SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTERMAC
----------
(Exact name of Registrant as specified in its Trust Agreement)
Delaware 13-3949418
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 317-5700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
----- -----
As of October 29, 2004, 57,680,798 shares of the Registrant's shares of
beneficial interest were outstanding.
ITEM 1. FINANCIAL STATEMENTS
CHARTERMAC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS
Revenue bonds - at fair value $ 2,024,157 $ 1,871,009
Cash and cash equivalents 57,697 58,257
Cash and cash equivalents - restricted 25,672 26,636
Other investments 162,966 48,460
Mortgage servicing rights 33,031 33,351
Deferred costs - net of amortization of $18,343 and $13,463 59,789 58,408
Goodwill 207,667 214,744
Other intangible assets - net of amortization of $16,674
and $4,163 181,692 194,203
Loan to affiliate 15,361 --
Other assets 47,959 75,946
Investments in partnerships of consolidated VIEs 2,394,398 --
Other assets of consolidated VIEs 302,682 --
----------- -----------
Total assets $ 5,513,071 $ 2,581,014
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Financing arrangements $ 973,663 $ 900,008
Preferred shares of subsidiary (subject to mandatory
repurchase) 273,500 273,500
Notes payable 176,737 153,350
Accounts payable, accrued expenses and other liabilities 82,073 56,318
Deferred tax liability 39,348 60,370
Distributions payable 38,569 27,612
Notes payable and other liabilities of consolidated VIEs 1,225,523 --
----------- -----------
Total liabilities 2,809,413 1,471,158
----------- -----------
Minority interests in subsidiaries 271,640 292,199
----------- -----------
Preferred shares of subsidiary (not subject to mandatory
repurchase) 104,000 --
----------- -----------
Partners' interests in consolidated VIEs 1,419,462 --
----------- -----------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Beneficial owners' equity - Convertible CRA Shareholders;
no par value (6,552 shares issued and outstanding in 2004
and 8,180 issued and outstanding in 2003) 158,481 160,618
Beneficial owners' equity - special preferred voting shares;
no par value 151 161
Beneficial owners' equity - other common shareholders; no
par value (100,000 shares authorized; 51,211 shares issued
and 51,129 outstanding in 2004 and 42,726 shares issued
and 42,704 outstanding in 2003) 729,176 622,771
Restricted shares granted (11,372) (19,385)
Treasury shares of beneficial interest - common, at cost
(82 shares in 2004 and 23 shares in 2003) (1,706) (378)
Accumulated other comprehensive income 33,826 53,870
----------- -----------
Total shareholders' equity 908,556 817,657
----------- -----------
Total liabilities and shareholders' equity $ 5,513,071 $ 2,581,014
=========== ===========
See accompanying notes to condensed consolidated financial statements.
2
CHARTERMAC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
Revenues:
Revenue bond interest income $ 33,027 $ 30,353 $ 97,365 $ 83,528
Fee income:
Mortgage banking 3,321 3,171 11,124 9,711
Fund sponsorship 11,363 -- 30,300 --
Credit enhancement 2,715 995 7,541 2,986
Other income 5,760 1,329 11,891 4,752
Revenues of consolidated VIEs 4,460 -- 7,250 --
--------- --------- --------- ---------
Total revenues 60,646 35,848 165,471 100,977
--------- --------- --------- ---------
Expenses:
Interest expense 8,301 5,928 22,424 16,613
Interest expense of consolidated VIEs 7,263 -- 13,952 --
Interest expense - distributions to
preferred shareholders of subsidiary 4,724 4,724 14,173 4,724
Salaries and benefits 13,474 3,196 40,406 8,521
General and administrative 12,775 4,477 30,830 12,141
Depreciation and amortization 7,864 2,242 22,553 6,844
Loss on impairment of revenue bonds 610 1,758 610 1,758
Other expenses of consolidated VIEs 10,917 -- 19,398 --
--------- --------- --------- ---------
Total expenses 65,928 22,325 164,346 50,601
--------- --------- --------- ---------
Income (loss) before equity in earnings of
investments, loss on investments held by
consolidated VIEs, gain on sale of loans and
gain (loss) on repayment of revenue bonds (5,282) 13,523 1,125 50,376
Equity in earnings of investments 611 555 1,731 1,665
Loss on investments held by consolidated
VIEs (46,434) -- (95,111) --
Gain on sale of loans 571 444 5,646 2,994
Gain (loss) on repayment of revenue bonds (5) 557 217 2,797
--------- --------- --------- ---------
Income (loss) before allocation of (income)
loss to preferred shareholders of subsidiary,
Special Common Units of subsidiary,
minority interests and partners of
consolidated VIEs (50,539) 15,079 (86,392) 57,832
(Income) allocated to preferred shareholders of
subsidiary (1,556) -- (2,386) (9,449)
(Income) allocated to Special Common Units of
subsidiary (6,484) -- (19,737) --
(Income) loss allocated to minority interests 145 147 (220) 186
Loss allocated to partners of consolidated VIEs 70,174 -- 141,992 --
--------- --------- --------- ---------
Income before income taxes 11,740 15,226 33,257 48,569
Income tax benefit 534 689 11,600 3,453
--------- --------- --------- ---------
Net income $ 12,274 $ 15,915 $ 44,857 $ 52,022
========= ========= ========= =========
Allocation of net income to:
Special distribution to Manager $-- $ 1,583 $-- $ 4,453
========= ========= ========= =========
Manager $-- $ 2 $-- $ 5
========= ========= ========= =========
Common shareholders $ 10,839 $ 12,727 $ 38,686 $ 43,132
Convertible CRA shareholders 1,435 1,603 6,171 4,432
--------- --------- --------- ---------
Total for shareholders $ 12,274 $ 14,330 $ 44,857 $ 47,564
========= ========= ========= =========
Net income per share:
Basic $ 0.21 $ 0.31 $ 0.83 $ 1.05
========= ========= ========= =========
Diluted $ 0.21 $ 0.31 $ 0.83 $ 1.04
========= ========= ========= =========
Weighted average shares outstanding:
Basic 57,708 46,331 53,794 45,485
========= ========= ========= =========
Diluted 58,112 46,366 54,220 45,518
========= ========= ========= =========
Dividends declared per share $ .41 $ .35 $ 1.16 $ 1.00
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
CHARTERMAC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2004 2003
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,857 $ 52,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on repayment of revenue bonds (217) (2,797)
Loss on impairment of revenue bonds 610 1,758
Depreciation and amortization 24,655 8,694
Income allocated to preferred shareholders of subsidiary 16,559 14,173
Income allocated to Special Common Units of subsidiary 19,737 --
Income (loss) allocated to minority interests 220 (186)
Non-cash compensation expense 10,779 3,578
Deferred taxes (13,025) (4,223)
Changes in operating assets and liabilities:
Mortgage servicing rights (5,642) (1,897)
Loans to affiliates (15,361) --
Other assets 7,801 35,753
Accounts payable, accrued expenses and other liabilities 23,212 (18,657)
--------- ---------
Net cash provided by operating activities $ 114,185 $ 88,218
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from revenue bonds and notes $ 36,244 $ 94,151
Revenue bond acquisitions and fundings (239,888) (265,796)
Investments in partnerships (30,273) 2,309
Other investments (84,000) --
Increase in goodwill (920) (767)
Decrease (increase) in cash and cash equivalents - restricted 964 (37,219)
--------- ---------
Net cash used in investing activities $(317,873) $(207,322)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders $ (59,996) $ (47,849)
Distributions to preferred shareholders of subsidiary (15,003) (14,173)
Distributions to Special Common Unit holders (19,868) --
Proceeds from financing arrangements 137,761 192,699
Repayments of financing arrangements (64,105) (737)
Increase in notes payable 23,155 15,139
Issuance of common shares 105,541 --
Issuance of preferred shares 104,000 53,783
Retirement of special preferred voting shares (10) --
Proceeds from stock options exercised -- --
Treasury stock purchases (1,328) --
Deferred financing costs (7,019) (10,342)
--------- ---------
Net cash provided by financing activities 203,128 188,520
--------- ---------
Net increase (decrease) in cash and cash equivalents (560) 69,416
--------- ---------
Cash and cash equivalents at the beginning of the year 58,257 13,699
--------- ---------
Cash and cash equivalents at the end of the period $ 57,697 $ 83,115
--------- ---------
See accompanying notes to condensed consolidated financial statements.
4
CHARTERMAC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2004 2003
----------------------
SUPPLEMENTAL NON-CASH INFORMATION:
Supplemental disclosure of non cash activities relating to adoption of
FIN 46R:
Decrease in revenue bonds $ 34,281
Decrease in other assets 17,814
Increase in investments in
partnerships of consolidated VIEs (2,394,398)
Increase in other assets of consolidated VIEs (302,682)
Increase in notes payable and other liabilities of consolidated
VIEs 1,225,523
Increase in partners' interests of consolidated VIEs 1,419,462
-----------
$ --
===========
Conversion of Special Common Units to Common Shares $ 17,789
===========
See accompanying notes to condensed consolidated financial statements.
5
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
CharterMac, its wholly owned and majority owned subsidiaries and entities
consolidated pursuant to the adoption of Financial Accounting Standards Board
("FASB") Interpretation No. 46R (see Note 2). All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
"the Company", as used throughout this document, refers to CharterMac and its
consolidated subsidiaries.
The accompanying interim financial statements have been prepared without audit.
In the opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial statements of the interim periods. However, given the highly
seasonal nature of our business, the operating results for the interim periods
may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in the annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") have been
condensed or omitted. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in our Form 10-K for the year ended December 31, 2003.
Our annual report on Form 10-K for the year ended December 31, 2003 contains a
summary of our significant accounting policies. There have been no material
changes to these items since December 31, 2003, nor have there been any new
accounting pronouncements pending adoption that would have a significant impact
on our condensed consolidated financial statements.
We are responsible for the unaudited financial statements included in this
document. Our consolidated financial statements are prepared on the accrual
basis of accounting in accordance with GAAP. The preparation of financial
statements in conformity with GAAP requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain amounts in the 2003 financial statements have been reclassified to
conform to the 2004 presentation.
NOTE 2 - VARIABLE INTEREST ENTITIES CONSOLIDATED PURSUANT TO FASB INTERPRETATION
46R
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). In December 2003, the FASB issued FIN
46R, which revised FIN 46, codifying certain FASB Staff positions and extending
the implementation date. FIN 46R clarifies the application of existing
accounting pronouncements to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Effective March
31, 2004, we adopted FIN 46R.
