph is the
President and one of six directors of the Shelter Foundation. In addition, a
company of which Mr. Joseph owns an indirect minority interest serves as
property manager of the related apartment community.
At December 31, 2001, the Company owned a $2.2 million B bond, a $2.1
million C bond and a $1.2 million taxable loan collateralized by the Winter Oaks
apartment community. The borrower of the bonds and the taxable loan is Winter
Oaks Partners, Ltd., (L.P.), a Georgia limited partnership whose 1% general
partner is MMA Successor I, Inc. and whose 99% limited partner is Winter Oaks,
L.P. The 1% general partner of Winter Oaks, L.P. is MMA Successor I, Inc., and
the 99% limited partner of Winter Oaks, L.P. is the MuniMae
16
Foundation, Inc., a private non-profit entity organized to provide charitable
donations on behalf of the Company. Mr. Joseph is the President and one of three
directors of the MuniMae Foundation. Mr. Falcone and Mr. Mentesana are also
directors of the MuniMae Foundation. In addition, a company of which Mr. Joseph
owns an indirect minority interest serves as property manager of the related
apartment community.
At December 31, 2001, the Company owned a $15.1 million bond (face amount)
collateralized by the Santa Fe apartment community. The borrower of the bond is
MMA SFS Apartments, L.P., a Maryland limited partnership whose 1% general
partner is MMA Successor I, Inc. and whose 99% limited partner is the MuniMae
Foundation, Inc. Mr. Joseph is the President and one of three directors of the
MuniMae Foundation. Mr. Falcone and Mr. Mentesana are also directors of the
MuniMae Foundation. In addition, a company of which Mr. Joseph owns an indirect
minority interest serves as property manager of the related apartment community.
At December 31, 2001, the Company owned a $19.1 million bond collateralized
by the Lake Piedmont apartment community. In December 2000, the Company
negotiated a transfer of the Lake Piedmont deed in lieu of foreclosure to MMA
Housing I, LLC, a Maryland limited partnership whose single member is MMA
Affordable Housing Corporation. MMA Affordable Housing Corporation 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 MMA
Affordable Housing Corporation. Mr. Falcone, Mr. Mentesana, and Mr. Cole are
also officers and directors of the MMA Affordable Housing Corporation. In
conjunction with the transfer of the ownership, the Company made a $500,000
taxable loan to the property. The Company established a valuation allowance
equal to the principal outstanding of the loan at December 31, 2000.
In 2000 and 2001, prior to his employment with the Company, Mr. William S.
Harrison, Senior Vice President and Chief Financial Officer of the Company,
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.
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, 2001, $1.6 million in legal fees to GEJ was generated by
transactions structured by the Company of which $1.0 million was directly
incurred by the Company. The total amount of $1.6 million represented 12.6% of
GEJ's total revenues for 2001.
An affiliate of Merrill Lynch owned 1,250 Term Growth Shares, until they
were redeemed in January 2002. The Company may from time to time enter into
various investment banking, financial advisory and other commercial services
with Merrill Lynch for which Merrill Lynch receives and will receive customary
compensation. The Company also enters into various RITESSM and interest rate
swap transactions with Merrill Lynch on terms generally available in the
marketplace.
A subsidiary of the Company functions as a real estate advisor for pension
funds and the MAHGT. The MAHGT is a professionally managed portfolio of
diversified income producing real estate mortgage investments for pension funds
and profit-sharing trusts. Mr. Falcone, Mr. Robert J. Banks, Executive Vice
Chair and Senior Vice President of the Company, and Mr. Keith J. Gloeckl, Senior
Vice President and Chief Investment Officer of the Company, are trustees of the
MAHGT. For the year ended December 31, 2001, the Company received $515,000 in
advisory fees from the MAHGT.
A subsidiary of the Company functions as an investment advisor for the
MMER. The MMER is a real estate investment trust formed to manage a portfolio of
income producing real estate investments for public employee pension plans and
other governmental retirement plans. Mr. Falcone, Mr. Mentesana, Mr. Banks and
Mr. Gloeckl are members of the board of directors of the MMER. For the year
ended December 31, 2001, the Company received $30,000 in advisory fees from the
MMER.
At December 31, 2001, a subsidiary of the Company had a $50.0 million
warehouse facility provided by the MAHGT, with an outstanding balance of $5.0
million. This warehouse facility is provided for interim funding of permanent
loans and completed construction loans until funded by a permanent lender or
security holder and is collateralized by a security interest in the loans. The
facility bears interest at various rates based upon collateral. Individual
borrowings mature separately.
At December 31, 2001, a subsidiary of the Company had a $30.0 million line
of credit with the MAHGT to finance working capital and carryover loans, with an
outstanding balance of $27.5 million. Interest on the line of credit is 0.25%
under money center bank prime. The line is collateralized by a security interest
in the related loan receivable. Principal on the line is due in 2002.
At December 31, 2001, a subsidiary of the Company had a $30.0 million line
of credit with the MAHGT to fund syndication advances of limited partnerships.
At December 31, 2001 the balance due on the line was $30.0 million. Interest on
the line of credit is equal to money center bank prime. The line is
collateralized by a security interest in a promissory note given by a limited
partnership. Principal on the line is due in 2002.
17
At December 31, 2001, a subsidiary of the Company had a $10.0 million line
of credit with the MAHGT to fund syndication advances of limited partnerships.
At December 31, 2001 the balance due on the line was $2.8 million. Interest on
the line of credit is equal to money center bank prime. The line is
collateralized by a guarantee from the Company. Principal on the line is due in
2002.
At December 31, 2001, a subsidiary of the Company had pledged a first
priority security interest in certain construction loans and related assets in
connection with a $30 million loan agreement between the lender and the MAHGT.
If an event of default were to occur, the lender would be entitled to foreclose
upon the collateral pledged by the Company.
At December 31, 2001, a subsidiary of the Company had a $20.0 million line
of credit with the MMER, with an outstanding balance of $40,000. This warehouse
facility is provided for interim funding of permanent loans and completed
construction loans until funded by a permanent lender or security holder and is
collateralized by a security interest in the loans. The facility bears interest
at various rates based upon collateral. Individual borrowings mature separately.
At December 31, 2001, a subsidiary of the Company had a $20.0 million line
of credit with the MMER, with an outstanding balance of $7.4 million. This
warehouse facility is provided to finance working capital and carry over loans
and is collateralized by a security interest in the loans. The facility bears
interest at money center bank prime.
At December 31, 2001, a subsidiary of the Company had a $20.0 million line
of credit with the MMER to fund syndication advances of limited partnerships.
There were no borrowings on this line in 2001. Interest on the line of credit is
equal to money center bank prime.
At December 31, 2001, a subsidiary of the Company had a $20.0 million line
of credit with the MMER to finance interim construction lending and is
collateralized by a security interest in the loans. There were no borrowings on
this line in 2001. The facility bears interest at various rates based upon
collateral.
The Company is the general partner in various partnerships that provide
low-income tax credits for investors. The Company sells the limited partner
interests in these partnerships to third party investors. In addition, the
Company may provide certain performance guarantees on the underlying properties
owned by the partnerships. The Company receives management fees from these
partnerships. For the year ended December 31, 2001, the Company earned $2.4
million in management fees.
MuniMae Foundation Inc. is the 51% owner in a subsidiary of the Company.
This subsidiary funds syndication advances of limited partnerships. Mr. Joseph
is the President and one of three directors of the MuniMae Foundation. Mr.
Falcone and Mr. Mentesana are also directors of the MuniMae Foundation.
For the year ended December 31, 2001, the Company made a $600,000
charitable contribution to the MMA Affordable Housing Corporation discussed
above.
On October 20, 1999, the Company acquired Midland Financial Holdings, Inc.
from Messrs. Banks, 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 2001, MuniMae paid approximately $3.3 million
in Common Shares to these individuals and, subject to certain conditions,
MuniMae expects to make the final payment of Common Shares having a value of
approximately $3.3 million in December 2002. The acquisition is being accounted
for as a purchase. The total purchase price incurred during 1999, 2000 and 2001
was $42.6 million, which includes acquisition costs but excludes MuniMae Common
Shares contingently issuable in December 2002. The results of operations of
Midland are included in the consolidated financial statements of the Company
subsequent to October 19, 1999.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's audited financial statements for the year ended December 31,
2001, 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, 2002 at its March 2002 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.
18
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),
Jews, and Baum, 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 for the fiscal year ended December 31, 2001 and the review
of the financial statements included in the Company's quarterly reports on Form
10-Q for that fiscal year was $434,000.
All Other Fees. The aggregate amount of fees billed by
PricewaterhouseCoopers LLP for all other non-audit services including tax
reporting and compliance and other services was $365,984. There were no fees
billed for the design and implementation of financial information systems.
Leased Employees. PricewaterhouseCoopers LLP has informed the Company that
none of the hours expended on its engagement to audit the Company for the fiscal
year ended December 31, 2001 was attributed to work performed by persons other
than full-time, permanent employees.
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, 2001 for filing with the Securities and
Exchange Commission.
RESPECTIVELY SUBMITTED,
AUDIT COMMITTEE
Mr. Carl W. Stearn, Chairman
Mr. Charles C. Baum
Mr. William L. Jews
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. Specific due dates for these
records have been established and the Company is required to report on this
proxy statement any failure to file by these dates in 2001. Based solely on a
review of copies of such reports of ownership furnished to the Company, the
Company believes that a late report on Form 4 for was filed by Michael L.
Falcone for September due to travel.
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
19
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, it would be
appreciated if you would fill in, date and sign the enclosed proxy and return it
promptly. If you attend the meeting, you may vote your shares even though you
may have sent in your proxy.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER WHO WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON SHARES ON THE RECORD DATE FURNISHED TO THE SECRETARY OF THE
COMPANY AT THE ADDRESS SET FORTH BELOW, THE COMPANY WILL PROVIDE WITHOUT CHARGE
A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2001 INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.
SHAREHOLDER PROPOSALS FOR THE 2002 ANNUAL PROXY STATEMENT
Proposals by Shareholders intended to be presented at the Company's 2003
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
November 29, 2002. If a Shareholder notifies the Company after February 20, 2003
of an intent to present a proposal at the Company's 2003 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 2003 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, 2003 and not earlier than the close of
business on January 28, 2003.
MUNICIPAL MORTGAGE & EQUITY, LLC
218 N. Charles Street, Suite 500
Baltimore, Maryland 21201
Dated: March 28, 2002
20
APPENDIX A
AMENDED AND RESTATED
CERTIFICATE OF FORMATION AND OPERATING AGREEMENT
OF
MUNICIPAL MORTGAGE & EQUITY, LLC
(a Delaware limited liability company)
THIS AMENDED AND RESTATED CERTIFICATE OF FORMATION AND OPERATING AGREEMENT
(the "Agreement") of Municipal Mortgage & Equity, LLC, a Delaware limited
liability company (the "Company"), dated as of _____________, 2002, is entered
into by and among the Shareholders (as defined herein) of the Company and any
Person (as defined herein) who becomes a Shareholder pursuant to the terms of
this Agreement.
The Company's Certificate of Formation filed with the Delaware Secretary of
State on July 6, 1995, is hereby amended to amend and restate all of the
provisions thereof so that said Certificate, as amended and restated hereby,
reads in its entirety as follows; and the Company's Operating Agreement is
hereby amended so that said Operating Agreement reads in its entirety as
follows:
FIRST: The name of the limited liability company is Municipal Mortgage &
Equity, LLC.
SECOND: The address of the limited liability company's registered office in
the State of Delaware is Corporation Service Company, 2711 Centerville Road,
Suite 400, in the City of Wilmington, County of New Castle, 19808. The name of
its registered agent at such address is Corporation Service Company.
THIRD: The remainder of the Certificate of Formation and Operating
Agreement is as follows:
W I T N E S S E T H :
WHEREAS, the Shareholders of the Company have approved the amendment and
restatement of the Certificate (as defined herein) of the Company and the
Operating Agreement (as defined herein) of the Company to remove provisions and
references that are no longer operative; and
WHEREAS, this Agreement shall constitute the Certificate of the Company and
shall also constitute the Operating Agreement of the Company, and shall be
binding upon all Persons now or at any time hereafter who are Shareholders of
the Company.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, and of other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending legally
to be bound, hereby agree as follows:
ARTICLE 1
Definitions
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Section of this Agreement referred to below, except as otherwise
expressly indicated or limited by the context in which they appear in this
Agreement. All terms defined in this Article 1 or in the preamble to this
Agreement in the singular have the same meanings when used in the plural and
vice versa.
1.1 "Acquiring Person" shall have the meaning set forth in Section 13.1 of
this Agreement.
1.2 "Act" means the Delaware Limited Liability Company Act, Del. Code
Ann.ss.ss.18-101 et seq., as amended from time to time.