Through our acquisition of Related Capital Company ("RCC") and in subsequent
fund originations, we became the general partner, or equivalent, in over 70
investment funds in which we have no direct financial investment. Typically,
outside investors acquire all limited partnership interest in an upper-tier, or
investment partnership, or 100% of the membership interest if structured as a
limited liability company. The investment partnership, in turn, invests as a
limited partner in one or more lower-tier, or operating partnerships, that own
and operate multi-family housing complexes. Limited partners in the investment
partnerships are most often corporations who are able to utilize the tax
benefits, which are comprised of operating losses and Low-Income Housing Tax
Credits ("LIHTCs").
Investment and operating partnerships are variable interest entities ("VIEs") as
defined by FIN 46R. We have concluded that, as the general partner or managing
member for these types of investments, and because the partners or members do
not have the right to remove us as such, we are the primary beneficiary as
defined by FIN 46R because we absorb the majority of the expected income and
loss variability, which is disproportionate to any actual ownership interest. We
have consolidated the assets and liabilities of these entities in our balance
sheet and have recorded their results of operations in our statement of income
beginning April 1, 2004. The balance sheets and statements of operations
consolidated in our condensed financial statements reflect the financial
position and results of operation of the VIEs as of and for the six month period
ended as of June 30, 2004, the latest date available.
6
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 3 - REVENUE BONDS
The following table summarizes our revenue bond portfolio:
September 30, December 31,
(In thousands) 2004 2003
------------ -----------
Unamortized cost basis $ 2,017,541 $ 1,814,180
Gross unrealized gains 59,471 65,394
Gross unrealized losses (18,574) (8,565)
----------- -----------
Subtotal/fair value 2,058,438 1,871,009
Less: eliminations (1) (34,281) --
----------- -----------
Total fair value per balance sheet $ 2,024,157 $ 1,871,009
=========== ===========
The fair value and gross unrealized losses of our revenue bonds aggregated by
length of time that individual bonds have been in a continuous unrealized loss
position, at September 30, 2004, is summarized in the table below:
Less than 12 Months
(Dollars in thousands) 12 Months or More Total
--------- --------- ---------
Number of bonds 39 33 72
Fair value $ 354,057 $ 221,527 $ 575,584
Gross unrealized loss $ (13,759) $ (4,815) $ (18,574)
The unrealized losses related to these revenue bonds are due solely to changes
in interest rates, in that we calculate present values based upon future cash
flows from the bonds and discount these cash flows at the current rate on our
recent bond issuances; as rates rise, the fair value of our portfolio decreases.
We have the intent and ability to hold these bonds to maturity and have
therefore concluded that these declines in value are temporary.
In the third quarter of 2004, in light of the underperformance of one of our
investments which will necessitate the temporary revision of payment terms, we
recognized an impairment loss of approximately $610,000.
The following summarizes the maturity dates of our revenue bonds, all of which
have fixed interest rates:
Weighted
Outstanding Average
(In thousands) Bond Amount Fair Value Interest Rate
----------- ----------- -------------
Due in less than one year $ -- $ -- N/A
Due between one and
five years 34,840 32,963 7.02%
Due after five years 1,993,075 2,025,475 6.76%
----------- ----------- ---------
Total / Weighted 2,027,915 2,058,438 6.76%
=========
Less: eliminations (1) (31,082) (34,281)
----------- -----------
Total per balance sheet $ 1,996,833 $ 2,024,157
=========== ===========
(1) These bonds are recorded as liabilities on the balance sheets of entities
consolidated pursuant to FIN 46R (see Note 2) and are therefore eliminated
in consolidation.
7
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
The following table summarizes our acquisition activity and additional fundings
to previously acquired revenue bonds for the nine months ended September 30,
2004.
Weighted Average
Construction Weighted Number of
Aggregate Interest Rate Average Revenue
Face Purchase (excluding points Permanent Bonds
Amount Price paid at closing) Interest Rate Acquired
(In thousands) ---------- ---------- -------------------- ------------ ----------
Construction/rehabilitation $239,948 $239,948 5.40% 6.55% 29
properties
During the nine months ended September 30, 2004, seven revenue bonds were repaid
generating net proceeds of approximately $26.9 million. The bonds had a net book
value of approximately $26.7 million, resulting in a gain of approximately
$217,000.
At September 30, 2004, $1.9 billion of revenue bonds were pledged as collateral
for our borrowing facilities. Two of these bonds, with a book value of
approximately $14.1 million, are included in the bonds pledged as collateral and
are eliminated in consolidation as noted in the tables above.
NOTE 4 - OTHER INVESTMENTS
Investments other than revenue bonds consisted of:
September 30, December 31,
2004 2003
(In thousands) ------------- -------------
Investment in equity interests in LIHTC properties $ 53,768 $ 24,644
Investment in properties under development 2,476 1,994
Investment in ARCap 19,054 19,054
Capri Capital loan 84,000 --
Other investments 3,668 2,768
-------- --------
Total other investments $162,966 $ 48,460
======== ========
In July 2004, CM Investor LLC ("CM Investor"), one of our subsidiaries, provided
an interim loan in the principal amount of $84.0 million ("Interim Loan") to
Capri Capital Limited Partnership ("CCLP"), which bears interest at a rate of
11.5% per year and matures on January 15, 2005 subject to extension.
We anticipate that the Interim Loan will be repaid in full and that CM Investor
would then make new loans in the aggregate principal amount of $90.0 million,
one of which would give CM Investor the right to acquire 100% of Capri Capital
Finance (CCLP's mortgage banking affiliate) within six months, and the other one
of which would give CM Investor the right to acquire a 49% equity interest in
Capri Capital Advisors ("CCA") (CCLP's pension fund advisory affiliate) on or
after August 1, 2005 (provided that CCA has the right to extend the exercise
date to a date no later than June 30, 2006). The acquisitions are both subject
to certain approvals, including, but not limited to, regulatory and agency
approval for the acquisition of Capri Capital Finance. We have signed a letter
of intent with respect to the subsequent acquisitions; however, definitive
agreements have yet to be signed, and there can be no assurance that the
subsequent acquisitions will occur. If CM Investor ultimately completes both of
these acquisitions pursuant to these arrangements, the total purchase price will
be based on the operating performance of the respective businesses.
We funded the Interim Loan through bridge loans from Fleet National Bank, which
bear interest at rates of LIBOR plus 1.65% and mature in July 2005. The weighted
average interest rate on the loans at September 30, 2004 was 3.42%.
8
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
The components of identifiable intangible assets are as follows:
Other Total
RCC Mortgage Identifiable Identifiable
Intangible Banking Intangible Intangible
(In thousands) Assets Licenses Assets Assets Goodwill
----------- ----------- ------------- ------------- ------------
Balance at December 31, 2003 $ 185,300 $ 8,639 $ 4,427 $ 198,366 $ 214,744
Accumulated amortization (1,936) -- (2,227) (4,163) --
--------- --------- --------- --------- ---------
Net balance at December 31, 2003 183,364 8,639 2,200 194,203 214,744
Additions -- -- -- -- 920
Tax effect of conversion of SCUs to
common shares -- -- -- -- (7,997)
Amortization expense (12,154) -- (357) (12,511) --
--------- --------- --------- --------- ---------
Net balance at September 30, 2004 $ 171,210 $ 8,639 $ 1,843 $ 181,692 $ 207,667
========= ========= ========= ========= =========
Estimated amortization expense per
year for next five years $ 16,206 $ -- $ 474 $ 16,680 $ --
========= ========= ========= ========= =========
The amortization of other identifiable intangible assets is included as a
reduction to revenue bond interest income as they pertain to the acquisition of
such bond investments.
NOTE 6 - RELATED PARTY TRANSACTION
Following are the expenses and the special distributions paid or payable to
related parties, which are included in general and administrative expense. For
periods prior to November 17, 2003, the amounts were paid or payable to RCC. For
periods after our acquisition of RCC, the amounts were paid or payable to The
Related Companies, L.P. ("TRCLP").
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
(In thousands) 2004 2003 2004 2003
------- ------- ------- -------
Special distribution/investment
management fee $ -- $ 1,690 $ -- $ 4,712
Bond servicing fees -- 3,793 -- 8,459
Expense reimbursement -- 269 -- 748
Shared services agreement 1,209 -- 3,145 --
------- ------- ------- -------
$ 1,209 $ 5,752 $ 3,145 $13,919
======= ======= ======= =======
In addition, a subsidiary of TRCLP earned fees for performing property
management services for various properties held in investment funds which we
manage. These fees, which are included in other expenses of consolidated VIEs,
totaled approximately $760,000 and $1.5 million for the three and nine months
ended September 30, 2004.
A subsidiary of ours collects asset management and incentive management fees
from American Mortgage Acceptance Company ("AMAC"), an affiliated
publicly-traded real estate investment trust. These fees, which are included in
fund sponsorship income, totaled $419,000 and $1.2 million for the three and
nine months ended September 30, 2004, respectively.
In June 2004, we entered into an unsecured revolving credit facility (the
"Revolving Facility") with AMAC to provide it up to $20.0 million, bearing
interest at LIBOR plus 300 basis points, which is to be used to purchase new
investments. The Revolving Facility has a term of one year with a one year
optional extension. In the opinion of management, the terms of this facility are
consistent with those of transactions with independent third parties. As of
September 30, 2004, we had advanced AMAC approximately $15.4 million.
9
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 7 - DERIVATIVE INSTRUMENTS
We have designated our interest rate swaps as cash flow hedges on the variable
interest payments on our floating rate securitizations. All but one of the
interest rate swaps begin in 2005. The one interest rate swap that is currently
in place is recorded at its fair market value each accounting period, with
changes in market value recorded in accumulated other comprehensive income to
the extent the hedge is effective in achieving offsetting cash flows. This hedge
has been effective to date. The effectiveness of the other swaps is measured
using the hypothetical swap method until they go into effect in 2005. For the
nine months ended September 30, 2004, we recorded approximately $30,000 of
expense related to an interest rate cap.
NOTE 8 - YIELD GUARANTEE TRANSACTION
In July 2004, we completed a transaction to guarantee tax benefits to an
investor in a partnership designed to generate Georgia State LIHTCs. We have
agreed to back-up the guarantee of a primary guarantor of an agreed upon
internal rate of return to the investor in Related Capital Guaranteed Corporate
Partners II, L.P. - Series F, for which we will receive guarantee fees totaling
approximately $3.9 million in three installments, as well as acquisition,
partnership management and asset management fees amounting to approximately $5.8
million. We recorded deferred income of approximately $6.4 million relating to
this guarantee.
NOTE 9 - COMPREHENSIVE INCOME
Comprehensive income for the nine months ended September 30, 2004 and 2003, was
as follows:
(In thousands) 2004 2003
-------- --------
Net income $ 44,857 $ 52,022
Net unrealized gain (loss) on interest rate derivatives (4,113) 2,073
Net unrealized loss on revenue bonds:
Unrealized loss during the period (15,714) (42,294)
Reclassification adjustment for net gain included in net income (217) (2,797)
-------- --------
Comprehensive income $ 24,813 $ 9,004
======== ========
NOTE 10 - EARNINGS PER SHARE
Three Months Ended September 30, 2004 Nine Months Ended September 30, 2004
------------------------------------- ------------------------------------
(In thousands, except per share amounts) Income Shares Per Share Income Shares Per Share
------------------------------------- ------------------------------------
Basic EPS $ 12,274 57,708 $ 0.21 $44,857 53,794 $ 0.83
========== ==========
Effect of dilutive securities -- 404 -- 426
-------- ------- ------- -------
Diluted EPS $ 12,274 58,112 $ 0.21 $44,857 54,220 $ 0.83
======== ======= ========== ======= ======= ==========
Three Months Ended September 30, 2003 Nine Months Ended September 30, 2003
------------------------------------- ------------------------------------
(In thousands, except per share amounts) Income Shares Per Share Income Shares Per Share
------------------------------------- ------------------------------------
Basic EPS $ 14,330 46,331 $ 0.31 $47,564 45,485 $ 1.05
========== ==========
Effect of dilutive securities -- 35 -- 33
-------- ------- ------- -------
Diluted EPS $ 14,330 46,366 $ 0.31 $47,564 45,518 $ 1.04
======== ======= ========== ======= ======= ==========
The number of shares includes common and Convertible CRA Shares as the
Convertible CRA Shares have the same economic benefits as common shares.
NOTE 11 - BUSINESS SEGMENTS
We operate in three business segments, which include Portfolio Investing,
Mortgage Banking, and Fund Management.
o The Portfolio Investing segment consists of subsidiaries investing in
primarily tax-exempt first mortgage revenue bonds, the proceeds of which
are used to finance the new construction, substantial rehabilitation,
acquisition, or refinancing of affordable multifamily housing throughout
the United States.
10
CHARTERMAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
o The Mortgage Banking segment consists of subsidiaries which originate and
service primarily multifamily mortgage loans on behalf of third parties,
including Fannie Mae, Freddie Mac, the Federal Housing Authority, Insurance
Companies and Conduits. In exchange for the origination and servicing
activities, the Company receives origination and servicing fees.
o The Fund Management segment includes two business lines. The first consists
of our subsidiaries that sponsor real estate equity investment funds that
primarily invest in LIHTC properties. In exchange for sponsoring and
managing these investment funds, the Company receives fee income for
providing asset management, underwriting, origination and other services.
In addition, these subsidiaries also provide management and advisory
services to AMAC and other investors in exchange for fees. The second
business line consists of our subsidiaries that participate in credit
enhancement transactions, including guaranteeing mortgage loans and
specified returns to investors in LIHTC equity funds, in exchange for
guarantee fees. Since the adoption of FIN 46R, effective March 31, 2004,
this segment also includes the results of consolidated VIEs (see Note 2).
In prior periods, results from credit enhancement transactions were included in
Portfolio Investing. We have reclassified the results to Fund Management to
better reflect the management of our businesses and have restated prior year
results accordingly.
Segment results include all direct and contractual revenues and expenses of each
segment and allocations of indirect expenses based on specific methodologies.
These reportable segments are strategic business units that primarily generate
revenue streams that are distinctly different and are generally managed
separately.
The following table provides more information regarding our segments:
(In thousands) Three Months Ended September 30, 2004 Three Months Ended September 30, 2003
-------------------------------------------------- ---------------------------------------------
Portfolio Mortgage Fund Portfolio Mortgage Fund
Investing Banking Management Total Investing Banking Management Total
-------------------------------------------------- ---------------------------------------------
Total revenues $ 36,198 $ 4,978 $ 19,470 $ 60,646 $ 30,760 $ 4,093 $ 995 $ 35,848
================================================== ==============================================
Depreciation and
amortization $ 710 $ 2,408 $ 4,746 $ 7,864 $ 338 $ 1,616 $ 288 $ 2,242
================================================== ==============================================
Net income (loss) $ 13,729 $ (742) $ (713) $ 12,274 $ 16,163 $ (955) $ 707 $ 15,915
================================================== ==============================================
(In thousands) Nine Months Ended September 30, 2004 Nine Months Ended September 30, 2003
-------------------------------------------------- ---------------------------------------------
Portfolio Mortgage Fund Portfolio Mortgage Fund
Investing Banking Management Total Investing Banking Management Total
-------------------------------------------------- ---------------------------------------------
Total revenues $ 101,921 $15,514 $ 48,036 $ 165,471 $ 85,294 $12,697 $2,986 $ 100,977
================================================== ==============================================
Depreciation and
amortization $ 2,042 $ 6,107 $ 14,404 $ 22,553 $ 1,468 $ 4,804 $ 572 $ 6,844
================================================== ==============================================
Net income (loss) $ 50,976 $ 1,689 $ (7,808) $ 44,857 $ 50,777 $(1,169) $2,414 $ 52,022
================================================== ==============================================
Total assets as of
September 30 $2,085,716 $78,221 $3,349,134 $5,513,071 $1,979,123 $77,325 $1,967 $2,058,415
================================================== ==============================================
Assets as of September
30 of consolidated
VIEs included in total
assets (see Note 2) $ (34,281)(1) $ -- $2,697,080 $2,662,799
==================================================
(1) This amount represents revenue bonds recorded as liabilities on the balance
sheets of entities consolidated pursuant to FIN 46R (see Note 2) and are
therefore eliminated in consolidation.
NOTE 12 - SUBSEQUENT EVENTS
Shelf Registration
- ------------------
In October 2004, we filed a shelf registration with the SEC providing for the
issuance of up to $400.0 million in common shares, preferred shares and debt
securities. This shelf registration has not yet been declared effective and we
have no current plans to draw upon it.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Forward-Looking Statements
- --------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are not historical facts, but rather our
beliefs and expectations are based on our current expectations, estimates,
projections, beliefs and assumptions about our Company and industry. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
Some of these risks include, among other things: adverse changes in the real
estate markets; risk of default associated with the revenue bonds and other
securities held by us or our subsidiaries; interest rate fluctuations; our tax
treatment, the tax treatment of our subsidiaries and the tax treatment of our
investments; general and local economic and business conditions; and changes in
applicable laws and regulations. We caution you not to place undue reliance on
these forward-looking statements, which reflect our view only as of the date
hereof.
Factors Affecting Comparability
- -------------------------------
Our operating results for 2004 were impacted significantly by the November 2003
acquisition of RCC, an affiliated business that, until the date of acquisition,
had acted as an external manager for our Company and our subsidiaries. As a
result of the acquisition, we generate more taxable income and have assumed
numerous expenses that had previously been covered by fees paid to RCC. Further,
the issuance of a new class of subsidiary equity as part of the acquisition
requires us to apportion certain earnings and identify them as due to the
holders of that equity.
Additionally, the adoption of several accounting pronouncements has caused us to
reclassify certain liability and expense categories while not increasing the
actual amounts to be recorded, and has led to a significant increase in the
amount of assets and liabilities we record due to consolidation of numerous
investment partnerships (see Note 2 to the Condensed Consolidated Financial
Statements). This consolidation also results in the recognition of the operating
results of partnerships in which we have no equity interest, the elimination of
transactions between our businesses and those partnerships and the allocation of
their results to their partners.
Results of Operations
- ---------------------
QUARTER ENDED SEPTEMBER 30, 2004 VS. QUARTER ENDED SEPTEMBER 30, 2003
- ---------------------------------------------------------------------
The following is a summary of our operations for the three months ended
September 30, 2004 and 2003:
% of % of
(In thousands) 2004 Revenues 2003 Revenues % Change
--------- ---------- ---------- --------- ----------
Revenues $60,646 $35,848 69.2
Income before income taxes 11,740 19.4 15,226 42.5 (22.9)
Net income 12,274 20.2 15,915 44.4 (22.9)
Compared to 2003, the third quarter of 2004 benefited from a substantial
expansion of our core Portfolio Investing business, the addition of the equity
fund sponsorship portion of our Fund Management segment and the expansion of the
credit enhancement portion of that segment. In addition, revenues in 2004
include $4.5 million generated by VIEs that were not consolidated in 2003.
Offsetting the revenue gains is the elimination of $10.0 million of revenues
earned by our subsidiaries in transactions with VIEs we have consolidated
beginning April 1, 2004. Although the amounts are eliminated in consolidation,
the expenses recognized by the VIEs in connection with these transactions are
absorbed entirely by the partners of the VIEs; as such, the elimination in
consolidation has no impact on our net income.
Despite the revenue gains and the benefit of eliminating fees following the RCC
acquisition, the additional costs assumed following the acquisition (a large
part of which are non-cash amortization costs and income allocated to a new
class of subsidiary equity) led to a decline in net income.
12
REVENUES
Our revenues were as follows:
For the Three Months Ended September 30,
(In thousands) 2004 2003 % Change
------- ------- --------
Revenue bond interest income $33,027 $30,353 8.8
Fee income
Mortgage banking 3,321 3,171 4.7
Fund sponsorship 11,363 -- N/A
Credit enhancement 2,715 995 172.9
Other income 5,760 1,329 333.4
Revenues of consolidated VIEs 4,460 -- N/A
------- ------- -----
Total revenues $60,646 $35,848 69.2
======= ======= =====
The increase in revenue bond interest income is primarily due to the increased
investment base resulting from new bonds funded during later quarters of 2003
and during 2004. We funded $90.0 million of bonds at an average interest rate of
6.53% in the 2004 period as compared to fundings of $119.8 million at an average
interest rate of 6.62% in the same period in 2003. The weighted average level of
the bond portfolio in the quarter was $2.2 billion, an increase of 39.7% over
the same period in 2003. The average annual yield for the bond portfolio was
6.14% compared to 7.88% in the 2003 period. Offsetting these increases is the
elimination in consolidation of approximately $447,000 of revenue on bonds where
the debtor is a VIE that is now consolidated in our condensed financial
statements.