21
1.3 "Affiliate" means, with respect to any Person, any Relative of such
Person, any trust for the benefit of such Person or such Person's Relative, any
beneficiary of such a trust and any other Person that directly, or indirectly
through one or more intermediaries, controls (including without limitation all
officers and directors of such Person), is controlled by, or is under common
control with, such Person or a Relative of such Person. The term "control" (or
any form thereof), as used in the preceding sentence, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.4 "Agreement" means this Agreement, as may be amended, restated,
supplemented or otherwise modified from time to time as herein provided.
1.5 "Announcement Date" shall have the meaning set forth in Section 12.3
of this Agreement.
1.6 "Associate" shall have the meaning set forth in Sections 12.1 and 13.1
of this Agreement.
1.7 "Beneficial Owner" shall have the meaning set forth in Section 12.1 of
this Agreement.
1.8 "Board of Directors" or "Board of Managers" means the board on which
all of the Company's Managers sit, in their capacities as Managers.
1.9 "Bond" means a mortgage revenue bond owned at a particular time by the
Company as part of the Property; and the term "Bond" shall include working
capital loans associated with such mortgage revenue bond.
1.10 "Book Gain" or "Book Loss" means the gain or loss recognized by the
Company for book purposes in any Fiscal Year by reason of any sale or
disposition with respect to any of the assets of the Company. Such Book Gain or
Book Loss shall be computed by reference to the Book Value of such property or
assets as of the date of such sale or disposition (determined in accordance with
Section 1.11 of this Agreement), rather than by reference to the tax basis of
such property or assets as of such date, and each and every reference herein to
"gain" or "loss" shall be deemed to refer to Book Gain or Book Loss, rather than
to tax gain or tax loss, unless the context manifestly otherwise requires.
1.11 "Book Value" of an asset means, as of any particular date, the value
at which the asset is properly reflected on the books and records of the Company
as of such date in accordance with Section 1.704-1(b)(2)(iv) of the Treasury
Regulations. The initial Book Value of each asset shall be its cost, unless such
asset was contributed to the Company by a Shareholder, in which case the initial
Book Value shall be the fair market value for such asset as reasonably
determined by the Board of Directors, and, in each case, such Book Value shall
thereafter be adjusted for cost recovery deductions to which the Company is
entitled for federal income tax purposes with respect thereto, in the amount
that bears the same relationship to the Book Value of such asset as the cost
recovery deduction computed for tax purposes bears to the adjusted tax basis of
such assets. The Book Values of all Company assets shall be adjusted to equal
their respective fair market values, as reasonably determined by the Board of
Directors under appropriate circumstances, which circumstances may include but
are not limited to the
22
following: (a) the acquisition, by any new or existing Shareholder, of any
interest issued after August 1, 1996 by the Company; (b) the distribution by the
Company to a Shareholder of more than a de minimis amount of Company assets,
including money, if, as a result of such distribution, such Shareholder's
interest in the Company is reduced; and (c) the termination of the Company for
federal income tax purposes pursuant to Section 708(b)(1)(B) of the Code.
1.12 "Business Combination" shall have the meaning set forth in Section
12.1 of this Agreement.
1.13 "By-laws" means the by-laws of the Company, as amended from time to
time, governing various aspects of the operation of the Company and the rights
and obligations of its Shareholders, Board of Directors, officers and agents.
All provisions of the By-laws not inconsistent with law or this Agreement shall
be valid and binding.
1.14 "Capital Account" shall have the meaning ascribed thereto in Section
3.3 of this Agreement.
1.15 "Capital Contributions" means the total amount of cash and other
property contributed to the Company by the Shareholders.
1.16 "Capital Transactions" means (a) any Repayment, Sale, or other sale,
exchange, taking by eminent domain, damage, destruction or other disposition of
all or any part of the assets of the Company, other than tangible personal
property disposed of in the ordinary course of business; or (b) any financing or
refinancing of any Company indebtedness; provided, that the receipt by the
Company of Capital Contributions shall not constitute Capital Transactions.
1.17 "Certificate" means this Agreement, in its function as a "certificate
of formation" as provided for pursuant to the Act, as originally filed with the
office of the Secretary of State of the State of Delaware, as amended, restated,
supplemented or otherwise modified from time to time as herein provided.
1.18 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any subsequent federal law of similar import, and, to the extent
applicable, any Treasury Regulations promulgated thereunder.
1.19 "Common Shareholders" means the holders of Common Shares.
1.20 "Common Shares" shall have the meaning set forth in Section 3.1 of
this Agreement.
1.21 "Company" means the limited liability company hereby established in
accordance with this Agreement by the parties hereto, as such limited liability
company may from time to time be constituted.
1.22 "Company Interest" means an equity interest in the Company, and, if the
context so allows, the percentage of equity ownership interest in the Company
represented by the Capital Account attributable to such equity interest as
compared to all of the aggregate Capital Accounts of all Shareholders of the
Company (as such percentage may be changed from time to time to reflect
adjustments as provided for in this Agreement); it being understood and agreed
that this term shall not be deemed to
23
apply to any debt incurred by the Company (directly or indirectly), including
but not limited to through custodial, trust or similar or other arrangements.
1.23 "Consent" means either the consent given by vote at a duly called and
held meeting or the prior written consent, as the case may be, of a Person to do
the act or thing for which the consent is solicited, or the act of granting such
consent, as the context may require.
1.24 "Control Company Interest" shall have the meaning set forth in Section
13.1 of this Agreement.
1.25 "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period; provided, that if the Book
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of any such year or other period, Depreciation shall
be an amount that bears the same relationship to the Book Value of such asset as
the depreciation, amortization, or other cost recovery deduction computed for
tax purposes with respect to such asset for the applicable period bears to the
adjusted tax basis of such asset at the beginning of such period, or if such
asset has a zero adjusted tax basis, Depreciation shall be an amount determined
under any reasonable method selected by the Board of Directors.
1.26 "Determination Date" shall have the meaning set forth in Section 12.3
of this Agreement.
1.27 "Director" shall have the same meaning as "Manager."
1.28 "Dissolution Shareholder" means Shelter Development Holdings, Inc.,
for so long as such Person remains a Dissolution Shareholder under Section 6.4
of this Agreement, and shall also mean any other Person who agrees under Section
6.4 to be a Dissolution Shareholder.
1.29 "Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, limited liability company, limited liability
partnership, business trust, cooperative, or association. An Entity may or may
not be an Affiliate of the Company or of a Company Affiliate.
1.30 "Financing" means the financing transaction which SCATEF consummated
on February 14, 1995 in which proceeds were raised through the offering of
$67,700,000 in aggregate principal amount of Multifamily Mortgage Revenue Bond
Receipts.
24
1.31 "Fiscal Year" means the fiscal year of the Company and shall be the
same as its taxable year, which shall be the calendar year unless otherwise
determined by the Board of Directors in accordance with the Code. Each Fiscal
Year shall commence on the day immediately following the last day of the
immediately preceding Fiscal Year.
1.32 "Five Year Tolling Period" shall have the meaning set forth in Section
12.2 of this Agreement.
1.33 "Future Shares" shall have the meaning set forth in Section 3.1 of
this Agreement.
1.34 "General Partners" means the general partners of SCATEF.
1.35 "Initial Capital Contribution" means any Capital Contribution made in
accordance with Section 3.2 hereof.
1.36 "Interested Company Interests" shall have the meaning set forth in
Section 13.1 of this Agreement.
1.37 "Interested Party" shall have the meaning set forth in Section 12.1 of
this Agreement.
1.38 "Managers" means those individuals serving on the Board of Directors of
the Company, including successor or additional Managers duly elected in
accordance with the terms of this Agreement.
1.39 "Market Value" shall have the meaning set forth in Section 12.1 of
this Agreement.
1.40 "Members" means the Shareholders, together with all Persons who become
Members as herein provided and who are listed as Members of the Company in the
books and records of the Company, in such Persons' capacity as Members of the
Company.
25
1.41 "Mortgage Loans" means the mortgage loans which have been assigned to
the Company to secure the repayment of a Bond.
1.42 "Operating Agreement" means this Agreement, in its function as an
"operating agreement" as provided for pursuant to the Act, as amended, restated,
supplemented or otherwise modified from time to time as herein provided.
1.43 "Original Shareholders" means MME I Corporation, a Delaware
corporation, and MME II Corporation, a Delaware corporation.
1.44 "Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such Person
where the context so admits.
1.45 "Profit" and "Loss" means, for each Fiscal Year or other period for
which allocations to Shareholders are made, an amount equal to the Company's
taxable income or loss for such year or period, determined in accordance with
Section 703(a) of the Code (provided, that for this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profit or Loss pursuant to this
provision shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Section 705(a)(2)(B) of
the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, and not otherwise
taken into account in computing Profit or Loss pursuant to this provision, shall
be subtracted from such taxable income or loss;
(c) Book Gain or Book Loss from a Capital Transaction shall be taken into
account in lieu of any tax gain or tax loss recognized by the Company by reason
of such Capital Transaction; and
(d) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year, computed as
provided in this Agreement.
If the Company's taxable income or loss for such Fiscal Year or other
period, as adjusted in the manner provided above, is a positive amount, such
amount shall be the Company's Profit for such Fiscal Year or other period; and
if a negative amount, such amount shall be the Company's Loss for such Fiscal
Year or other period.
1.46 "Property" means the land and the buildings thereon upon which the
Company holds a mortgage or other similar encumbrance at a particular time, and
the Bonds held by the Company at a particular time.
26
1.47 "Relative" means, with respect to any Person, any parent, spouse,
brother, sister, or natural or adopted lineal descendant or spouse of such
descendant of such Person.
1.48 "Repayment" shall have the meaning set forth in Section 1.49 below.
1.49 "Sale" or "Repayment" means the sale or other disposition of a
Property (a "Sale") or, in the absence of a Sale, the repayment of the principal
and interest, if any, payable upon the redemption or remarketing of a Bond which
was included within the Property (a "Repayment"); provided, however, that these
terms shall not include the pledge of a Property in connection with the
financing, refinancing or other leveraging of such Property or otherwise. The
term "Sale" shall include (a) a foreclosure by a third party which is
unaffiliated with the current operating partnership (or respective general
partner) owning a Property, (b) a deed-in-lieu of foreclosure to a third party
which is unaffiliated with the current operating partnership (or respective
general partner) owning a Property, or (c) a sale or transfer of a Property to a
third party which is unaffiliated with the current operating partnership (or
respective general partner) owning a Property; and a "Sale" shall not be deemed
to occur if the Company forecloses on a Property or if the Company directs a
deed-in-lieu of foreclosure on a Property.
1.50 "SCATEF" means the SCA Tax Exempt Fund Limited Partnership, the entity
that was the predecessor to the Company.
1.51 "Shareholders" means all persons who hold Shares, and shall have the
same meaning as the word "Members."
1.52 "Shares" means Company Interests.
27
1.53 "Special Shareholder" means Shelter Development Holdings, Inc., for so
long as such Person is subject to certain liabilities as set forth in Section
6.1(b) of this Agreement, and shall also mean any other Person who agrees under
Article 6 to be a Special Shareholder.
1.54 "Specially Appointed Director(s)" shall have the meaning ascribed
thereto in Section 6.1(d) of this Agreement.
1.55 "Subsidiary" shall have the meaning set forth in Section 12.1 of this
Agreement.
1.56 "Tax Matters Partner" shall have the meaning ascribed thereto in
Section 3.5 of this Agreement.
1.57 "Transfer" (or "Transferred") means to give, sell, assign, encumber,
pledge, hypothecate, devise, bequeath, or otherwise dispose of, encumber,
transfer, or permit to be transferred, during life or at death. The word
"Transfer," when used as a noun, shall mean any Transfer transaction.
1.58 "Transferee" means any Person to whom Shares are Transferred for any
reason or by any means.
1.59 "Treasury Regulations" means the federal income tax regulations,
including any temporary or proposed regulations, promulgated under the Code, as
such Treasury Regulations may be amended from time to time (it being understood
that all references herein to specific sections of the Treasury Regulations
shall be deemed also to refer to any corresponding provisions of succeeding
Treasury Regulations).
1.60 "Valuation Date" shall have the meaning set forth in Section 12.3 of
this Agreement.
28
1.61 "Working Capital Reserves" means funds held in reserves which are
maintained as working capital for the Company and available for any
contingencies relating to the ownership of the Property and the operation of the
Company. Amounts held in the Working Capital Reserves may at any time, in the
discretion of the Board of Directors, be added to the respective Allocable
Portfolio Cash Flows or to liquidation proceeds allocable to the respective
Shares (depending upon the characterization of such amounts when received by the
Company), but may not be otherwise removed from the respective Working Capital
Reserve.