The increase in mortgage banking fees resulted from a 7.5% increase in mortgage
servicing fees partially offset by a slight decrease in origination fees due to
changes in the components of total originations. Loan originations amounted to
$113.2 million in the 2004 quarter as compared to $107.9 million in the same
period last year and the total serviced loan portfolio reached $4.2 billion
compared to $3.9 billion at September 30, 2003. Originations in the third
quarter are broken down as follows:
(In thousands) 2004 % of total 2003 % of total
--------- ---------- --------- ----------
Fannie Mae $ 36,456 32.2 $ 49,816 46.2
Freddie Mac 44,375 39.2 21,669 20.0
FHA (35) -- -- --
Assumptions 8,297 7.3 13,828 12.8
Conduit - Bank 24,150 21.3 22,624 21.0
--------- ---------- --------- ----------
Total $ 113,243 100.0 $ 107,937 100.0
========= ========== ========= ==========
The increase in fund sponsorship fees represents the fee income earned by RCC
which was not acquired until the fourth quarter of 2003. The reported amounts,
however, exclude $8.6 million of fees earned by RCC in transactions with
consolidated VIEs. On a pro forma basis, comparing the 2004 period (including
the revenues eliminated in consolidation) to the same pre-acquisition period in
2003, revenue in the Fund Management business increased 13% over the prior year
due to steady growth in the level of assets under management and an increase in
origination fees as a result of an increase in equity raised for fund
sponsorships. The increases were partially offset by a decrease in acquisition
fees, paid by third-party borrowers of the underlying revenue bonds, and from
other loan origination, due to a decrease in revenue bond acquisitions. Equity
raised for fund sponsorships in the quarter totaled $355.6 million compared to
$310.3 million in the third quarter of 2003. Revenue bond transactions we
arranged for our Company and others, for which we receive fee income, totaled
$133.7 million in the third quarter of 2004 compared to approximately $137.1
million of revenue bonds acquired in the third quarter of 2003.
The increase in credit enhancement fees relates to growth in the credit
enhancement business. In the third quarter of 2004, we completed one transaction
to guarantee tax benefits to investors, and continued to earn fees from two
transactions completed earlier in 2004 and three transactions completed in 2003.
13
Other income comprises:
For the Three Months Ended September 30,
(In thousands) 2004 2003 % Change
------ ------ --------
Capri loan interest $1,993 $ -- N/A
Other interest 1,365 686 99.0
Service fee 704 -- N/A
Other 1,698 643 164.1
------ ------ -------
Total other income $5,760 $1,329 333.4
====== ====== =======
The Capri loan interest relates to the Interim Loan we provided to CCLP in July
2004 (see Note 4). Service fee income represents income for services RCC
provides to affiliates, which became a part of our operations with the
acquisition of RCC in November 2003. The increase in other income is primarily
due to exit fees received within the Mortgage Banking business.
EXPENSES
Our expenses were as follows:
For the Three Months Ended September 30,
(In thousands) 2004 2003 % Change
------- ------- ---------
Interest expense $ 8,301 $ 5,928 40.0
Interest expense - preferred
shares of subsidiary 4,724 4,724 --
Salaries and benefits 13,474 3,196 321.6
General and administrative 12,775 4,477 185.3
Depreciation and amortization 7,864 2,242 250.8
Loss on impairment of revenue
bonds 610 1,758 (65.3)
Expenses of consolidated VIEs 18,180 -- N/A
------- ------- -------
Total expenses $65,928 $22,325 195.3
======= ======= =======
The increase in interest expense reflects the higher borrowing levels stemming
from our acquisition of RCC, additional investments in revenue bonds, our loan
to fund the interim loan to Capri Capital and LIHTC equity interests inherent in
the Fund Management business, which was not yet part of our Company in the third
quarter of 2003. In addition, our average borrowing rate increased to 3.0% as
compared to 2.4% in the 2003 period.
The increases in salaries and benefits, general and administrative and
depreciation and amortization all relate to the RCC acquisition in the fourth
quarter of 2003 and the resulting recognition of expenses due to the
internalization of management, as well as amortization of intangible assets
acquired. General and administrative expenses in the 2004 quarter also included
$5.6 million of costs relating to fund originations.
We did not record the expenses of consolidated VIEs prior to April 1, 2004. The
expenses are not controlled by us, nor do they represent any cash or non-cash
charges to be absorbed by us. The expenses of the VIEs are absorbed entirely by
the partners of the VIEs.
OTHER ITEMS
The income allocation to SCUs represents the proportionate share of income
attributable to holders of the new class of equity issued at the time of the RCC
acquisition in the fourth quarter of 2003. The income allocated to preferred
shareholders relates to shares we issued in 2004 that differ from previously
issued shares in that they are not subject to mandatory redemption; as such, the
distributions are classified as expense outside of operating earnings. The loss
allocation to partners of VIEs represents the full operating losses of
consolidated VIEs for the current period, none of which we have absorbed.
14
NINE MONTHS ENDED SEPTEMBER 30, 2004 VS. NINE MONTHS ENDED SEPTEMBER 30, 2003
- -----------------------------------------------------------------------------
The following is a summary of our operations for the nine months ended September
30, 2004 and 2003:
% of % of
(In thousands) 2004 Revenues 2003 Revenues % Change
---------------------------------------------------
Revenues $165,471 $100,977 63.9
Income before income taxes 33,257 20.1 48,569 48.1 (31.5)
Net income 44,857 27.1 52,022 51.5 (13.8)
The nine months of 2004 benefited from a substantial expansion of our core
Portfolio Investing business, the addition of the equity fund sponsorship
portion of our Fund Management segment and the expansion of the credit
enhancement portion of that segment. In addition, our mortgage banking segment
posted substantial growth in the first half of the year, and 2004 includes $7.3
million of revenues generated by VIEs that were not consolidated in 2003.
Offsetting these gains is the elimination of $20.8 million of revenues earned by
our subsidiaries in transactions with VIEs we have consolidated beginning April
1, 2004. Although the amounts are eliminated in consolidation, the expenses
recognized by the VIEs in connection with these transactions are absorbed
entirely by the partners of the VIEs; as such, the elimination in consolidation
has no impact on our net income.
Despite the revenue gains and the benefit of eliminating fees following the RCC
acquisition, the additional costs assumed following the acquisition (a large
part of which are non-cash amortization costs and income allocated to a new
class of subsidiary equity) led to a decline in net income.
REVENUES
Our revenues were as follows:
For the Nine Months Ended September 30,
(In thousands) 2004 2003 % Change
------------- ------------ ------------
Revenue bond interest income $ 97,365 $ 83,528 16.6
Fee income
Mortgage banking 11,124 9,711 14.6
Fund sponsorship 30,300 -- N/A
Credit enhancement 7,541 2,986 152.5
Other income 11,891 4,752 150.2
Revenues of consolidated VIEs 7,250 -- N/A
------------- ------------ ------------
Total revenues $165,471 $100,977 63.9
============= ============ ============
The increase in revenue bond interest income is primarily due to the increased
investment base resulting from new bonds funded during later quarters of 2003
and during 2004. We funded $239.9 million of bonds at an average interest rate
of 6.55% in the 2004 period as compared to fundings of $265.8 million at an
average interest rate of 6.37% in the same period in 2003. The weighted average
level of bond investments for the nine months of 2004 was $2.1 billion, an
increase of 33.8% over the same period in 2003. The average annual yield for the
bond portfolio was 6.22% compared to 7.14% in the 2003 period. Offsetting these
increases is the elimination in consolidation of approximately $694,000 of
revenue on bonds where the debtor is a VIE that is now consolidated in our
condensed financial statements.
15
The increase in mortgage banking fees resulted from a 28.9% increase in
origination fees with solid increases in Freddie Mac and FHA originations,
mostly in the first six months of 2004. Opportunistic pricing on a significant
transaction in the second quarter of 2004 and a change in the components of
total originations resulted in a less significant change in the mortgage banking
fees as compared to the growth in loan originations. Loan originations amounted
to $664.3 million in 2004 as compared to $407.8 million in the same period last
year. Originations for the first nine months are broken down as follows:
(In thousands) 2004 % of total 2003 % of total
------------------------------------------------------------
Fannie Mae $235,731 35.5 $201,194 49.3
Freddie Mac 282,006 42.4 59,254 14.6
FHA 27,714 4.2 -- --
Assumptions 40,253 6.1 41,728 10.2
Conduit - Bank 78,588 11.8 101,161 24.8
Other -- -- 4,500 1.1
------------------------------------------------------------
Total $664,292 100.0 $407,837 100.0
============================================================
In addition, servicing fees increased 7.9% over the first nine months of 2003
due to the 7.7% growth in the servicing portfolio.
The increase in fund sponsorship fees represents the fee income earned by RCC,
which was not acquired until the fourth quarter of 2003. The reported amounts,
however, exclude $18.2 million of fees earned by RCC in transactions with
consolidated VIEs. On a pro forma basis, comparing the 2004 period (including
the revenues eliminated in consolidation) to the same pre-acquisition period in
2003, revenue in the Fund Management business increased 16% over the prior year
due to steady growth in the level of assets under management and an increase in
origination and acquisition fees as a result of an increase in equity raised for
fund sponsorships. The increases were partially offset by a decrease in
acquisition fees paid by third party borrowers of the underlying revenue bonds
and from other loan originations. This is due to a decrease of approximately 15%
in the average percentage acquisition fee charged, despite an increase in
acquired revenue bonds and loan originations. Equity raised for fund
sponsorships for the first nine months of 2004 totaled $754.5 million compared
to $563.5 million for the first nine months of 2003. Debt and debt securities
acquired, mostly revenue bonds transactions we arranged for our Company and
others, totaled $354.5 million for the first nine months of 2004 compared to
$304.7 million for the first nine months of 2003. Of the debt acquired for the
first nine months of 2004, $32.9 million has not been funded as of September 30,
2004.
The increase in credit enhancement income relates to growth in the credit
enhancement business. For the nine months of 2004, we completed three
transactions to guarantee tax benefits to investors, and continued to earn fees
from three transactions completed in 2003.
Other income comprises:
For the Nine Months Ended September 30,
(In thousands) 2004 2003 % Change
------------- ------------ ------------
Capri loan interest $ 1,993 $ -- N/A
Other interest 3,375 2,342 44.1
Service fee 4,516 -- N/A
Other 2,007 2,410 (16.7)
------------- ------------ ------------
Total other income $11,891 $ 4,752 150.2
============= ============ ============
The Capri loan interest relates to the Interim Loan we provided to CCLP in July
2004 (see Note 4). Service fee income represents income for services RCC
provides to affiliates, which became a part of our operations with the
acquisition of RCC in November 2003.
16
EXPENSES
Our expenses were as follows:
For the Nine Months Ended September 30,
(In thousands) 2004 2003 % Change
------------- ------------ ------------
Interest expense $ 22,424 $16,613 35.0
Interest expense - preferred
shares of subsidiary 14,173 4,724 200.0
Salaries and benefits 40,406 8,521 374.2
General and administrative 30,830 12,141 153.9
Depreciation and amortization 22,553 6,844 229.5
Loss of impairment of revenue
bonds 610 1,758 (65.3)
Expenses of consolidated VIEs 33,350 -- N/A
------------- ------------ ------------
Total expenses $164,346 $50,601 224.8
============= ============ ============
The increase in interest expense reflects the higher borrowing levels stemming
from our acquisition of RCC, additional investments in revenue bonds, our loan
to fund the interim loan to Capri Capital and LIHTC equity interests inherent in
the Fund Management business, which was not yet part of our Company as of
September 30, 2003. In addition, our average borrowing rate increased to 2.6% as
compared to 2.4% in the 2003 period.
The amount reported as interest expense on preferred shares of subsidiary
represent dividends on our preferred shares subject to mandatory redemption,
which had been reported as an allocation of income outside of operating earnings
in the first half of 2003.
The increases in salaries and benefits, general and administrative and
depreciation and amortization all relate to the RCC acquisition in the fourth
quarter of 2003 and the resulting recognition of expenses due to the
internalization of management, as well as amortization of intangible assets
acquired. General and administrative expenses for the nine months of 2004 also
include $10.8 million of costs relating to fund originations.
We did not record the expenses of consolidated VIEs prior to April 1, 2004. The
expenses are not controlled by us, nor do they represent any cash or non-cash
charges to be absorbed by us. The expenses of the VIEs are absorbed entirely by
the partners of the VIEs.
OTHER ITEMS
Gains on sales of loans increased approximately 88.6% for the nine months ended
September 30, 2004 versus the same period in 2003, due to the higher level of
mortgage originations in 2004. The income allocation to SCUs represents the
proportionate share of income attributable to holders of the new class of equity
issued at the time of the RCC acquisition in the fourth quarter of 2003.
The income allocated to preferred shareholders relates to shares we issued in
2004 that differ from previously issued shares in that they are not subject to
mandatory redemption; as such, the distributions are classified as expense
outside of operating earnings. The loss allocation to partners of VIEs
represents the full operating losses of consolidated VIEs for the current
period, none of which we have absorbed.
Income Taxes
- ------------
We have corporate subsidiaries that are subject to income taxes. We provide for
income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of assets and
liabilities. Our effective tax rate will vary from period to period as the
composition of our earnings changes and due to the normal transactional nature
of much of our taxable business.
Liquidity and Capital Resources
- -------------------------------
We meet our long term liquidity needs using primarily two sources of capital,
debt and various types of equity offerings. We believe that our financing
capacity and cash flow from current operations are adequate to meet our current
and projected liquidity requirements. We fund our business (including
investments and acquisitions) primarily with cash provided by operations,
securitization of investments and equity offerings by some of our subsidiaries.
Additionally, we have entered into bridge loans and revolving warehouse
facilities:
17
o $100.0 million, used for mortgage banking needs, which is renewable
annually.
o $75.0 million, used to fund mortgage loans and investments in revenue
bonds on a short term basis, which matures March 31, 2005, with a
built in accordion feature allowing up to a $25.0 million increase and
a term of two years, and a one year extension at our option.
o $85.0 million, used to acquire equity interests in property ownership
entities prior to the inclusion of these equity interests into
investments funds, which matures on October 29, 2005, with a one year
extension at our option.
o $85.0 million, used to provide the interim loan to CCLP, which bears
interest at a rate of LIBOR plus 1.65% and matures in July 2005.
o $40.0 million, established in connection with the PW Funding
acquisition, which expires December 31, 2006 and bears interest at a
rate of LIBOR plus 2.25%.
As of September 30, 2004, we had approximately $208.3 million available to
borrow under these debt facilities without exceeding limits imposed by debt
covenants and our trust agreement.
Short-term liquidity provided by operations comes primarily from interest income
from revenue bonds and promissory notes in excess of the related financing
costs, mortgage origination and servicing fees, and fund management fees. We
typically generate funds for investment purposes from corresponding financing
activities.
The net change in cash and cash equivalents during the first nine months of 2004
was lower than the increase in the comparable 2003 period, primarily due to
increased investing outflows. Operating cash flows were higher in the 2004
period by a margin of $26.0 million, benefited by a higher level of earnings
exclusive of non-cash expenses and the timing of payments in operating liability
accounts. The increase in investing outflows resulted from our Interim Loan to
Capri Capital and heightened activity in advance of fund sponsorships. The
higher level of financing inflows in the 2004 period related to equity
issuances, which were used to repay debt and finance the increased investing
activity.
During November 2004, distributions of approximately $23.7 million ($.41 per
share) will be paid to holders of common and Convertible CRA Shares, which were
declared in September 2004.
Management currently expects to pay approximately $6.4 million in the fourth
quarter of 2004 in connection with put and call options, thereby acquiring the
13% of PW Funding that we do not currently own.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
In October 2004, we filed a shelf registration with the SEC providing for the
issuance of up to $400.0 million in common shares, preferred shares and debt
securities. This shelf registration has not yet been declared effective and we
have no current plans to draw upon it.
Commitments, Contingencies and Off Balance Sheet Arrangements
- -------------------------------------------------------------
The following table reflects our maximum exposure and carrying amount as of
September 30, 2004 for guarantees we and our subsidiaries have entered into:
Maximum Carrying
(In thousands) Exposure Amount
- -------------------------------- ------------ ------------
Payment guarantees $ 4,533 $ --
Completion guarantees 24,538 --
Operating deficit guarantees 949 --
Recapture guarantees 53,426 --
Replacement reserve 1,454 --
CMC credit enhancement 19,000 --
LIHTC guarantees 398,562 14,730
------------ ------------
$502,462 $14,730
============ ============
18
CONTRACTUAL OBLIGATIONS
The following table provides our commitments as of September 30, 2004 to make
future payments under our debt agreements and other contractual obligations.
Payments due by Period
--------------------------------------------------------------
Less than More than
(In thousands) Total 1 year 1-3 years 3-5 years 5 years
---------- ---------- ---------- ---------- ----------
Notes payable $ 176,737 $ 154,926 $ 5,452 $ 16,359 $--
Notes payable of consolidated VIEs (1) 474,914 88,152 271,744 22,486 92,532
Operating lease obligations 5,028 840 2,710 1,333 145
Unfunded loan commitments 176,421 119,376 57,045 -- --
Floating rate securitization 873,663 873,663 -- -- --
Fixed rate securitization 100,000 100,000 -- -- --
---------- ---------- ---------- ---------- ----------
Total $1,806,763 $1,336,957 $ 336,951 $ 40,178 $ 92,677
========== ========== ========== ========== ==========
(1) Of the notes payable of consolidated VIEs, $401.9 million is guaranteed by
the limited partners of the investment funds. Per partnership agreements the
limited partners are also obligated to pay the principal and interest on the
notes. The remaining balance of $73.0 million is collateralized with the
underlying properties of the consolidated operating partnerships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest in certain financial instruments, primarily revenue bonds and other
bond related investments that are subject to various forms of market risk,
including interest rate risk. We seek to prudently and actively manage such
risks to earn sufficient compensation to justify the undertaking of such risks
and to maintain capital levels which are commensurate with the risks we
undertake.
The assumptions related to the following discussion of market risk involve
judgments involving future economic market conditions, future corporate
decisions and other interrelating factors, many of which are beyond our control
and all of which are difficult or impossible to predict with accuracy. Although
we believe that the assumptions underlying the forward-looking information are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking information included herein will prove
to be accurate. Due to the significant uncertainties inherent in forward-looking
information, the inclusion of such information should not be regarded as our
representation that our objectives and plans would be achieved.
INTEREST RATE RISK
- ------------------
The nature of our investments and the instruments used to raise capital for
their acquisition expose us to income and expense volatility due to fluctuations
in market interest rates. Market interest rates are highly sensitive to many
factors, including governmental policies, domestic and international economic
and political considerations and other factors beyond our control. Our exposure
to interest rates is twofold:
o the potential increase in interest expense on our variablerate debt;
and
o the impact of interest rate on the value of our assets.
IMPACT ON EARNINGS
Our investments in revenue bonds generally bear interest at fixed rates, or pay
interest according to the cash flows of the underlying properties, which do not
fluctuate with changes in market interest rates.
In contrast, payments required under our floating rate securitization programs
vary based on market interest rates based on the Bond Market Association ("BMA")
municipal swap index and are re-set weekly or every 35 days. In addition, we
have floating rate debt related to our acquisition financing and our warehouse
facilities. Other long-term sources of capital, such as our Cumulative Preferred
Shares, carry a fixed dividend rate and, as such, are not impacted by changes in
market interest rates.
With the exception of $50.0 million of debt hedged via an interest rate swap
agreement and the $100.0 million fixed rate securitization, the full amount of
our liabilities labeled as Financing Arrangements and Notes Payable are variable
rate debts. We estimate that an increase of 1.0% in interest rates would
decrease our annual net income by approximately $10.0 million.
We manage this risk through the use of interest rate swaps, interest rate caps
and forward bond origination commitments, as described in the notes to our
financial statements.
19
IMPACT ON VALUATION OF ASSETS
Changes in market interest rates would also impact the estimated fair value of
our portfolio of revenue bonds. We estimate the fair value for each revenue bond
as the present value of its expected cash flows, using a discount rate for
comparable tax-exempt investments. Therefore, as market interest rates for
tax-exempt investments increase, the estimated fair value of our revenue bonds
will generally decline, and a decline in interest rates would be expected to
result in an increase in their estimated fair values. For example, we estimate,
using the same methodology used to estimate the portfolio fair market value
under SFAS 115, that a 1% increase in market rates for tax-exempt investments
would decrease the estimated fair value of our portfolio of revenue bonds from
its September 30, 2004 value of approximately $2.1 billion to approximately $1.9
billion. A 1% decline in interest rates would increase the value of the
September 30, 2004 portfolio to approximately $2.2 billion. Changes in the
estimated fair value of the revenue bonds do not impact our reported net income,
earnings per share, distributions or cash flows, but are reported as components
of other accumulated comprehensive income and affect reported shareholders'
equity.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), as of the end of the period covered by this report. Based on
such evaluation, such officers have concluded that, as of the end of such
period, our disclosure controls and procedures are effective.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
significant changes in our internal control over financial reporting during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe
that such matters will have a material adverse impact on our financial
position, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.6 Third Amended and Restated Bylaws, dated September 15, 2004
(filed herewith).
31.1 Chief Executive Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Chief Financial Officer certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Chief Executive Officer and Chief Financial Officer certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The following 8-K reports were filed or furnished, as noted in
the applicable Form 8-K, for the quarter ended September 30,
2004.
Current report on Form 8-K relating to a press release we issued
announcing that our subsidiary, CM Investor LLC, had provided a
$72.0 million interim loan to Capri Capital Limited Partnership
and committed to make an additional $12.0 million advance, dated
July 19, 2004.