ARTICLE 2
Continuation, Purpose and Term
2.1 Continuation. The parties hereto hereby agree to continue the limited
liability company known as Municipal Mortgage & Equity, LLC, as a limited
liability company under the provisions of the Act.
2.2 Company Name. The name of the Company is "Municipal Mortgage & Equity,
"LLC". The business of the Company shall be conducted under such name or such
other names as the Board of Directors or the Shareholders may from time to time
determine on and pursuant to the terms of this Agreement.
2.3 The Certificate. The Shareholders hereby agree to execute, file and
record all such certificates and documents, including amendments to the
Certificate, and to do such other acts as may be appropriate to comply with all
requirements for the formation, continuation, and operation of a limited
liability company, the ownership of property, and the conduct of business under
the laws of the State of Delaware and any other jurisdiction in which the
Company may own property or conduct business.
2.4 Principal Business Office. The principal business office of the Company
shall be located at 218 North Charles Street, Suite 500, Baltimore, Maryland
21201, or at such other location as may hereafter be determined by the Board of
Directors. The principal business office, as well as the registered office and
the registered agent, of the Company may be changed by the Board of Directors
from time to time in accordance with the then applicable provisions of the Act
and any other applicable laws, as well as the terms and conditions of this
Agreement.
2.5 Term of Company. The term of the Company shall continue until it is
wound up and dissolved pursuant to the provisions of Article 10 hereof.
2.6 Purposes. The purposes of the Company are (a) to invest in or engage in
activities related to investment in Bonds and in real estate, including but not
limited to loan servicing and loan origination (whether in connection with loans
to the Company or to others), and to generate returns from such investments;
this may include investing in entities which invest in bonds and in real estate
assets; provided, however, that the investment criteria shall be established by
the Board of Directors from time to time in its sole discretion subject to the
requirement that such criteria be consistent with the purposes of the Company;
(b) to engage in any other activities relating to, and compatible with, the
purposes set forth above; (c) to acquire, own and dispose of general and limited
partnership interests, membership interests, and stock or other equity interests
in Entities, and to exercise all rights and powers granted to the owner of any
such interests; (d) to take such other actions, or do such other things, as are
necessary or appropriate (in the sole discretion of the Board of Directors) to
carry out the provisions of this Agreement; and (e) to invest in any type of
investment and to engage in any other lawful act or activity for which limited
liability companies may be organized under the Act, and by such statement all
lawful acts and activities shall be within the purposes of the Company, except
for express limitations, if any.
2.7 Powers. In furtherance of its purposes, but subject to all of the
provisions of this Agreement, the Company shall have the power and is hereby
authorized to (a) invest (at any time during the term of the Company) in (i)
mortgage revenue bonds or portions of or interests in (including junior
positions) mortgage revenue bonds financing multifamily properties, senior
living facilities, manufactured housing communities, or congregate care
facilities, beneficial ownership certificates or any other securities of other
funds or investments with similar underlying investment objectives, (ii)
multifamily real estate, including senior living facilities, manufactured
housing communities, and congregate care facilities, and (iii) entities which
engage in any activities described in clauses (i) or (ii) of this sentence;
29
invest (at any time during the term of the Company) in other assets which are
designed to accomplish any of the foregoing investment purposes or in any manner
consistent with the Company's then-existing investment criteria and objectives;
and to reinvest the proceeds of any sales by the Company of Company assets, in
any permitted investments; (b) act as a general or limited partner, member,
joint venturer, manager or shareholder of any Entity (including but not limited
to an operating partnership), and to exercise all of the powers, duties, rights
and responsibilities associated therewith; (c) take any and all actions
necessary, convenient or appropriate as the holder of any such interests or
positions; (d) operate, purchase, maintain, finance, improve, own, sell, convey,
assign, mortgage, lease, demolish or otherwise dispose of any real or personal
property that may be necessary, convenient or incidental to the accomplishment
of the purposes of the Company; (e) borrow money and issue evidences of
indebtedness in furtherance of any or all of the purposes of the Company, and
secure the same by mortgage, pledge or other lien on any assets of the Company;
(f) invest any funds of the Company pending distribution or payment of the same
pursuant to the provisions of this Agreement; (g) prepay in whole or in part,
refinance, recast, increase, modify or extend any indebtedness of the Company
and, in connection therewith, execute any extensions, renewals or modifications
of any mortgage or security agreement securing such indebtedness; (h) enter
into, perform and carry out contracts of any kind, including, without
limitation, contracts with any Person affiliated with any of the Shareholders,
necessary to, in connection with or incidental to the accomplishment of the
purposes of the Company; (i) establish reserves for capital expenditures,
working capital, debt service, taxes, assessments, insurance premiums, repairs,
improvements, depreciation, depletion, obsolescence and general maintenance of
buildings and other property out of the rents, profits or other income received;
(j) employ or otherwise engage employees, managers, contractors, advisors and
consultants, and pay reasonable compensation for such services, and enter into
employee benefit plans of any type; (k) enter into partnerships or other
ventures with other Persons in furtherance of the purposes of the Company; (l)
purchase or repurchase Shares from any Person for such consideration as the
Board of Directors may determine in its reasonable discretion (whether more or
less than the original issuance price of such Share or the then trading price of
such Share); (m) enter into rights plans or other plans relating to Shares,
options or bonuses, and to issue Shares, options or warrants thereunder (or
other derivatives relating thereto) for any consideration (even if such
consideration is less than the market value of such Shares); and (n) do such
other things and engage in such other activities as may be necessary, convenient
or advisable with respect to the conduct of the business of the Company, and
have and exercise all of the powers and rights conferred upon limited liability
companies formed pursuant to the Act.
2.8 Effectiveness of this Agreement. This Agreement shall govern the
operations of the Company and the rights and restrictions applicable to the
Shareholders, to the extent permitted by law. Pursuant to Section
18-101(7)(a)(2) of the Act, all Persons who become holders of Shares in the
Company shall be bound by the provisions of this Agreement and shall be deemed
to be parties hereto, whether or not such Persons execute a counterpart of this
Agreement. The payment for any Shares acquired by any Person, or the action of
becoming an assignee or Transferee of such Shares, shall be deemed to constitute
a request that the records of the Company reflect such admission, assignment or
Transfer, and shall be deemed to be sufficient acts to comply with the
requirements of Section 18-101(7)(a)(2) of the Act and to so cause that Person
to become a Shareholder and to bind that Person to the terms and conditions of
this Agreement (and to entitle that Person to the rights of a Shareholder
hereunder), without the requirement for execution of this Agreement by such
Person.
ARTICLE 3
Classes of Shares; Admission of Shareholders; Capitalization
3.1 Classes of Shares.
(a) The Company shall have the authority to issue the following classes and
series of Shares:
(i) shares which are designated "Common Shares"; and
(ii) one or more other classes or series of Shares, as to which the
Board of Directors shall have the exclusive authority, by
resolution or resolutions providing for the issuance of Shares or
of a particular class or series thereof, to fix and determine the
voting powers, full or limited or no voting power, and such
designations, preferences, and relative, participating, optional
or other special rights, and qualifications, limitations, or
restrictions thereof, as may be desired by the Board of Directors
from time to time, to the fullest extent now or hereafter
permitted by the laws of the State of Delaware (collectively, all
such other classes and series to be referred to as the "Future
Shares"); Nothing in this Section 3.1(a)(ii) shall be deemed to
restrict the ability of the Company to incur secured or unsecured
debt (directly or indirectly), including but not limited to
through custodial, trust or similar or other arrangements.
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(b) Each Common Share shall (i) have no stated par value per Share, and
(ii) have the rights and be governed by the provisions set forth in this
Agreement; and none of such shares shall have any preemptive rights, or give the
holders thereof any rights to convert into any other securities of the Company,
or give the holders thereof any cumulative voting rights, except as specifically
set forth herein.
(c) The Board of Directors may cause the Company to issue such numbers of
Common Shares and Future Shares from time to time as the Board of Directors may
determine in its sole discretion, and the number of such shares is not limited.
(d) If the Board of Directors determines that it is necessary or desirable
to amend this Agreement or to make any filings under the Act or otherwise in
order to reference the existence or creation of a class or series of Future
Shares, the Board of Directors may cause such amendments and filings to be made,
which filings might take the form of amendments to the Company's Certificate;
provided, however, that, unless specifically required by the Act or this
Agreement, no approval or Consent of any Shareholders shall be required in
connection with the making of any such filing, instrument or amendment.
(e) No Future Share shall have any preemptive rights or give the holder
thereof any rights to convert into any other securities of the Company, or give
any holders thereof any cumulative voting rights, unless such rights are
specifically provided for in the Board of Directors' resolution creating the
class of which such Future Share is a part.
(f) The Board of Directors, without any Consent of any Shareholders being
required, may effect a split or reverse split of Shares of any series or class,
by adopting a resolution therefor. If the Board of Directors determines that it
is necessary or desirable to make any filings under the Act or otherwise in
order to reference the existence of such a split or reverse split, the Board of
Directors may cause such filings to be made, which filings might take the form
of amendments to the Company's Certificate; provided, however, that, unless
specifically required by the Act or this Agreement, no approval or Consent of
any Shareholders shall be required in connection with the making of any such
filing or amendment.
(g) Notwithstanding any other provisions of this Agreement, the Board of
Directors may, without the consent Consent of Shareholders, amend this Agreement
to the extent required to allow the Board of Directors to exercise the powers
granted to it by this Section 3.1.
3.2 Additional Provisions Relating to Additional Shareholders. In the event
that the Board of Directors determines that additional funds are required by the
Company for any Company purpose, or that the Company should for any reason seek
to raise additional capital, the Board may cause the Company to sell Future
Shares for a price equal to what the Board of Directors determines to be the
fair value of such Shares, in exchange for cash, other property, services or any
other lawful consideration to be received by the Company in consideration of
such Shares (to be valued by the Board of Directors in its discretion), or may
cause the Company to obtain funds as a loan from any third party upon such terms
and conditions as the Board of Directors deems appropriate, or any combination
thereof from time to time. The Initial Capital Contribution of any such
additional Shareholders shall be specified by the Board of Directors at the time
of admission of such additional Shareholder.
3.3 Capital Accounts. A separate capital account (a "Capital Account") shall be
established and maintained for each Shareholder, including any Transferee or
additional Shareholder who shall hereafter acquire a Company Interest, in
accordance with the following provisions:
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(a) To each Shareholder's Capital Account there shall be credited the
amount of cash and fair market value of the property actually contributed to the
Company by such Shareholder pursuant to, such Shareholder's allocable share of
Profit, and the amount of any Company liabilities that are assumed by such
Shareholder or that are secured by any Company property distributed to such
Shareholder.
(b) To each Shareholder's Capital Account there shall be debited the amount
of cash and the fair market value of any Company property distributed to such
Shareholder pursuant to any provision of this Agreement, such Shareholder's
allocable share of Loss, and the amount of any liabilities of such Shareholder
that are assumed by the Company or that are secured by any property contributed
by such Shareholder to the Company.
(c) If any asset of the Company is distributed in kind, the Company shall
be deemed to have realized Profit or Loss thereon in the same manner as if the
Company had sold such asset for an amount equal to the greater of (i) the fair
market value of such asset, or (ii) the fair market value of any debts to which
such asset is then subject, in each case as determined by the Board of
Directors. If at any time after the date of this Agreement, the Book Value of
any Company asset is adjusted pursuant to the last sentence of the definition of
Book Value set forth in Section 1 hereof, the Capital Accounts of all
Shareholders shall be adjusted simultaneously to reflect the aggregate net
adjustments, as if the Company recognized Profit or Loss equal to the respective
amounts of such aggregate net adjustments.
(d) The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Section 1.704-1(b)(2)(iv) of the Treasury
Regulations, and shall be interpreted and applied in a manner consistent with
such Treasury Regulations.
(e) A Shareholder shall not be entitled to withdraw any part of its Capital
Account or to receive any distributions from the Company, except as provided in
Article 5 hereof, nor shall a Shareholder be entitled to make any loan or
Capital Contribution to the Company other than as expressly provided herein. No
loan made to the Company by any Shareholder shall constitute a capital
contribution to the Company for any purpose.
(f) Except as required by the Act, no Shareholder shall have any liability
for the return of the Capital Contribution of any other Shareholder. A
Shareholder who has more than one interest in the Company may have a separate
Capital Account for each different class of interest owned.
3.4 Transfer of Capital Accounts. The original Capital Account established for
each Transferee shall be in the same amount as the Capital Account of the
Shareholder which such Transferee succeeds, at the time such Transferee is
admitted to the Company. The Capital Account of any Shareholder whose Company
Interest shall be increased by means of the Transfer to it of all or part of the
Company Interest of another Shareholder shall be appropriately adjusted to
reflect such Transfer. Any reference in this Agreement to a Capital Contribution
of, or distribution to, a then-Shareholder shall include a Capital Contribution
or distribution previously made by or to any prior Shareholder on account of the
Company Interest of such then-Shareholder.
3.5 Tax Matters Partner.
(a) Shelter Development Holdings, Inc. or its assignee shall be the
Company's "tax matters partner" (as such term is defined in Section 6231(a)(7)
of the Code) (the "Tax Matters Partner"), for purposes of Section 6231 of the
Code, with all of the powers that accompany such status (except as otherwise
provided in this Agreement). Promptly following the written request of the Tax
Matters Partner, the Company shall, to the fullest extent permitted by law,
reimburse and indemnify the Tax Matters Partner for all reasonable expenses,
including reasonable legal and accounting fees, claims, liabilities, losses and
damages incurred by the Tax Matters Partner in connection with any
administrative or judicial proceeding with respect to the tax liability of the
Shareholders. The provisions of this Section 3.7 shall survive the termination
of the Company and shall remain binding on the Shareholders for as long as a
period of time as is necessary to resolve with the Internal Revenue Service any
and all matters regarding the federal income taxation of the Company or the
Shareholders.
32
(b) Notwithstanding Section 3.7(a) 3.5(a) hereof, the Tax Matters Partner
shall have no fiduciary duty whatsoever to any other Shareholder, and shall be
treated in exactly the same manner as any other Shareholder other than as
specifically provided in Section 3.5(a) hereof.
ARTICLE 4
Allocations
4.1 General Rules Concerning Allocations. Within 45 days after the end of
each calendar month, the Company shall conduct an interim closing of the books
as of the end of the last day of that calendar month. On the basis of the
closing of the books for each calendar month, the Company shall determine the
amount of Profit and Loss attributable to that calendar month. Profits and
Losses shall be determined in accordance with the accounting methods followed by
the Company for federal income tax purposes.
4.2 Allocations of Profits and Losses. All allocations to the Shareholders
of items included within the Company's Profits and Losses attributable to each
calendar month shall be allocated solely among the Shareholders recognized as
Shareholders as of the last day of that calendar month, as follows:
(a) The Company's Profit or Loss for the applicable period shall be
allocated among the Common Shareholders in proportion to their relative
ownership of Common Shares.
(b) The Tax Matters Partner is authorized to make reasonable determinations
regarding the allocation of Profit and Loss under this Section 4.2, including
determinations relating to the calculation of Profit or Loss, and such other
items of the Company's income, gain, loss, deduction and credit as may be
appropriate to carry out the intent of this Section 4.2.
4.3 Special Allocations. Notwithstanding any other provision of this
Agreement, to the extent an allocation of Profit or Loss or any item thereof to
any Shareholder pursuant to Sections 4.1 or 4.2 of this Agreement would be in
violation of the requirements of the Treasury Regulations under Section 704(b)
of the Code, the Tax Matters Partner shall comply with the requirements of such
Treasury Regulations and adjust such allocations to comply with such
requirements in a manner that will, in the reasonable judgment of the Tax
Matters Partner, have the least effect on the amounts to be allocated and
distributed under this Agreement. In the event a Shareholder unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) that causes or
increases a negative balance in a Shareholder's Capital Account, items of Profit
shall be specially allocated to such Shareholder so as to eliminate such
negative balance as quickly as possible. The Shareholders agree that if this
Section 4.3 becomes applicable, the Tax Matters Partner is authorized to review
and adjust the allocations made pursuant to Sections 4.1 or 4.2 of this
Agreement.
4.4 Additional Allocations.
(a) If there is a net decrease in "partnership minimum gain" (within the
meaning of Treasury Regulation Section 1.704-2(d)) during a taxable year, a
Shareholder shall be allocated, before any other allocation of the Company's
items for such taxable year (and if necessary, subsequent years), items of the
Company's income and gain in the amount equal to the Shareholder's share of such
net decrease in partnership minimum gain (within the meaning of Treasury
Regulations Section 1.704-2(g)).
(b) The Tax Matters Partner, in order to preserve uniformity of Shares
within a class, may, in its sole discretion, make a special allocation of items
of income, gain, loss or deduction but only if such allocations would not have a
material adverse effect on the Shareholders and if they are consistent with the
principles of Section 704 of the Code.
(c) If, and to the extent that any Shareholder is deemed to recognize
income as a result of any transaction between such Shareholder and the Company
pursuant to Sections 1272-1274, Section 7872, Section 483 or Section 482 of the
Code, or any similar provision now or hereafter in effect, any corresponding
loss or deduction of the Company shall be allocated to the Shareholder who was
charged with such income.
(d) Adjustments to the Capital Accounts of Shareholders with respect to an
adjustment to the tax basis of any asset of the Company pursuant to Section
734(b) or Section 743(b) of the Code shall be made in accordance with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(m).
33
4.5 Tax Allocations.
(a) For federal income tax purposes, except as otherwise provided in this
Section 4.5, each item of income, gain, loss and deduction of the Company shall
be allocated among the Shareholders in the same proportion as the corresponding
items are allocated pursuant to Sections 4.3 and Section 4.4 hereof.
(b) In the event that the Book Value of any asset contributed to and held
by the Company differs from its basis for federal income tax purposes ("Tax
Basis"), allocations of income, gain, loss or deduction with respect to such
asset shall, solely for tax purposes, be allocated among the Shareholders so as
to take account of any variation between Book Value and Tax Basis in accordance
with the provisions of Section 704(c) of the Code and Treasury Regulations
thereunder. The Tax Matters Partner may elect any reasonable method or methods
for making such allocations.
(c) If the Book Value of any asset of the Company is adjusted pursuant to
Section 1.15 1.11 hereof, subsequent allocations of income, gain, loss and
deductions with respect to such asset shall take into account any variation
between Book Value and Tax Basis in accordance with the provisions of Section
704(c) of the Code and Treasury Regulations thereunder.
(d) The Tax Matters Partner shall have the sole discretion to make special
allocations of items of income, gain, loss and deductions that are consistent
with the principles of Section 704(c) of the Code and to amend the provisions of
this Agreement (without Shareholder action, notwithstanding Section 14.4 of this
Agreement), as appropriate, to reflect the proposal or promulgation of Treasury
Regulations under Subchapter K of the Code. The Tax Matters Partner may adopt
and employ such methods and procedures for (A) the maintenance of capital
accounts for book and tax purposes, (B) the determination and allocation of
adjustments under Sections 704(c), 734 and 743 of the Code, (C) the
determination and allocation of taxable income, tax loss and items thereof under
this Agreement and pursuant to the Code, (D) the determination of the identities
and tax classification of Shareholders, (E) the provision of tax information and
reports to the Shareholders, (F) the adoption of reasonable conventions and
methods for the valuation of assets and the determination of tax basis, (G) the
allocation of asset values and tax basis, (H) conventions for the determination
of depreciation, cost recovery and amortization deductions and the adoption and
maintenance of accounting methods, (I) the recognition of the transfer of
Shares, and (J) for compliance and other tax-related requirements, including
without limitation, the use of computer software, to use filing and reporting
procedures similar to those employed by publicly-traded partnerships and limited
liability companies, as it determines in its sole discretion are necessary and
appropriate to execute the provisions of this Agreement and to comply with
federal and state tax law, and to achieve uniformity of Shares. The Tax Matters
Partner shall be indemnified and held harmless by the Company for any expenses,
penalties or other liabilities arising as a result of decisions made in good
faith on any of the matters referred to in the preceding sentence. If the Tax
Matters Partner determines, based on advice of counsel, that no reasonable
allowable convention or other method is available to preserve the uniformity of
Shares within a class, or the Tax Matters Partner in its discretion so elects,
Shares may be separately identified as distinct classes to reflect differences
in tax consequences.
34
ARTICLE 5
Distributions, Liquidations and Priority
5.1 Distributions. The Board of Directors may from time to time authorize
the Company to pay distributions to holders of Common Shares from cash of the
Company which the Board of Directors determines is available for distribution to
the holders of Common Shares after taking into account amounts determined by the
Board of Directors to be necessary or advisable to meet actual or anticipated
expenses or liabilities of the Company or to create reasonable reserves
therefor.
5.2 Liquidation, Dissolution or Winding-Up.
(a) Liquidation. Upon the dissolution, liquidation or winding-up of the
Company, after payment of all of the Company's creditors, each Shareholder shall
receive an amount in cash or in kind equal to the positive Capital Account
balance of such Shareholder, as determined after taking into account all Capital
Account adjustments for the taxable year of the dissolution, liquidation or
winding-up of the Company other than the distribution under this Section 5.2(a).
(b) A consolidation or merger of the Company with or into any other Entity,
or a sale, lease or exchange of any or all of the assets of the Company in
consideration for the issuance of equity securities of another Entity, shall not
be deemed to be a liquidation, dissolution or winding up of the Company.
5.3 Priority. Notwithstanding any other provision of this Agreement, it is
specifically acknowledged and agreed by each Shareholder that the Company's
failure to pay any amounts to such Shareholder, whether as a dividend,
redemption payment or other distribution, even if such payment is specifically
required hereunder, shall not give such Shareholder creditor status with regard
to such unpaid amount; but rather, such Shareholder shall be treated only as a
shareholder of whatever class such person is a Shareholder, and not as a
creditor, of the Company. This Section 5.3(b) is, as permitted by Section 18-606
of the Act, intended to override the provisions of Section 18-606 of the Act
relating to a member's status and remedies as a creditor, to the extent that
such provisions would be applicable in the absence of this Section 5.3.
5.4 Payments to Shareholders for Services. Any payments by the Company to
a Shareholder for services rendered to or on behalf of the Company shall be
treated as guaranteed payments for services under Section 707(c) of the Code.
ARTICLE 6
Shareholders
6.1 Limited Liability.
(a) Except as otherwise provided by the Act or in Section 6.1(b) hereof,
the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and the Shareholders shall not be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Shareholder of the Company. The Shareholders shall not be
required to lend any funds to the Company. Each of the Shareholders shall only
be liable to make payment of his, her or its respective contributions as and
when due hereunder and other payments as expressly provided in this Agreement.
If and to the extent a Shareholder's contribution shall be fully paid, such
Shareholder shall not, except as required by the express provisions of the Act
regarding repayment of sums wrongfully distributed to Shareholders, be required
to make any further contributions.
(b) Notwithstanding Section 6.1(a) hereof, the Special Shareholder, for so
long as such Person holds Shares (unless such Person duly resigns as a Special
Shareholder in accordance with this Section 6.1 or Section 6.3 of this
Agreement), shall have personal liability to creditors of the Company (and any
such creditor may seek personal satisfaction from the Special Shareholder), to
the extent that the assets of the Company (including without limitation the
proceeds of any and all available insurance) are insufficient to satisfy such
creditor's claim (and, if there be more than one Special Shareholder at any
time, then such Special Shareholders shall be jointly liable for all liabilities
set forth in this Section 6.1(b)); provided, however, that, notwithstanding
Section 6.3 of this Agreement, any Special Shareholder may resign its status as
a Special Shareholder after (i) the consummation of a transaction in which a
Person acquires more than 10% of the then-outstanding Shares of any class or
series where such acquisition is not consented to by the Special Shareholder, or
(ii) any Shareholder or group of Shareholders controls a majority of the seats
on the Board of Directors in any case where such control is not consented to by
the Special Shareholder. In the event of such a resignation, (x) the Special
Shareholder's personal liability under the first sentence of this Section 6.1(b)
shall, to the fullest extent permissible under law, terminate immediately,
automatically, and in full, although such Person may continue to hold Shares,
and (y) the Company shall pay to the Special Shareholder, promptly after such
resignation, the sum of $1,000,000 in direct consideration for the Special
Shareholder's prior service to the Company.
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(c) Notwithstanding Section 6.1(b) hereof, the Special Shareholder shall
have no fiduciary duty whatsoever to any other Shareholder, and shall be treated
in exactly the same manner as any other Shareholder other than as specifically
provided in Section 6.1(b) hereof. Without limiting the foregoing, it is agreed
that (i) the Special Shareholder has no responsibility to treat other
Shareholders as creditors of the Company toward which the Special Shareholder
would bear any responsibility or have any liability whatsoever (including
without limitation in the event of any Company failure to pay any amounts to
such Shareholders, whether as a dividend, redemption payment or other
distribution, even if such amounts are specifically required hereunder to be
paid), and (ii) the Special Shareholder is entitled to act solely in its own
self interests without regard to the interests of other Shareholders.
(d) Notwithstanding any other provision of this Agreement, the Dissolution
Shareholder shall have the right to serve as one (or, if there are at any time
more than ten Directors on the Board of Directors, two) of the Company's
Directors, through such representatives as are appointed by the Dissolution
Shareholder (such designated persons to be referred to as the "Specially
Appointed Director(s)") at all times and from time to time, and shall have the
sole right to remove such representative(s) as Directors; all as provided in
Section 7.2(b) of this Agreement.