Current report on Form 8-K relating to a press release we issued
reporting our second quarter financial results, dated August 5,
2004.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHARTERMAC
(Registrant)
Date: November 4, 2004 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee and Chief Executive Officer
Date: November 4, 2004 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Managing Trustee, Chief Financial Officer and
Chief Operating Officer
Exhibit 10.6
CHARTERMAC
THIRD AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located
at such place as the Board of Trustees may designate in its sole discretion.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at such
places as the Board of Trustees may from time to time determine in its sole
discretion or the business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of Shareholders shall be held at the principal
office of the Trust or at such other place within the United States as shall be
stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the Shareholders for the
election of Managing Trustees whose terms have expired and the transaction of
any business within the powers of the Trust shall be held on a date and at the
time set by the Board of Trustees during the month of June in each year.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders (or of
Shareholders holding Shares of any class or series having a separate class or
series vote on any matter pursuant to the Trust Agreement or applicable law) may
be called by the Board of Trustees pursuant to a resolution adopted by a
majority of the whole Board of Trustees, including a majority of the Independent
Trustees. Special meetings of Shareholders shall also be called by the Board of
Trustees upon the written request of the holders of Shares entitled to cast not
less than 10% of all the votes entitled to be cast at such meeting. Such request
shall briefly state the purpose of such meeting and the matters proposed to be
acted on at such meeting.
Section 4. NOTICE. Not less than 10 nor more than 90 days before each meeting of
Shareholders, the Board of Trustees shall give to each Shareholder entitled to
vote at such meeting and to each Shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, stating briefly the purpose for which the meeting is
called, either by mail or by presenting it to such Shareholder personally or by
leaving it at the Shareholder's residence or usual place of business. If mailed,
such notice shall be deemed to be given when deposited in the United States mail
addressed to the Shareholder at the Shareholder's post office address as it
appears on the records of the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted at an
annual meeting of Shareholders without being specifically designated in the
notice, except such business as is required by any statute to be stated in such
notice. No business shall be transacted at a special meeting of Shareholders
except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of Shareholders, the chairman of the
Board of Trustees, if there is one, shall conduct the meeting or, in the case of
vacancy in office or absence of the chairman of the Board of Trustees, the
following officers of the Trust: the president and the vice presidents in their
order of rank and seniority, and a Person appointed by the chairman shall act as
secretary.
Section 7. QUORUM. At any meeting of Shareholders, the presence in person or by
proxy of Shareholders entitled to cast a majority of all the votes entitled to
be cast at such meeting shall constitute a quorum; provided, however, this
section shall not affect any requirement under any statute, the Trust Agreement
or these Bylaws regarding the vote necessary for the adoption of any measure.
If, however, such quorum shall not be present at any meeting of the
Shareholders, the Shareholders entitled to vote at such meeting, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time to a date not more than 120 days after the original record date without
notice other than announcement at the meeting. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than 120 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given to each
Shareholder of record entitled to vote at the meeting.
The Shareholders present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Shareholders to leave less than a quorum.
Section 8. VOTING. A plurality of all the votes entitled to be cast, and
actually cast, at a meeting of Shareholders duly called and at which a quorum is
present shall be sufficient to elect a Managing Trustee. Each Share may be voted
for as many individuals as there are Managing Trustees to be elected and for
whose election the Share is entitled to be voted. A majority of the votes cast
at a meeting of Shareholders duly called and at which a quorum is present shall
be sufficient to approve any other matter which may properly come before the
meeting, unless a different vote is required by statute, the Trust Agreement or
these Bylaws. Unless otherwise provided in the Trust Agreement, each outstanding
Share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at any meeting of Shareholders.
Section 9. PROXIES. A Shareholder may cast the votes entitled to be cast by the
Shares owned of record by such Shareholder either in person or by proxy executed
in writing or transmitted by telephone (whether orally or otherwise), telegram,
cablegram or means of electronic transmission by the Shareholder or by the
Shareholder's duly authorized attorney in fact. Such proxy shall be filed with
the Board of Trustees before or at the time of the meeting. No proxy shall be
valid after 11 months from the date of its execution, unless otherwise provided
in the proxy. A proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A Shareholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Board of Trustees.
Section 10, VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust registered
in the name of a corporation, partnership, trust or other Entity, if entitled to
be voted, may be voted by the president or a vice president, a general partner
or trustee thereof, as the case may be, or a proxy appointed by any of the
foregoing individuals, unless some other Person who has been appointed to vote
such stock pursuant to a bylaw or a resolution of the governing body of such
corporation, partnership, trust or other Entity or agreement governing the
organization of such other Entity presents a certified copy of such bylaw,
resolution or agreement, in which case such Person may vote such stock. Any
director or other fiduciary may vote stock registered in his name as such
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
Shares entitled to be voted at any given time, unless they are held by it in a
fiduciary capacity, in which case they may be voted and shall be counted in
determining the total number of outstanding Shares at any given time.
The Board of Trustees may adopt by resolution a procedure by which a Shareholder
may certify in writing to the Trust that any Shares registered in the name of
the Shareholder are held for the account of a specified Person other than the
Shareholder. The resolution shall set forth the class of Shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the Share transfer
books, the time after the record date or closing of the Share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Board of Trustees considers
necessary or desirable. On receipt of such certification, the Person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the Shareholder of record of the specified Shares in place of the
Shareholder who makes the certification.
Section 11. INSPECTORS. At any meeting of Shareholders, the chairman of the
meeting may appoint one or more Persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of Shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
Shareholders.
Each report of an inspector shall be in writing and signed by such inspector or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of Shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12 NOMINATIONS AND SHAREHOLDER BUSINESS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS.
(1) Subject to paragraph (c) of this Section 12, nominations of
Persons for election as a Managing Trustee to the Board
of Trustees and the proposal of business to be considered by the
Shareholders may be made at an annual meeting of Shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the
direction of a majority of the Board of Trustees or (iii) by any
Shareholder of the Trust who was a Shareholder of record both at
the time of giving of notice provided for in this Section 12(a)
and at the time of the annual meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth
in this Section 12(a).
(2) For nominations or other business to be properly brought before
an annual meeting of Shareholders by a Shareholder pursuant to
clause (iii) of paragraph (a)(1) of this Section 12, the
Shareholder must have given timely notice thereof in writing to
the Board of Trustees. To be timely, a Shareholder's notice shall
be delivered to the Board of Trustees at the principal executive
offices of the Trust not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from such anniversary date or if the Trust has
not previously held an annual meeting, notice by the Shareholder
to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such
Shareholder's notice shall set forth (i) as to each Person whom
the Shareholder proposes to nominate for election or reelection
as a Managing Trustee all information relating to such Person
that is required to be disclosed in solicitations of proxies for
election of Managing Trustees, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") (including such Person's
written consent to being named in the proxy statement as a
nominee and to serving as a Managing Trustee if elected); (ii) as
to any other business that the Shareholder proposes to bring
before the meeting, a brief description of the business desired
to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such
business of such Shareholder and of the beneficial owner, if any,
on whose behalf the proposal is made; and (iii) as to the
Shareholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made, (x) the name
and address of such Shareholder, as they appear on the Trust's
books, and of such beneficial owner and (y) the number of Shares
of each class of beneficial interests of the Trust which are
owned beneficially and of record by such Shareholder and such
beneficial owner. Notwithstanding the foregoing provisions, the
Board of Trustees shall have the right, pursuant to Regulation
14A under the Exchange Act, to reject any Shareholder proposal or
nomination raised.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the
number of Managing Trustees to be elected to the Board of
Trustees is increased and there is no public announcement naming
all of the nominees for Managing Trustee or specifying the size
of the increased Board of Trustees made by the Trust at least 70
days prior to the first anniversary of the preceding year's
annual meeting, a Shareholder's notice required by this Section
12(a) shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it
shall be delivered to the Board of Trustees at the principal
office of the Trust not later than the close of business on the
tenth day following the day on which such public announcement is
first made by the Trust.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of Shareholders as shall have been
brought before the meeting pursuant to the Trust's notice of meeting.
Subject to paragraph (c) of this Section 12, nominations of Persons
for election to the Board of Trustees may be made at a special meeting
of Shareholders at which Managing Trustees are to be elected (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction
of the Board of Trustees or (iii) provided that the Board of Trustees
has determined that Managing Trustees shall be elected at such special
meeting, by any Shareholder of the Trust who is a Shareholder of
record both at the time of giving of notice provided for in this
Section 12(b) and at the time of the special meeting, who is entitled
to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(b). Subject to paragraph (c) of this Section
12, in the event the Trust calls a special meeting of Shareholders for
the purpose of electing one or more Managing Trustees to the Board of
Trustees, any such Shareholder may nominate a Person or Persons (as
the case may be) for election to such position as specified in the
Trust's notice of meeting, if the Shareholder's notice containing the
information required by paragraph (a)(2) of this Section 12 shall be
delivered to the Board of Trustees at the principal office of the
Trust not earlier than the 90th day prior to such special meeting and
not later than the close of business on the later of the 60th day
prior to such special meeting or the tenth day following the day on
which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Trustees to be
elected at such meeting.
(c) SPECIAL NOMINATION PROVISIONS.
(1) NOMINATION OF THE INDEPENDENT TRUSTEES. Notwithstanding anything
herein to the contrary, the Independent Trustees nominated by the
Board of Trustees shall be nominated by the Nominating Committee
of the Board of Trustees, which nominations shall be subject to
the approval of two-thirds of the Board of Trustees. All Managing
Trustees shall have the right to recommend to the Nominating
Committee for its consideration their choices for the Independent
Trustee nominees.
(2) NOMINATION OF THE NON-INDEPENDENT TRUSTEES. Subject to the
provisions of the Trust Agreement (including, without limitation,
any Certificate of Designation attached thereto), non-Independent
Trustees nominated by the Board of Trustees shall be nominated by
the Nominating Committee of the Board of Trustees, which
nominations shall be subject to the approval of a majority of the
Board of Trustees. All Managing Trustees shall have the right to
recommend to the Nominating Committee for its consideration their
choices for the non-Independent Trustee nominees.
(d) GENERAL
(1) Only such Persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to
serve as Managing Trustees and only such business shall be
conducted at a meeting of Shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Section 12. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Section 12 and, if any
proposed nomination or business is not in compliance with this
Section 12, to declare that such defective nomination or proposal
be disregarded.
(2) "Public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable news service or in a document publicly filed by the
Trust with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12, a
Shareholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
12. Nothing in this Section 12 shall be deemed to affect any
rights of Shareholders to request inclusion of proposals or the
Trust's right to exclude such proposals in the Trust's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any election may be
viva voce unless the chairman of the meeting shall order or any Shareholder
shall demand that voting be by ballot.