6.2 Voting Rights of Shareholders; Authority of Board of Directors.
(a) The Board of Directors shall make all decisions made for and on behalf
of the Company, such decisions shall be binding upon the Company, and the
Shareholders shall have no voting rights; except, however, as expressly set
forth herein. The Board of Directors, in its sole discretion, has full, complete
and exclusive right, power and authority in the management and control of the
Company business to do any and all things necessary to effectuate the purpose of
the Company; except, however, as expressly set forth herein. The members of the
Board of Directors shall devote such time as is necessary to the affairs of the
Company, and shall receive such compensation from the Company and such
reimbursement for expenses as is permitted by the Company's By-laws as then in
effect. No Person dealing with the Board of Directors shall be required to
determine its authority to make any undertaking on behalf of the Company or to
determine any facts or circumstances bearing upon the existence of such
authority.
(b) Notwithstanding Section 6.2(a) above, but subject to Sections
10.1(a)(i) and 10.1(a)(ii), Article 12 and Article 13 hereof, in the event of a
proposed sale or other disposition of all or substantially all of the assets of
the Company at any one time, merger or consolidation of the Company (where the
Company is not the surviving Entity), dissolution of the Company, or issuance of
any restricted Share or deferred Share awards under a Company incentive share
plan, any such proposed occurrence, in order to be approved must, (i) with
respect to the merger or consolidation of the Company (where the Company is not
the surviving Entity), first receive the approval of the Board of Directors,
(ii) with respect to a sale or other disposition of all or substantially all of
the assets of the Company at any one time, or dissolution of the Company, any
such proposed action must first receive the approval of the Board of Directors,
and (iii) receive the vote, at a duly held meeting, of more than 50% in interest
of the total then issued and outstanding Shares (or, in the case of a written
Consent without a meeting, more than 50% in interest of the total then issued
and outstanding Shares), voting as one class (and not as separate classes,
notwithstanding the fact that there may be members of more than one class
voting) or such greater percentage as is then required under the Act.
(c) Notwithstanding Section 6.2(a) above, but subject to Sections 6.1(d),
7.2(a) and 7.2(b) and Articles 12 and 13 hereof, the vote, at a duly held
meeting, of more than 50% in interest of the total then issued and outstanding
Shares (or, in the case of a written Consent without a meeting, more than 50% in
interest of the total then issued and outstanding Shares), voting as one class
(and not as separate classes, notwithstanding the fact that there may be members
of more than one class voting), shall be able to remove any Director (other than
a Specially Appointed Director) and elect a replacement therefor. If the
Shareholders vote to remove a Director pursuant to this Section 6.2(c), they
shall provide the removed Director with notice thereof, which notice shall set
forth the date upon which such removal is to become effective.
(d) Except as otherwise provided in this Agreement or in any share plan or
share incentive plan adopted by the Company, the holders of Common Shares have
sole Shareholder authority;
36
(i) to vote on such matters as may be brought before the Shareholders
from time to time (on issues other than those as to which this
Agreement specifically provides for voting rights of Shareholders in
addition to or instead of holders of Common Shares);
(ii) to elect Directors, and shall do so on an annual basis;
and in all such votes on which the holders of Common Shares have sole
Shareholder voting authority, in order for the holders of Common Shares to act
to approve a matter on which they are voting, such matter must receive the vote
of more than 50% in interest of the Common Shares which are voted at a meeting
at which a quorum of Common Shares is present (or, in the case of a written
Consent without a meeting, must receive the written Consent of more than 50% in
interest of the aggregate Common Shares), voting as one class (and not as
separate classes, notwithstanding the fact that there may be members of more
than one class voting) (or such greater percentage as is then required under the
Act or under the express terms of this Agreement). For purposes of the foregoing
sentence, the term "quorum" means more than 50% of the then issued and
outstanding Common Shares, except as provided in any share plan or share
incentive plan adopted by the Company.
The annual meeting of the holders of Common Shares of the Company for the
election of Directors and for the transaction of such other business as properly
may come before such meeting shall be held in accordance with the By-laws.
Subject to the provisions of Article 13 relating to meetings of Shareholders and
related subjects, the By-laws shall govern matters relating to, among other
things, annual and special meetings, notice, waiver of notice, adjournment,
proxies, written consents, procedures, and telephonic meetings, to the extent
not inconsistent with this Agreement.
(e) Notwithstanding any other provision of this Agreement, Shareholders
have voting rights with respect to a particular matter (to the extent provided
herein with regard to categories of Shareholders permitted to vote on particular
matters, and otherwise) only after such matter has first been approved by the
Board of Directors, except with regard to (i) the removal of a Director (and the
election of a replacement therefor in connection therewith) as provided in this
Agreement, (ii) the amendment of this Agreement, (iii) the sale or other
disposition of all or substantially all of the assets of the Company at any one
time, (iv) the dissolution of the Company, and (v) any matter as to which any
share plan or share incentive plan adopted by the Company provides otherwise.
(f) For purposes of this Agreement, in order for a meeting of Shareholders
to be considered duly held with regard to a particular question, a quorum of
more than 50% in interest of the Shares which are entitled to vote at such
meeting on the particular question must be present (in person or by proxy).
6.3 Transfers of Special Shareholder Interests. The restrictions,
limitations and other provisions of this Section 6.3 shall in no manner limit or
restrict the right of a Special Shareholder to resign its status as a Special
Shareholder to the extent permitted under Section 6.1(b) of this Agreement; and,
once such Special Shareholder properly resigns pursuant thereto, the transfer
restrictions set forth in this Section 6.3 as they relate to such Special
Shareholder shall automatically and immediately terminate. Subject to the
foregoing sentence, it is agreed that:
37
(a) No Special Shareholder (a "Special Transferor") may make any Transfer
of any of its Shares to a Transferee (a "Special Transferee") unless each of the
following requirements is met:
(i) At all times during the existence of the Company, including upon
consummation of such Transfer, one or more Special Shareholders must
have, in the aggregate, at least a number of Shares which will result
in the allocation to the Special Shareholder(s), in the aggregate, of
the minimum percentage interest in the Company which will permit the
Company to retain its tax status as an association taxable as a
partnership rather than as a corporation, in the opinion of counsel to
the Company; and
(ii) Before any such Transfer can be made, the Company must be
furnished with an opinion of counsel (which may or may not be the same
counsel as is referenced in subparagraph (i) above) to the effect that
the Transfer in question will not adversely affect the Company's tax
status as an association taxable as a partnership rather than as a
corporation.
(b) No Transfer to a Special Transferee shall be recognized by the Company
unless the Board of Directors of the Company receives documentation satisfactory
to it that the requirements of this Section 6.3 have been met.
(c) If the Special Transferor transfers all of its Shares in such Transfer,
in accordance with the restrictions and requirements of Sections 6.3(a) and
6.3(b) of this Agreement, then such Special Transferor shall thereafter no
longer be a Special Shareholder. If the Special Transferor transfers fewer than
all of its Shares in such Transfer, then:
(i) if such Special Transferor makes no provision for the termination
of its status as a Special Shareholder in accordance with clause (ii)
immediately below, such Special Transferor shall continue to be a
Special Shareholder; and
(ii) if the Special Transferee agrees in writing to be a Special
Shareholder and to be subject to the liabilities of a Special
Shareholder as provided in this Agreement, then, if all of the
requirements and limitations set forth in Section 6.3(a) of this
Agreement are complied with, the Special Transferor may terminate its
status as a Special Shareholder upon notice thereof to the Company;
provided, however, that no such resignation shall be recognized by the
Company unless the Board of Directors of the Company receives
documentation satisfactory to it that the requirements of this Section
6.3(c) have been met.
6.4 Transfers of Dissolution Shareholder Interests.
(a) No Dissolution Shareholder (a "Dissolution Transferor") may make any
Transfer of any of its Shares to a Transferee (a "Dissolution Transferee")
unless each of the following requirements is met:
(i) At all times during the existence of the Company, including upon
consummation of such Transfer, one or more Dissolution Shareholders
must have, in the aggregate, at least a number of Shares which will
result in the allocation to the Dissolution Shareholder, in the
aggregate, of the minimum percentage interest in the Company which
will permit the Company to retain its tax status as an association
taxable as a partnership rather than as a corporation, in the opinion
of counsel to the Company; and
(ii) Before any such Transfer can be made, the Company must be
furnished with an opinion of counsel (which may or may not be the same
counsel as is referenced in subparagraph (i) above) to the effect that
the Transfer in question will not adversely affect the Company's tax
status as an association taxable as a partnership rather than as a
corporation.
(b) No Transfer to a Dissolution Transferee shall be recognized by the
Company unless the Board of Directors of the Company receives documentation
satisfactory to it that Section 6.4(a)'s requirements have been met.
(c) If the Dissolution Transferor transfers all of its Shares in such
Transfer, in accordance with the restrictions and requirements of Sections
6.4(a) and 6.4(b) of this Agreement, then such Dissolution Transferor shall
thereafter no longer be a Dissolution Shareholder. If the Dissolution Transferor
transfers fewer than all of its Shares in such Transfer, then:
(i) if such Dissolution Transferor makes no provision for the
termination of its status as a Dissolution Shareholder in accordance
with clause (ii) immediately below, such Dissolution Transferor shall
continue to be a Dissolution Shareholder; and
38
(ii) if the Dissolution Transferee agrees in writing to be a
Dissolution Shareholder, then, if all of the requirements and
limitations set forth in Section 6.4(a) of this Agreement are complied
with, the Dissolution Transferor may terminate its status as a
Dissolution Shareholder upon notice thereof to the Company; provided,
however, that no such resignation shall be recognized by the Company
unless the Board of Directors of the Company receives documentation
satisfactory to it that this Section 6.4(c)'s requirements have been
met.
ARTICLE 7
Directors and Officers
7.1 General Powers of Directors.
(a) Except as may otherwise be provided by the Act or by this Agreement,
the property, affairs and business of the Company shall be managed by or under
the direction of the Board of Directors, the Board of Directors may exercise all
the powers of the Company (including but not limited to deciding whether to make
various tax elections), and the Shareholders shall have no right to act on
behalf of or bind the Company. The Directors shall act only as a Board, and the
individual Directors shall have no power as such. Subject to the provisions of
this Agreement and the By-laws with regard to Board of Directors actions that
can be taken without a quorum, the approval of a matter by a majority of the
Directors present at a meeting at which a quorum is present shall constitute
approval by the Board of Directors (or, in the case of a written consent without
a meeting, the approval of a matter by all of the Directors shall constitute
approval by the Board of Directors).
(b) Unless expressly provided otherwise under this Agreement, the Board of
Directors shall have the exclusive authority to make all determinations under
this Agreement and under the By-laws.
(c) No contract or transaction among the Company and one or more of its
Affiliates, Directors or officers, or among the Company and any other Entity in
which one or more of the Company's Affiliates, Directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board of Directors or of a committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(i) The material facts as to such Affiliate's, Director's or officer's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors be
less than a quorum;
(ii) The material facts as to such Affiliate's, Director's or
officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Shareholders entitled to
vote thereon, and the contract or transaction is specifically approved
in good faith by more than 50% in interest of the Common Shares which
are present and entitled to vote at a meeting at which a quorum is
present (or, in the case of a written Consent without a meeting, more
than 50% in interest of the aggregate Common Shares), voting as one
class (and not as separate classes, notwithstanding the fact that
there may be members of more than one class voting), who are not
Affiliates of any of the interested Persons involved in such
transaction; or
(iii) The contract or transaction is fair as to the Company.
39
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Notwithstanding,the foregoing provisions of this Section 7.1(c), the Company
shall enter into or renew no agreement pursuant to which any Affiliate of any
Director would provide management services for any Property, unless such
agreement is approved by a majority of the Directors who (a) are not officers of
the Company, (b) are neither related to any Company officer nor represent
concentrated or family holdings of the Company's Shares, and (c) are, in the
view of the Board of Directors, free of any relationship that would interfere
with the exercise of independent judgment; and, if such approval is obtained in
the case of a particular contract, such approval shall be deemed to satisfy the
requirements of this Section 7.1(c).
(d) Notwithstanding the above provisions of this Section 7.1, in any
transaction in which the Company wishes to issue Shares to SCATEF or any
Affiliate of SCATEF in exchange for such Person giving up fees otherwise payable
to it, such transaction, including but not limited to the exchange ratio of
Shares for such fees, shall not be approved or undertaken by the Company unless
and until approved, in lieu of the requirements set forth in Section 7.1(c), by
a majority of the directors of the Company who are not Affiliates of SCATEF or
of any SCATEF Affiliate (even though the disinterested Directors may be less
than a quorum of the full Board of Directors), after the material facts as to
such transaction are disclosed or are known to such unaffiliated Directors.
7.2 Number and Term of Office of Directors.
(a) The number of seats constituting the entire Board of Directors shall be
at least five and no more than 15, with the exact number of seats on the Board
of Directors to be determined from time to time by resolution of the Board of
Directors. At least a majority of the Directors in office at any point in time
must be individuals who are not employed by the Company or by any Affiliate of
the Company. Each Director (whenever elected) shall hold office until his or her
successor has been duly elected and qualified, or until his or her earlier
death, resignation, or removal. A Director shall not be required to be a
Shareholder or a resident of the State of Delaware.
(b) The Specially Appointed Director(s)shall have all of the powers,
rights, privileges, obligations and duties as all other Directors, and shall for
all purposes be Directors of the Company, except that (i) the Specially
Appointed Director(s) shall not be counted when determining the total size of
the Board of Directors for the sole purpose of making the determination in
Section 7.2(c) below as to how many Directors are in each class, (ii) no
Shareholders other than the Dissolution Shareholder shall have any right to
elect, remove or replace the Specially Appointed Director(s), and, without
limiting the foregoing, the Specially Appointed Director(s) shall not stand for
election or reelection at any meeting of the holders of Common Shares. Without
limiting the foregoing, all other Shareholders, by becoming Shareholders of the
Company, agree that (I) the Dissolution Shareholder has such rights to serve,
through its appointed representatives, as the Specially Appointed Director(s)
and that the necessary one seat or two seats on the Board of Directors shall be
reserved for such appointment(s) (and the size of the Company's Board of
Directors shall automatically be expanded at any time if such expansion is
necessary in order to permit the Dissolution Shareholder to effect such
appointment(s)), and (II) the Company's officers and Directors may take any and
all steps deemed appropriate by them, in connection with Shareholder meetings or
otherwise, to implement this Section 7.2(b).
(c) Subject to Section 7.2(b) above, at all times the Board of Directors
shall be divided into three classes, as nearly equal in numbers as the then
total number of directors constituting the entire Board of Directors permits,
with the term of office of one class expiring each year (with the first such
class expiration to occur at the first annual meeting of Shareholders); and the
Board of Directors shall have sole power to make such determinations. At the
first annual meeting of the holders of Common Shares, only the Directors of the
first class shall be elected by the holders of Common Shares (in accordance with
Section 6.2 hereof), and such persons shall hold office thereafter for a term
expiring at the third succeeding annual meeting. At the second annual meeting of
Shareholders, only the Directors of the second class shall be elected by the
holders of Common Shares (in accordance with Section 6.2 hereof), and such
persons shall hold office thereafter for a term
40
expiring at the third succeeding annual meeting. At the third annual meeting of
Shareholders, only the Directors of the third class shall be elected by the
holders of Common Shares (in accordance with Section 6.2 hereof), and such
persons shall hold office thereafter for a term expiring at the third succeeding
annual meeting. At each subsequent annual meeting of Shareholders thereafter,
the successors to any class of directors whose term shall then expire shall be
elected by the holders of Common Shares (in accordance with Section 6.2 hereof)
to hold office for a term expiring at the third succeeding annual meeting.
7.3 By-law Provisions. The By-laws shall govern matters relating to, among
other things, (a) with respect to directors, annual and special meetings,
notice, waiver of notice, quorum, voting, adjournment, written consents,
committees, procedures, telephonic meetings, resignations, removals, vacancies,
books and records, reports, and compensation and reimbursement of expenses, to
the extent not inconsistent with this Agreement, (b) with respect to officers,
all matters not governed by this Agreement, and (c) employee benefit matters,
which matters shall be subject to and managed as provided by the discretion of
the Board of Directors.
ARTICLE 8
Exculpation and Indemnification
8.1 Limitations on Liability, and Indemnification of, Directors and
Officers.
(a) No director or officer of the Company shall be liable, responsible or
accountable in damages or otherwise to the Company or any of the Shareholders
for any act or omission performed or omitted by him or her, or for any decision,
except in the case of fraudulent or illegal conduct of such person. For purposes
of this Section 8.1, the fact that an action, omission to act or decision is
taken on the advice of counsel for the Company shall be evidence of good faith
and lack of fraudulent conduct.
(b) All Directors and officers of the Company shall be entitled to
indemnification from the Company for any loss, damage or claim (including any
reasonable attorney's fees incurred by such person in connection therewith) due
to any act or omission made by him or her, except in the case of fraudulent or
illegal conduct of such person; provided, that any indemnity shall be paid out
of, and to the extent of, the assets of the Company only (or any insurance
proceeds available therefor), and no Shareholder shall have any personal
liability on account thereof.
(c) The termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Person acted fraudulently or
illegally.
(d) The indemnification provided by this Section 8.1 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any agreement, vote of Shareholders or Directors, or otherwise, and shall inure
to the benefit of the heirs, executors and administrators of such a person.
(e) Any repeal or modification of this Section 8.1 shall not adversely
affect any right or protection of a Director or officer of the Company existing
at the time of such repeal or modification.
(f) The Company may, if the Board of Directors of the Company deems it
appropriate in its sole discretion, obtain insurance for the benefit of the
Company's Directors and officers, relating to the liability of such persons.
ARTICLE 9
Transfers of Interests; Admission of New Shareholders
41
9.1 Transfers. Subject to Section 6.3 of this Agreement (relating to
Special Shareholders) and Section 6.4 of this Agreement (relating to Dissolution
Shareholders), the Shares shall be freely transferable; and any Person who is a
Transferee of Shares shall, by having such status, (a) automatically become a
Shareholder of the Company with no further action being required on such
Person's part, and (b) automatically be bound to the terms and conditions of
this Agreement (and be entitled to the rights of a Shareholder hereunder),
without the requirement for execution of this Agreement by such Person. Certain
mechanical aspects of the transfer of Shares shall be set forth in the By-laws.
ARTICLE 10
Dissolution and Termination
10.1 Events of Dissolution.
(a) In accordance with Section 18-801 of the Act, and the provisions
therein permitting this Agreement to specify the events of the Company's
dissolution, the Company shall be dissolved and the affairs of the Company wound
up upon the occurrence of any of the following events:
(i) a unanimous written decision of all of the Original Shareholders
who are then still Shareholders to dissolve the Company;
(ii) the death, retirement, resignation, expulsion, bankruptcy (as
defined in Section 18-304 of the Act) or dissolution of a Person who
is then a Dissolution Shareholder, or the occurrence of any other
event that terminates the continued membership in the Company of a
Person who is then a Dissolution Shareholder, unless more than 50% in
interest of the then-outstanding Shares votes, at a duly held meeting
(or, in the case of a written Consent without a meeting, more than 50%
in interest of the aggregate Shares acts), within 180 days of such
event to continue the Company; or
(iii) the vote of the Shareholders pursuant to Section 6.2(b) hereof.
The death, retirement, resignation, expulsion, bankruptcy (as defined in Section
18-304 of the Act) or dissolution of a Shareholder or the occurrence of any
other event that terminates the continued membership of a Shareholder in the
Company, shall not cause the dissolution of the Company except to the extent
specified above in this Section 10.1(a).
(b) Dissolution of the Company shall be effective on the day on which the
event occurs giving rise to the dissolution, but the Company shall not terminate
until the assets of the Company shall have been distributed as provided herein
and a certificate of cancellation of the Certificate has been filed with the
Secretary of State of the State of Delaware.
10.2 Application of Assets. In the event of dissolution, the Company shall
conduct only such activities as are necessary to wind up its affairs (including
the sale of the assets of the Company in an orderly manner), and the assets of
the Company shall be applied, first, as required by Section 18-804(a)(1) of the
Act, and then in the manner, and in the order of priority, set forth in Article
5.
10.3 Gain or Losses in Process of Liquidation. Any gain or loss or
disposition of Company property in the process of liquidation shall be credited
or charged to the Capital Accounts of Shareholders in accordance with the
provisions of Article 3. Any property distributed in kind in the liquidation
shall be valued and treated as though the property were sold at its fair market
value and the cash proceeds were distributed. The difference between the fair
market value of property distributed in kind and its Book Value shall be treated
as a gain or loss on the sale of such property and shall be credited or charged
to the Capital Account of Shareholders in accordance with Article 3; provided,
that no Shareholder shall have the right to request or require the distribution
of the assets of the Company in kind.
10.4 Procedural and Other Matters.
42
(a) Upon dissolution of the Company and until the filing of a certificate
of cancellation as provided in Section 10.4(b), the Persons winding up the
affairs of the Company may, in the name of, and for and on behalf of, the
Company, prosecute and defend suits, whether civil, criminal or administrative,
gradually settle and close the business of the Company, dispose of and convey
the property of the Company, discharge or make reasonable provision for the
liabilities of the Company, and distribute to the members any remaining assets
of the Company, in accordance with this Article 10 and all without affecting the
liability of Shareholders and Directors and without imposing liability on a
liquidating trustee.
(b) The Certificate may be canceled upon the dissolution and the completion
of winding up of the Company, by any Person authorized to cause such
cancellation in connection with such dissolution and winding up.
ARTICLE 11
Appointment of Attorney-in-Fact
11.1 Appointment and Powers.
(a) Each Shareholder hereby irrevocably constitutes and appoints the
Company's chief executive officer, with full power of substitution, as his, her
or its true and lawful attorney-in-fact, with full power and authority in his,
her or its name, place and stead to execute, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents, instruments
and conveyances as may be necessary or appropriate to carry out the provisions
or purposes of this Agreement, including, without limitation, the following: (i)
the Certificate; (ii) all other certificates and instruments and amendments
thereto that the Board of Directors deems appropriate to qualify or continue the
Company as a limited liability company in the jurisdiction in which the Company
may conduct business; (iii) all instruments that the Board of Directors deems
appropriate to reflect a change or modification of the Company in accordance
with the terms of this Agreement; (iv) all conveyances and other instruments
that the Board of Directors deems appropriate to reflect the dissolution and
termination of the Company; (v) all fictitious or assumed name certificates
required or permitted to be filed on behalf of the Company; (vi) any and all
documents necessary to admit Shareholders to the Company, or to reflect any
change or transfer of a Shareholder's Company Interest, or relating to the
admission or increased Capital Contribution of a Shareholder; (vii) any
amendment or other document to be filed as referenced in Section 3.1(d) or
3.1(f) of this Agreement; and (viii) all other instruments that may be required
or permitted by law to be filed on behalf of or relating to the Company and that
are not inconsistent with this Agreement.
(b) The authority granted by this Section 11.1 (i) is a special power of
attorney coupled with an interest, is irrevocable, and shall not be affected by
the subsequent incapacity or disability of the Shareholder; (ii) may be
exercised by a signature for each Shareholder or by listing the names of all of
the Shareholders executing this Agreement with a single signature of any such
Person acting as attorney-in-fact for all of them; and (iii) shall survive the
Transfer by a Shareholder of the whole or any portion of his, her or its Company
Interest.
11.2 Presumption of Authority. Any Person dealing with the Company may
conclusively presume and rely upon the fact that any instrument referred to
above, executed by such Person acting as attorney-in-fact, is authorized,
regular and binding, without further inquiry.
43
ARTICLE 12
Certain Provisions Relating to
Changes in Control and Business Combinations
12.1 Definitions. For purposes of this Article 12, the following
definitions shall apply:
"Associate" when used to indicate a relationship with any Person,
means:
(a) Any Entity (other than the Company or a Subsidiary of the Company) of
which such Person is an officer, director or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities of such Entity;
(b) Any trust or other estate in which such Person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and
(c) Any Relative of such Person, or any Relative of a spouse of such
Person, who has the same home as such Person or who is a Director or officer of
the Company or a manager, director or officer of any of its Affiliates.
"Beneficial Owner" when used with respect to Company Interests, means a
Person:
(a) That, individually or with any of its Affiliates or Associates,
beneficially owns Company Interests, directly or indirectly; or
(b) That, individually or with any of its Affiliates or Associates, has (i)
the right to acquire Company Interests (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise; or (ii) the right to vote
Company Interests pursuant to any agreement, arrangement or understanding; or
(c) That has any agreement, arrangement, or understanding for the purpose
of acquiring, holding, voting, or disposing of Company Interests with any other
Person that beneficially owns, or whose Affiliates or Associates beneficially
own, directly or indirectly, such Company Interests.