Section 14. CONDUCT OF MEETINGS. The Board of Trustees may adopt by resolution
such rules and regulations for the conduct of meeting of Shareholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Trustees, the chairman of any meeting of
Shareholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Trustees or
prescribed by the chairman of the meeting, may include, without limitation, the
following:
(a) The establishment of an agenda or order of business for the meeting;
(b) Rules and procedures for maintaining order at the meeting and the
safety of those present;
(c) Limitations on attendance at or participation in the meeting of
Shareholders of record, their duly authorized and constituted proxies
or such other Persons as the chairman of the meeting shall determine;
(d) Restrictions on entry to the meeting after the time fixed for the
commencement thereof; and
(e) Limitations on the time allotted to questions or comments by
participants. Unless and to the extent determined by the Board of
Trustees or the chairman of the meeting, meetings of Shareholders
shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 15. ACTION BY CONSENT OF SHAREHOLDERS. Any action required or permitted
to be taken at any annual or special meeting of the Shareholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all Shares entitled to vote thereon were present and voted and shall be
delivered (by regular mail) to the Trust by delivery to its principal place of
business, or an agent of the Trust having custody of the book in which
proceedings of minutes of Shareholders are recorded. The Trust shall make a
public announcement of the taking of the action without a meeting by less than
unanimous written consent.
Section 16. RECORD DATE FOR ACTION BY CONSENT OF SHAREHOLDERS. In order that the
Trust may determine the Shareholders entitled to consent to action in writing
without a meeting, the Trustees may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Trustees, and which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Trustees. Any Shareholder of record seeking to have the Shareholders
authorize or take action by consent shall, by written notice to a Managing
Trustee, request the Board of Trustees to fix a record date. The Board of
Trustees shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Trustees within 10 days of the
date on which such a request is received, the record date for determining
Shareholders entitled to consent to action in writing without a meeting, when no
prior action by the Board of Trustees is required by applicable law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered (by hand or by certified or registered
mail, return receipt requested) to the Trust by delivery to its principal place
of business, or to an agent of the Trust having custody of the book in which
proceedings of meetings of Shareholders are recorded. If no record date has been
fixed by the Board of Trustees and prior action by the Board of Trustees is
required by applicable law, the record date for determining Shareholders
entitled to consent to action in writing without a meeting shall be at the close
of business on the date on which the Board of Trustees adopts the resolution
taking such prior action.
ARTICLE III
MANAGING TRUSTEES
Section 1. GENERAL POWERS. The business and affairs of the Trust shall be
managed under the direction of its Board of Trustees.
Section 2. LIMITATIONS ON POWERS. The Board of Trustees shall not have the
authority to:
(a) cause the Trust to acquire Minority Positions which, in the aggregate,
are in excess of 15% of Total Market Value (measured at the time of
such investment);
(b) cause the Trust to invest in a First Mortgage Bond secured by a
Mortgage Loan on any one Underlying Property if the principal of such
First Mortgage Bond would exceed, in the aggregate, an amount equal to
20% of Total Market Value (measured at the time of such investment);
(c) cause the Trust to invest in First Mortgage Bonds secured by Mortgage
Loans to any one borrower if the principal of such First Mortgage
Bonds would exceed, in the aggregate, an amount greater than 20% of
Total Market Value (measured at the time of such investment);
(d) cause the Trust to invest in First Mortgage Bonds secured by Mortgage
Loans on unimproved real property or Tax-Exempt Securities relating to
unimproved real property in an amount in excess of 10% of Total Market
Value (measured at the time of such investment);
(e) cause the Trust to invest in a First Mortgage Bond secured by a
Mortgage Loan on any one Underlying Property if the aggregate amount
of all mortgage loans outstanding on the Underlying Property,
including the principal amount of the Mortgage Loan, would exceed an
amount equal to 85% of the appraised fair market value of the
Underlying Property, as determined by an independent appraiser, unless
the Board of Trustees or the Manager determines that substantial
justification exists for investing in such a First Mortgage Bond
because of other aspects of the loans, such as the net worth of the
borrower, the credit rating of the borrower based on historical
financial performance, additional collateral (such as a pledge or
assignment of other real estate or another real estate mortgage) or an
assignment of rents under a lease or where the Trust has purchased a
First Mortgage Bond at a price that is no more than 85% of the value
of the Underlying Property (notwithstanding that the face amount of
the outstanding mortgage loans with respect to the Underlying Property
exceeds 85% of the appraised fair market value of the Underlying
Property), provided that any loans relating to the Underlying Property
which are advanced by third parties (and which cause the aggregate
amount of all mortgage loans outstanding on the Underlying Property to
exceed 85% of the appraised fair market value of the Underlying
Property) are subordinated to the Trust's investment and do not
entitle such third party lender to any material rights upon default
without the Trust's consent until after the Trust's First Mortgage
Bond and related Mortgage Loan with respect to such Underlying
Property have been repaid;
(f) do any act in contravention of these Bylaws or which would make it
impossible to carry on the ordinary business of the Trust;
(g) confess a judgment against the Trust in connection with any threatened
or pending legal action;
(h) possess any Trust asset or assign the rights of the Trust in specific
Trust assets for other than a Trust purpose;
(i) perform any act (other than an act required by these Bylaws or any act
taken in good faith reliance upon counsel's opinion) which would, at
the time such act occurred, subject any Shareholders to liability in
any jurisdiction;
(j) commingle the Trust funds with those of any other Person;
(k) operate the Trust in such a manner as to have the Trust classified as
(1) an "investment company" for purposes of the Investment Company Act
of 1940, as amended, or (2) other than as a partnership for purposes
of the Code; and
(l) cause the Trust to invest in real estate contracts of sale, otherwise
known as land sale contracts, unless such contracts of sale are in
recordable form and are appropriately recorded in the chain of title.
Section 3. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any
special meeting called for that purpose, two-thirds of the entire Board of
Trustees may establish, increase or decrease the number of Managing Trustees,
provided that the number thereof shall never be less than three nor more than
sixteen, and at least a majority of the Managing Trustees, by at least (i) one
trustee while Mr. White is on the Board of Trustees and, (ii) two trustees if
Mr. White is not on the Board of Trustees shall be Independent Trustees, and
further provided that the tenure of office of a Managing Trustee shall not be
affected by any decrease in the number of Managing Trustees.
Section 4. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Trustees shall be held immediately after and at the same place as the annual
meeting of Shareholders, no notice other than this Bylaw being necessary. The
Board of Trustees may provide, by resolution, the time and place, either within
or without the State of Delaware, for the holding of regular meetings of the
Board of Trustees without other notice than such resolution.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Trustees may be
called by or at the request of the chairman of the Board of Trustees, or by a
majority of the Managing Trustees then in office. The Person or Persons
authorized to call special meetings of the Board of Trustees may fix any place,
either within or without the State of Delaware, as the place for holding any
special meeting of the Board of Trustees called by them.
Section 6. NOTICE. Notice of any special meeting of the Board of Trustees shall
be delivered personally or by telephone, email, facsimile transmission, United
States mail or courier to each Managing Trustee at his email, business or
residence address. Notice by personal delivery, by telephone, email or a
facsimile transmission shall be given at least two days prior to the meeting.
Notice by mail shall be given at least five days prior to the meeting and shall
be deemed to be given when deposited in the United States mail properly
addressed, with postage thereon prepaid. Telephone notice shall be deemed to be
given when the Managing Trustee is personally given such notice in a telephone
call to which he is a party. Email and facsimile transmission notice shall be
deemed to be given upon completion of the transmission of the message to the
number given to the Trust by the Managing Trustee and receipt of a completed
answer-back indicating receipt. Neither the business to be transacted at, nor
the purpose of, any annual, regular or special meeting of the Board of Trustees
need be stated in the notice, unless specifically required by statute or these
Bylaws.
Section 7. QUORUM. A majority of the Managing Trustees shall constitute a quorum
for transaction of business at any meeting of the Board of Trustees, provided
that, if less than a majority of such Managing Trustees are present at said
meeting, a majority of the Managing Trustees present may adjourn the meeting
from time to time without further notice, and provided further that if, pursuant
to the Trust Agreement or these Bylaws, the vote of a majority of a particular
group of Managing Trustees is required for action, a quorum must also include a
majority of such group, but only with respect to a vote on such action.
The Managing Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Managing Trustees to leave less than a quorum.
Section 8. VOTING. The action of the majority of the Managing Trustees present
at a meeting at which a quorum is present shall be the action of the Board of
Trustees (including with respect to actions to merge, consolidate or convert the
Trust), unless the concurrence of a greater proportion is required for such
action by the Trust Agreement or applicable law. Notwithstanding the foregoing,
where any action is required pursuant to the terms of the Trust Agreement to be
approved by a majority vote of the Independent Trustees or by a majority of the
Independent Trustees (or like wording), then the action of a majority of the
total number of Persons at the time serving on the Board of Trustees who
constitute Independent Trustees shall be the action of the Board of Trustees.
Section 9. TELEPHONE MEETINGS. Managing Trustees may participate in a meeting by
means of a conference telephone or similar communications equipment if all
Persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 10. INFORMAL ACTION BY MANAGING TRUSTEES. Any action required or
permitted to be taken at any meeting of the Board of Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
Managing Trustee and such written consent is filed with the minutes of
proceedings of the Board of Trustees.
Section 11. VACANCIES.
(a) GENERAL. If for any reason any or all the Managing Trustees cease to
be Managing Trustees, such event shall not annul, dissolve or
terminate the Trust or affect these Bylaws or the powers of the
remaining Managing Trustees hereunder (even if fewer than three
Managing Trustees remain). Any individual elected as Managing Trustee
in accordance with this Section 11 shall hold office until the next
annual meeting of Shareholders at which such Managing Trustee's class
is to be elected and until his successor is elected and qualifies.
(b) INDEPENDENT TRUSTEES. If any vacancy, whether or not created by an
increase in the number of Managing Trustees, must be filled with an
Independent Trustee to comply with the terms of Section 3.1 of the
Trust Agreement, and there are any remaining Independent Trustees,
replacement Independent Trustees shall be nominated by the Nominating
Committee of the Board of Trustees, which nominations shall be subject
to the approval of two-thirds of the Managing Trustees, and the
vacancy shall be filled by a majority vote of the Managing Trustees
electing a nominated replacement Independent Trustee. All Managing
Trustees shall have the right to recommend to the Nominating Committee
for its consideration their choices for the replacement Independent
Trustee nominees. If there is no remaining Independent Trustee, any
such vacancies shall be filled by a majority of the remaining Managing
Trustees.
(c) NON-INDEPENDENT TRUSTEES. Subject to the provisions of the Trust
Agreement (including, without limitation, any Certificate of
Designation attached thereto), if any vacancy, whether or not created
by an increase in the number of Managing Trustees, must be filled with
a non-Independent Trustee to comply with the terms of Section 3.1 of
the Trust Agreement, replacement non-Independent Trustees shall be
nominated by the Nominating Committee of the Board of Trustees and the
vacancy shall be filled by a majority vote of the Managing Trustees.