"Business Combination" means:
(a) Unless the merger, consolidation or exchange of Company Interests does
not alter the contract rights of the Company Interests as expressly set forth in
this Agreement or change or convert in whole or in part the outstanding Company
Interests, any merger, consolidation or exchange of Company Interests or any
Subsidiary with (i) any Interested Party or (ii) any other Entity (whether or
not itself an Interested Party) which is, or after the merger, consolidation or
exchange of interests would be, an Affiliate of an Interested Party that was an
Interested Party prior to the transaction;
(b) Any sale, lease, transfer or other disposition, other than in the
ordinary course of business or pursuant to a distribution or any other method
affording substantially proportionate treatment to the Shareholders, in one
transaction or a series of transactions in any 12-month period, to any
Interested Party or any Affiliate of any Interested Party (other than the
Company or any of its Subsidiaries) of any assets of the Company or any
Subsidiary having, measured at the time the transaction or transactions are
approved by the Board of Directors of the Company, an aggregate book value as of
the end of the Company's most recently ended fiscal quarter of 10 percent or
more of the total market value of the outstanding Company Interests or of its
net worth as of the end of its most recently ended fiscal quarter;
(c) The issuance or transfer by the Company or any Subsidiary, in one
transaction or a series of transactions, of any Company Interests or any equity
securities of a Subsidiary which have an aggregate market value of five percent
or more of the total market value of the outstanding Company Interests to any
Interested Party or any Affiliate of any Interested Party (other than the
Company or any of its Subsidiaries) except pursuant to the exercise of warrants
or rights to purchase securities pro-rata to all Shareholders or any other
method affording substantially proportionate treatment to those Shareholders;
(d) The adoption of any plan or proposal for the liquidation or dissolution
of the Company in which anything other than cash will be received by an
Interested Party or any Affiliate of any Interested Party;
(e) Any reclassification of securities or recapitalization of the Company,
or any merger, consolidation or exchange of Company Interests with any of its
Subsidiaries which has the effect, directly or indirectly, in one transaction or
series of transactions, of increasing by five percent or more of the total
number of outstanding Company Interests, the proportionate
44
amount of the outstanding Company Interests or the outstanding number of any
class of equity securities of any Subsidiary which is directly or indirectly
owned by any Interested Party or any Affiliate of any Interested Party; or
(f) The receipt by any Interested Party or any Affiliate of any
Interested Party (other than the Company or any of its Subsidiaries) of the
benefit, directly or indirectly (except proportionately as a holder of
Company Interests), of any loan, advance, guarantee, pledge or other
financial assistance or any tax credit or other tax advantage provided by
the Company or any of its Subsidiaries.
"Interested Party" means any Person (other than (i) the Company, (ii) any
subsidiary of the Company, (iii) the General Partners, the Special Shareholder,
the Original Shareholders, and the Dissolution Shareholder, and (iv) any
Affiliate or Associate of any Person described in clause (iii) above) that:
(a) Is the beneficial owner, directly or indirectly, of 10 percent or
more of the outstanding Company Interests;
(b) Is an Affiliate or Associate of the Company and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10 percent or more of the then
outstanding Company Interests; or
(c) Is an Affiliate or Associate of (a) or (b).
For purposes of determining whether a Person is an Interested Party, the number
of Company Interests deemed to be outstanding shall include Company Interests
deemed beneficially owned by the Person through the definition of Beneficial
Ownership set forth above but may shall not include any other Company Interests
which may be issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or otherwise.
"Market Value" means:
(a) In the case of Company Interests, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
Company Interest of the same class or series on the composite tape of the
New York Stock Exchange-listed stocks, or, if such Company Interest of the
same class or series is not quoted on the composite tape, on the New York
Stock Exchange, or if such Company Interest of the same class or series is
not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which the
Company Interest of the same class or series is listed, or, if the Company
Interest of the same class or series is not listed on any such exchange,
the highest closing bid quotation with respect to such a Company Interest
of the same class or series during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. automated
quotations system or any system then in use, or, if no such quotations are
available, the fair market value on the date in question of such a Company
Interest of the same class or series as determined by the Board of
Directors in good faith; and
(b) In the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board
of Directors in good faith.
"Subsidiary" means any Person (other than an individual) in which the
Company, directly or indirectly, holds a majority of the voting securities.
12.2 Business Combinations.
(a) Unless an exemption under Section 12.3(c) applies, the Company may not
engage in any Business Combination with any Interested Party or any Affiliate of
an Interested Party for a period of five years following the most recent date on
which such Interested Party became an Interested Party (the "Five Year Tolling
Period"), unless:
(i) in addition to any vote otherwise required by law or this
Agreement, the Board of Directors of the Company, prior to the most
recent date upon which the Interested Party became an Interested
Party, approved either the Business Combination or the transaction
which resulted in the Interested Party becoming an Interested Party;
or
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(ii) on or subsequent to the date upon which the Interested Party
became an Interested Party, the Business Combination is (A) approved
by at least two-thirds of the persons who are then members of the
Board of Directors and (B) authorized at an annual or special meeting
of the Shareholders (and not by written consent) by the affirmative
vote of at least two-thirds in interest of the Shareholders, excluding
the Company Interests held by an Interested Party who will (or whose
Affiliate will be) a party to the Business Combination or by an
Affiliate or Associate of that Interested Party, voting together as a
single class.
(b) Unless an exemption under Section 12.3 applies, in addition to any vote
otherwise required by law or this Agreement, a Business Combination proposed by
an Interested Party or an Affiliate of the Interested Party after the Five Year
Tolling Period shall be permitted only if recommended by the Board of Directors
who are present at a duly-called meeting at which a quorum is present and
approved by the affirmative vote of at least:
(i) 80% in interest of all Shareholders, voting together as a single
voting group; and
(ii) Two-thirds in interest of the Shareholders, excluding Company
Interests held by an Interested Party who will (or whose Affiliate
will) be a party to the Business Combination or by an Affiliate or
Associate of the Interested Party, voting together as a single voting
group.
12.3 Exemptions.
(a) For purposes of this Section 12.3:
"Announcement Date" means the first general public announcement of the
proposal or intention to make a proposal of the Business Combination or its
first communication generally to the Shareholders, whichever is earlier;
"Determination Date" means the most recent date on which the Interested
Party became an Interested Party; and
"Valuation Date" means:
(i) For a Business Combination voted upon by the Shareholders, the
latter of the day prior to the date of the vote or the day 20 days
prior to the consummation of the Business Combination; and
(ii) For a Business Combination not voted upon by the Shareholders,
the date of the consummation of the Business Combination.
(b) The vote required by Section 12.2(b) does not apply to a Business
Combination if (1) the Business Combination or the transaction which resulted in
the Interested Party becoming an Interested Party shall have been approved by
the Board of Directors prior to the Determination Date or (2) each of the
conditions in items (i) through (iii) below is met:
(i) The aggregate amount of the cash and the market value as of the
Valuation Date of consideration other than cash to be received for
each Company Interest in such Business Combination (whether or not the
Interested Party has previously acquired the particular class or
series of Company Interest in question) is at least equal to the
highest of the following:
(A) The highest per Company Interest price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Party for any Company Interests of
the same class or series acquired by it within the five-year
period immediately prior to the Announcement Date of the proposal
of the Business Combination, plus an amount equal to interest
compounded annually from the earliest date on which the highest
per Company Interest acquisition price was paid (for the same
class or series) through the Valuation Date at the rate for
one-year United States Treasury obligations from time to time in
effect, less the aggregate amount of any cash distributions paid
and the market value of any distributions paid in other than
cash, per Company Interest (for the same class or series) from
the earliest date through the Valuation Date, up to the amount of
the interest; or
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(B) The highest per Company Interest price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Party for any Company Interest of
the same class or series acquired by it on, or within the
five-year period immediately before, the Determination Date, plus
an amount equal to interest compounded annually from the earliest
date on which the highest per Company Interest acquisition price
was paid for the same class or series through the valuation Date
at the rate for one-year United States Treasury obligations from
time to time in effect, less the aggregate amount of any cash
distributions paid and the market value of any distributions paid
in other than cash, per Company Interest of the same class or
series from the earliest date through the Valuation Date, up to
the amount of the interest; or
(C) The highest preferential amount per Company Interest to which
the holders of Company Interests of such class or series are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company; or
(D) The Market Value per Company Interest of the same class or
series on the Announcement Date, plus an amount equal to interest
compounded annually from that date through the Valuation Date at
the rate for one-year United States Treasury obligations from
time to time in effect, less the aggregate amount of any cash
distributions paid and the market value of any distributions paid
in other than cash, per Company Interest of the same class or
series from that date through the Valuation Date, up to the
amount of interest; or
(E) The Market Value per Company Interest of the same class or
series on the Determination Date, plus an amount equal to
interest compounded annually from that date through the Valuation
Date at the rate for one-year United States Treasury obligations
from time to time in effect, less the aggregate amount of any
cash distributions paid and the Market Value of any distributions
paid in other than cash, per Company Interest of the same class
or series from that date through the Valuation Date, up to the
amount of the interest; or
(F) The price per Company Interest equal to the Market Value per
Company Interest of the same class or series on the Announcement
Date or on the Determination Date, whichever is higher,
multiplied by the fraction of:
(1) The highest per Company Interest price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Party for any Company
Interests of the same class or series acquired by it within
the five-year period immediately prior to the Announcement
Date, over
(2) The Market Value per Company Interest of the same class
or series on the first day in such five-year period on which
the Interested Party acquired the Company Interests.
(ii) The consideration to be received by the holders of any Company
Interests is to be in cash or in the same form as the Interested Party
has previously paid for Company Interests, except to the extent that
the Shareholders otherwise elect in connection with their approval of
the proposed transaction under Section 6.2 of this Agreement. If the
Interested Party has paid for Company Interests with varying forms of
consideration, the form of consideration for such Company Interests of
the same class or series shall be either cash or the form used to
acquire the largest number of Company Interests of the same class or
series previously acquired by it, except to the extent that the
Shareholders otherwise elect.
(iii) After the Determination Date and prior to the consummation of
such Business Combination:
(A) There shall have been no failure to declare and pay at the
regular date therefor (if applicable) any full periodic
distributions (whether or not cumulative) on any outstanding
Company Interests or other securities of the Company;
(B) There shall have been:
(1) No reduction in the annual rate of distributions
made with respect to any class or series of Company
Interests (except as necessary to reflect any subdivision
of Company Interests); and
47
(2) An increase in such annual rate of distributions
as necessary to reflect any reclassification,
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding Company Interests; and
(C) The Interested Party did not become the Beneficial Owner of
any additional Company Interests except as part of the
transaction which resulted in such Interested Party becoming an
Interested Party or by virtue of proportionate Company Interest
splits or distributions.
The provisions of items (A) and (B) of this subsection (b)(iii) do not apply if
no Interested Party or an Affiliate or Associate of the Interested Party voted
as a member of the Board of Directors of the Company in a manner inconsistent
with such items (A) and (B) and the Interested Party, within 10 days after any
act or failure to act inconsistent with such items, notifies the Board of
Directors of the Company in writing that the Interested Party disapproves
thereof and requests in good faith that the Board of Directors rectify such act
or failure to act.
(c) The provisions of Section 12.2 do not apply to any Business Combination
of the Company with an Interested Party that became an Interested Party
inadvertently, if the Interested Party:
(i) As soon as practicable (but not more than 10 days after the
Interested Party knew or should have known it had become an Interested
Party) divests itself of a sufficient amount of Company Interests so
that it no longer is the beneficial owner, directly or indirectly, of
10 percent or more of the outstanding Company Interests; and
(ii) Would not at any time with the five-year period preceding the
Announcement Date with respect to the Business Combination have been
an Interested Party except by inadvertence.
12.4 Amendment. Notwithstanding any other provisions of this Agreement,
this Article 12 may be amended or repealed only by a vote of 80% in interest of
all Shareholders, voting together as a single class, excluding Company Interests
held by any Interested Party or any Affiliate of an Interested Party.
12.5 Certain Determinations with Respect to this Article 12. The Board of
Directors shall have the power to determine for the purposes of this Article 12,
on the basis of information known to the Directors: (i) the number of Company
Interests of which any Person is the Beneficial Owner, (ii) whether a Person is
an Affiliate or Associate of another, (iii) whether a Person has an agreement,
arrangement or understanding with another as to the matters referred to in the
definition of "Beneficial Owner" as hereinabove defined, (iv) whether two or
more transactions constitute a "series of transactions," and (v) such other
matters with respect to which a determination is required under this Article 12.
ARTICLE 13
Voting Rights of Certain Control Company Interests
13.1 Definitions. For purposes of this Article 13, the following
definitions shall apply:
"Acquiring Person" means a person who makes or proposes to make a Control
Company Interests Acquisition, or such Person's Affiliate or Associate.
"Associate" when used to indicate a relationship with any Person means:
(a) An "Associate" as defined in Section 12.1; or
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(b) A Person that:
(i) Directly or indirectly controls, or is controlled by, or is under
common control with, the Person specified; or
(ii) Is acting or intends to act jointly or in concert with the Person
specified.
"Control Company Interests" means those Company Interests that, except for
this Article 13, would, if aggregated with all other Company Interests
(including Company Interests the acquisition of which is excluded from the
definition "Control Company Interests Acquisition" below) owned by a Person or
in respect of which that Person is entitled to exercise or direct the exercise
of voting power, except solely by virtue of a revocable proxy, entitle that
Person, directly or indirectly, to exercise or direct the exercise of the voting
power of any class or series of Company Interests within any of the following
ranges of voting power:
(a) One-fifth or more, but less than one-third of all voting power;
(b) One-third or more, but less than a majority of all voting power;
or
(c) A majority or more of all voting power.
"Control Company Interests" includes Company Interests only to the extent that
the Acquiring Person, following the acquisition of the Company Interests, is
entitled, directly or indirectly, to exercise or direct the exercise of voting
power within any level of voting power set forth in this section for which
approval has not been obtained previously under Section 13.2.
"Control Company Interests Acquisition" means the acquisition, directly or
indirectly, by any Person (other than (i) the Company, (ii) any subsidiary of
the Company, (iii) the General Partners, the Special Shareholder, the Original
Shareholders, and the Dissolution Shareholder, and (iv) any Affiliate or
Associate of any Person described in clause (iii) above), of ownership of, or
the power to direct the exercise of voting power with respect to, issued and
outstanding Control Company Interests. Control Company Interests Acquisition
does not include the acquisition of Control Company Interests:
(a) Under the laws of descent and distribution;
(b) Under the satisfaction of a pledge or other security interest created
in good faith and not for the purpose of circumventing this Article 13; or
(c) Under a merger, consolidation or exchange of interests if the Company
is a party to the merger, consolidation or exchange of interests.
Unless the acquisition entitles any Person, directly or indirectly, to exercise
or direct the exercise of voting power of Company Interests in excess of the
range of voting power previously authorized or attained under an acquisition
that is exempt under items (a), (b) or (c) of this definition, "Control Company
Interests Acquisition" does not include the acquisition of Company Interests in
good faith and not for the purpose of circumventing this Article 13, by or from
any Person whose voting rights have previously been authorized by the
Shareholders in compliance with this Article 13 or any Person whose previous
acquisition of Company Interests would have constituted a Control Company
Interests Acquisition but for the exclusions in items (a) through (c) of this
definition.
"Interested Company Interests" means Company Interests in respect of which
an Acquiring Person is entitled to exercise or direct the exercise of the voting
power of Company Interests in the election of Directors or otherwise.
13.2 Voting Rights.
(a) Control Company Interests acquired in a Control Company Interests
Acquisition have no voting rights except to the extent approved by the
Shareholders at a meeting held under Section 13.4 by the affirmative vote of
two-thirds in interest of all Shareholders, excluding any votes cast with
respect to Interested Company Interests.
(b) For purposes of this Section 13.2:
49
(i) Company Interests acquired within 180 days or Company Interests
acquired under a plan to make a Control Company Interests Acquisition are
considered to have been acquired in the same acquisition; and
(ii) A Person may not be deemed to be entitled to exercise or direct the
exercise of voting power with respect to Company Interests held for the
benefit of others if the Person:
(A) Is acting in the ordinary course of business, in good faith and
not for the purpose of circumventing the provisions of this
Section of the Agreement; and
(B) Is not entitled to exercise or to direct the exercise of the
voting power of the Company Interests unless the Person first
seeks to obtain the instruction of another person.
13.3 Acquiring Person Statement. Any Person who proposes to make or who
has made a Control Company Interests Acquisition may deliver an Acquiring Person
statement to the Company at the Company's principal office. The Acquiring Person
statement shall set forth all of the following:
(a) The identity of the Acquiring Person and each other member of any group
of which the Person is a part for purposes of determining Control Company
Interests;
(b) A statement that the Acquiring Person statement is given under this
Article 13;
(c) The number of Company Interests owned (directly or indirectly) by the
Acquiring Person and each other member of any group;
(d) The applicable range of voting power as set forth in the definition of
"Control Company Interests"; and
(e) If the Control Company Interests Acquisition has not occurred:
(i) A description in reasonable detail of the terms of the proposed
Control Company Interests Acquisition; and
(ii) Representations of the Acquiring Person, together with a
statement in reasonable detail of the facts on which they are based,
that:
(A) The proposed Control Company Interests Acquisition, if
consummated, will not be contrary to law; and
(B) The Acquiring Person has the financial capacity, through
financing to be provided by the Acquiring Person, and any
additional specified sources of financing required under
Section 13.5, to make the proposed Control Company Interests
Acquisition.
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13.4 Special Meeting.
(a) Except as provided in Section 13.5, if the Acquiring Person requests,
at the time of delivery of an Acquiring Person statement, and gives a written
undertaking to pay the Company's expenses of a special meeting, except the
expenses of opposing approval of the voting rights, within ten days after the
day on which the Company receives both the request and undertaking, the Board of
Directors of the Company shall call a special meeting of the Shareholders, to be
held within 50 days after receipt of the Acquiring Person statement and
undertaking, for the purpose of considering the voting rights to be accorded the
Company Interests acquired or to be acquired in the Control Company Interests
Acquisition.
(b) The Board of Directors may require the Acquiring Person to give bond,
with sufficient surety, to reasonably assure the Company that this undertaking
will be satisfied.
(c) Unless the Acquiring Person agrees in writing to another date, the
special meeting of Shareholders shall be held within 50 days after the day on
which the Company has received both the request and the undertaking.
(d) If the Acquiring Person makes a request in writing at the time of
delivery of the Acquiring Person statement, the special meeting may not be held
sooner than 30 days after the day on which the Company receives the Acquiring
Person statement.
(e) If no request is made under subsection (a) of this Section 13.4, the
issue of the voting rights to be accorded the Company Interests acquired in the
Control Company Interests Acquisition may, at the option of the Company, be
presented for consideration at any meeting of the Shareholders. If no request is
made under subsection (a) of this Section 13.4 and the Company proposes to
present the issue of the voting rights to be accorded the Company Interests
acquired in a Control Company Interests Acquisition for consideration at any
meeting of the Shareholders, the Company shall provide the Acquiring Person with
written notice of the proposal not less than 20 days before the date on which
notice of the meeting is given.
13.5 Calls.
(a) A call of a special meeting of Shareholders is not required to be made
under Section 13.4 unless, at the time of delivery of an Acquiring Person
statement under Section 13.3, the Acquiring Person has:
(i) Entered into a definitive financing agreement or agreements with
one or more responsible financial institutions or other entities that
have the necessary financial capacity, providing for any amount of
financing of the Control Company Interests Acquisition not to be
provided by the Acquiring Person; and
(ii) Delivered a copy of the agreements to the Company.
13.6 Notice of Meeting.
(a) If a special meeting of the Shareholders is requested, notice of the
special meeting shall be given as promptly as reasonably practicable by the
Company to all Shareholders of record as of the record date set for the meeting,
whether or not the Shareholder is entitled to vote at the meeting.
(b) Notice of the special or annual meeting at which the voting rights are
to be considered shall include or be accompanied by the following:
(i) A copy of the Acquiring Person statement delivered to the Company
under Section 13.3; and
(ii) A statement by the Board of Directors setting forth its position
or recommendation, or stating that it is taking no position or making
no recommendation, with respect to the issue of voting rights to be
accorded the Control Company Interests.
13.7 Redemption Rights.
(a) If an Acquiring Person statement has been delivered on or before the
10th day after the Control Company Interests Acquisition, the Company may, at
its option, redeem any or all Control Company Interests, except Control Company
Interests
51
for which voting rights have been previously approved under Section 13.2, at any
time during a 60-day period commencing on the day of a meeting at which voting
rights are considered under Section 13.4 and are not approved.
(b) In addition to the redemption rights authorized under subsection (a) of
this Section 13.7, if an Acquiring Person statement has not been delivered on or
before the 10th day after the Control Company Interests Acquisition, the Company
may, at its option, redeem any or all Control Company Interests, except Control
Company Interests for which voting rights have been previously approved under
Section 13.2, at any time during a period commencing on the 11th day after the
Control Company Interests Acquisition and ending 60 days after the acquiring
person statement has been delivered.
(c) Any redemption of Control Company Interests under this Section shall be
at the fair value of the Company Interests. For purposes of this section, "fair
value" shall be determined:
(i) As of the date of the last acquisition of Control Company
Interests by the Acquiring Person in a Control Company Interests
Acquisition or, if a meeting is held under Section 13.4, as of the
date of the meeting; and
(ii) Without regard to the absence of voting rights for the Control
Company Interests.
13.8 Amendment. Notwithstanding any other provisions of this Agreement,
this Article 13 may only be amended or repealed by a vote of 80% in interest of
all Shareholders, voting together as a single class, excluding any votes cast
with respect to Interested Company Interests.
ARTICLE 14
Miscellaneous Provisions
14.1 Notices.
(a) Except as otherwise provided in this Agreement or in the By-laws, any
and all notices, consents, offers, elections and other communications required
or permitted under this Agreement shall be deemed adequately given only if in
writing and the same shall be delivered either in hand, by telecopy, or by mail
or Federal Express or similar expedited commercial carrier, addressed to the
recipient of the notice, postage prepaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices, demands, and requests to be sent hereunder shall be deemed
to have been given for all purposes of this Agreement upon the date of receipt
or refusal.
(c) All such notices, demands and requests shall be addressed as follows:
(i) if to the Company, to its principal place of business, as set forth in
Article 2 hereof and (ii) if to a Shareholder, to the address of such
Shareholder listed on the Company's Shareholder register.
(d) By giving to the other parties written notice thereof, the parties
hereto and their respective successors and assigns shall have the right from
time to time and at any time during the term of this Agreement to change their
respective addresses effective upon receipt by the other parties of such notice
and each shall have the right to specify as its address any other address.
14.2 Word Meanings. The words such as "herein", "hereinafter", "hereof"
and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall
52
include the plural and the masculine gender shall include the feminine and
neuter, and vice versa, unless the context otherwise requires.
14.3 Binding Provisions. The covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, the heirs, legal
representatives, successors and assigns of the respective parties hereto.
14.4 Amendment and Modification. Unless otherwise specifically provided in
this Agreement, this Agreement may be amended, modified or supplemented only by
the vote, at a duly held meeting, of more than 50% in interest of the
then-outstanding Common Shares (or, in the case of a written Consent without a
meeting, more than 50% in interest of the aggregate then-outstanding Common
Shares), voting or acting as one class (and not as separate classes,
notwithstanding the fact that there may be members of more than one class
voting); provided, however, that Section 8.1 shall not be amended, modified or
supplemented, unless such amendment, modification or supplement receives the
Consent of at least 80% in interest of the holders of then-outstanding Common
Shares.
14.5 Waiver. The waiver by any party hereto of a breach of any provisions
contained herein shall be in writing, signed by the waiving party, and shall in
no way be construed as a waiver of any succeeding breach of such provision or
the waiver of the provision itself.
14.6 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to such
state's laws concerning conflicts of laws. In the event of a conflict between
any provision of this Agreement and any nonmandatory provision of the Act, the
provision of this Agreement shall control and take precedence.
14.7 Separability of Provisions. Each provision of this Agreement shall be
deemed severable, and if any part of any provision is held to be illegal, void,
voidable, invalid, nonbinding or unenforceable in its entirety or partially or
as to any party, for any reason, such provision may be changed, consistent with
the intent of the parties hereto, to the extent reasonably necessary to make the
provision, as so changed, legal, valid, binding and enforceable. If any
provision of this Agreement is held to be illegal, void, voidable, invalid,
nonbinding or unenforceable in its entirety or partially or as to any party, for
any reason, and if such provision cannot be changed consistent with the intent
of the parties hereto to make it fully legal, valid, binding and enforceable,
then such provision shall be stricken from this Agreement, and the remaining
provisions of this Agreement shall not in any way be affected or impaired, but
shall remain in full force and effect.
14.8 Headings. The headings contained in this Agreement (including but not
limited to the titles of the Schedules and Exhibits hereto) have been inserted
for the convenience of reference only, and neither such headings nor the
placement of any term hereof under any particular heading shall in any way
restrict or modify any of the terms or provisions hereof.
14.9 Further Assurances. The Shareholders shall execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
14.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
14.11 Entire Agreement. This Agreement, and all Schedules and Exhibits
hereto, constitutes the entire agreement between the parties hereto with respect
to the transactions contemplated herein, and supersedes all prior understandings
or agreements, oral or written, between the parties.
53
IN WITNESS WHEREOF, the undersigned, being the Chairman and Chief Executive
Officer and the President of the Company, respectively, have executed and
delivered this Amended and Restated Certificate of Formation and Operating
Agreement on behalf of the Shareholders who have duly approved this Agreement as
required by Section 14.4 as of the day and year first-above written.
By:
----------------------------------------
Name: Mark K. Joseph
Title: Chairman and Chief Executive Officer
By:
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Name: Michael L. Falcone
Title: President