All Managing Trustees shall have the right to recommend to the
Nominating Committee for its consideration their choices for the
replacement non-Independent Trustee nominee.
Section 12. COMPENSATION. Managing Trustees other than Independent Trustees
shall not receive any salary or other compensation for their services as
Managing Trustees. By resolution of the Board of Trustees, Independent Trustees
may receive fixed sums, Shares in the Trust or other compensation per year
and/or per meeting and/or for any service or activity they performed or engaged
in as Managing Trustees. Managing Trustees may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the Board of
Trustees or of any committee thereof and for their expenses, if any, in
connection with any other service or activity they performed or engaged in as
Managing Trustees; but nothing herein contained shall be construed to preclude
any Managing Trustees from serving the Trust in any other capacity and receiving
compensation therefor.
Section 13. LOSS OF DEPOSITS. No Trustee shall be liable for any loss which may
occur by reason of the failure of the bank, trust company, savings and loan
association, or other institution with whom moneys or property have been
deposited.
Section 14. SURETY BONDS. Unless required by law, no Trustee shall be obligated
to give any bond or surety or other security for the performance of any of his
duties.
Section 15. RELIANCE. Each Trustee, officer (if any), employee and agent of the
Trust shall, in the performance of his or her duties with respect to the Trust,
be fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers (if any) or employees (if any) or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Trustees or
officers (if any) of the Trust, regardless of whether such counsel or expert may
also be a Trustee.
Section 16. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS. The
Trustees shall have no responsibility to devote their full time to the affairs
of the Trust. Any Trustee or officer (if any), employee (if any) or agent of the
Trust, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other Person, or otherwise, may have business interests and engage
in business activities similar to or in addition to or in competition with those
of or relating to the Trust.
Section 17. CERTAIN RIGHTS OF THE INDEPENDENT TRUSTEES.
(a) CHARTER MAC CORPORATION. Notwithstanding any provision herein to the
contrary, at any time at which there are any Independent Trustees in
office, the powers and duties conferred and imposed upon the Trust as
sole shareholder of Charter Mac Corporation in accordance with Article
13 of the certificate of incorporation of Charter Mac Corporation
relating to (i) the taking or refraining from taking of action by
Charter Mac Corporation with respect to any consents, waivers,
amendments, approvals, elections or similar actions under or
pertaining to any of the RCC Acquisition Documents (as defined below)
that may affect the rights or obligations of any of APH Associates
L.P., DLK Associates L.P., Marc Associates, L.P., Related General II
L.P. and SJB Associates L.P., or their Affiliates (as defined in that
certain Contribution Agreement dated as of December 17, 2002, as
amended from time to time (the "CONTRIBUTION AGREEMENT") by and among
CharterMac Capital Company, LLC and the other parties named therein),
or (ii) any amendment to this Section 17, shall be exercised and
performed by the Independent Trustees. For such purposes, the
Independent Trustees shall act by the affirmative vote of a majority
of the persons who are then serving as Independent Trustees at a
meeting at which at least a majority of the Independent Trustees are
present or by unanimous written consent of the Independent Trustees.
The provisions of these bylaws and of Delaware Statutory Trust Act
shall govern such action at a meeting or by written consent as if the
Independent Trustees constituted the board of trustees. For the
purposes of this Section 17, "RCC ACQUISITION DOCUMENTS" shall mean
collectively the Contribution Agreement and each of the Collateral
Agreements (as defined in the Contribution Agreement).
(b) TRUSTEE LIABILITY. The personal liability of the Independent Trustees
acting pursuant to Section 17(a) hereof is hereby eliminated to the
fullest extent permitted by Delaware Statutory Trust Act, as the same
may be amended and supplemented.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Trustees may appoint
an Audit Committee, a Compensation Committee, a Nominating Committee and any
other committees determined to be necessary or advisable by the Board of
Trustees. Such committees shall be comprised of one or more Managing Trustees
and may also be comprised of individuals appointed by the Board of Trustees who
are not trustees of the Trust. Each of the Audit Committee, the Compensation
Committee and the Nominating Committee shall be entirely comprised of
Independent Trustees or individuals that are not trustees of the Trust who would
otherwise qualify as an Independent Trustee.
Section 2. POWERS. The Board of Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Board of Trustees,
except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the same
manner as notice for special meetings of the Board of Trustees. A majority of
the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Trustees may designate a chairman of any committee, and such chairman or any two
members of any committee may fix the time and place of its meeting unless the
Board of Trustees shall otherwise provide. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Managing Trustee to act in the place of
such absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all Persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be
taken at any meeting of a committee of the Board of Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of Trustees
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members to replace any absent or
disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
The Trust shall not have any officers. Notwithstanding the foregoing, the Board
of Trustees may from time to time in its sole discretion appoint persons as
"officers" of the Trust with such titles, powers and duties as they shall deem
necessary or desirable. Additionally, the Trust shall create an Operating
Committee which shall, subject to the authority of the Board of Trustees, be
vested with general responsibility for the ordinary and usual management of the
business and affairs of the Trust. The Board of Trustees may from time to time
in its sole discretion appoint and remove members of the Operating Committee,
who may but are not required to be Managing Trustees or "officers" of the Trust.
The Operating Committee shall be initially comprised of the following
individuals: Marc D. Schnitzer, Denise L. Kiley, Alan P. Hirmes, Stuart J.
Boesky, Stephen M Ross, Jeff T. Blau, Michael J. Brenner and Stuart Rothstein1.
Each member of the Operating Committee shall have one vote. In the event of any
significant disagreements at the Operating Committee level, the matter shall be
referred to the Board of Trustees for resolution.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. Subject to the terms of the Trust Agreement, the Board of
Trustees may authorize an officer (if any), the Manager or other agent to enter
into any contract or to execute and deliver any instrument in the name of and on
behalf of the Trust and such authority may be general or confined to specific
instances. Any agreement, deed, mortgage, lease or other document executed by
one or more of the Managing Trustees or by an authorized Person shall be valid
and binding upon the Trust when authorized or ratified by action of the Board of
Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Trust shall be signed by such officer of the Trust (if any), the Manager or
other agent of the Trust in such manner as shall from time to time be determined
by the Board of Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall be
deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Board of Trustees may designate.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 1. CERTIFICATES. Shares may, but need not be, represented by
certificates. Shares not represented by certificates will be held in book-entry
form. Each Shareholder of Shares not represented by certificates may request
from the Trust, and upon such request, shall be entitled to, a certificate or
certificates which shall represent and certify the number of Shares of each
class or series of beneficial interest held by him in the Trust. Each
certificate representing Shares shall be signed by the chairman of the Board of
Trustees, if any, or any Managing Trustee if no chairman has been elected, and
may be sealed with the seal, if any, of the Trust. The signatures of the
Managing Trustees may be either manual or facsimile. Certificates are not valid
until manually countersigned and registered by the Trust's transfer agent and/or
registrar. Certificates shall be consecutively numbered; and if the Trust shall,
from time to time, issue several classes or series of shares, each class may
have its own number series. A certificate is valid and may be issued whether or
not a Managing Trustee who signed it is still a Managing Trustee when it is
issued. Each certificate representing Shares which are restricted as to their
transferability or voting powers, which are preferred or limited as to their
distributions or as to their allocable portion of the assets upon dissolution
and liquidation or which are redeemable at the option of the Trust, shall have a
statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. If the Trust intends to
issue certificated Shares of more than one class, the certificate representing
such Shares shall contain on the face or back a full statement or summary of the
designations and any preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions and other qualifications and terms
and conditions of redemption of such class of beneficial interest and the
differences in the relative rights and preferences between the Shares of each
series of such class to the extent they have been set and the authority of the
Board of Trustees to set the relative rights and preferences of subsequent
series of such class. In lieu of such statement or summary, the certificate may
state that the Trust will furnish a full statement of such information to any
Shareholder upon written request and without charge. If any class or series of
certificated Shares is restricted by the Trust as to transferability, the
certificate representing such Shares shall contain a full statement of the
restrictions.
1 Mr. Rothstein resigned as an officer of the Trust as of March 31, 2004.
Section 2. TRANSFERS. Upon the request by a Shareholder of Shares not
represented by certificates to transfer one or more of such Shares, accompanied
by proper evidence of succession, assignment or authority to transfer, the
transfer agent of the Trust shall transfer such Shares to the account of the
Person entitled thereto and shall debit the account of the transferring
Shareholder, and the transaction shall be recorded upon the Trust's books. Upon
surrender to the Trust or the transfer agent of the Trust of a Share certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the transfer agent of the Trust shall credit the Shares
to the account of the Person entitled thereto, in book-entry form, and shall
cancel the certificate representing such Shares, and the transaction shall be
recorded upon the Trust's books.
The Trust shall be entitled to treat the holder of record of any Shares as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such Share or on the part of any
other Person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Delaware.
Notwithstanding the foregoing, transfers of Shares shall be subject in all
respects to the Trust Agreement and all of the terms and conditions contained
therein, and to the terms of such Shares determined by the Board of Trustees in
accordance with Section 10.2 of the Trust Agreement.
Section 3. REPLACEMENT CERTIFICATE. The Manager or any other Person designated
by the Board of Trustees may direct a new certificate to be issued in place of
any certificate previously issued by the Trust alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate to be lost, stolen or destroyed and requesting a new
certificate. When authorizing the issuance of a new certificate, the Manager or
such other Person designated by the Board of Trustees may, in such Person's
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as the Manager or such other
Person shall require and/or to give bond, with sufficient surety, to the Trust
and the Trustees of the Trust to indemnify them against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. Subject to
Article II, Section 16, with respect to record dates in connection with consent
to action without a meeting, the Board of Trustees may set, in advance, a record
date for the purpose of determining Shareholders entitled to notice of or to
vote at any meeting of Shareholders or determining Shareholders entitled to
receive payment of any distribution or the allotment of any other rights, or in
order to make a determination of Shareholders for any other proper purpose. Such
date, in any case, shall not be prior to the close of business on the day the
record date is fixed and shall be not more than 90 days and, in the case of a
meeting of Shareholders, not less than ten days, before the date on which the
meeting or particular action requiring such determination of Shareholders of
record is to be held or taken.
In lieu of fixing a record date, the Board of Trustees may provide that the
Share transfer books shall be closed for a stated period but not longer than 20
days. If the Share transfer books are closed for the purpose of determining
Shareholders entitled to notice of or to vote at a meeting of Shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the Share transfer books are not closed for the
determination of Shareholders, (a) the record date for the determination of
Shareholders entitled to notice of or to vote at a meeting of Shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of Shareholders entitled to
receive payment of a distribution or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the distribution or allotment of rights, is adopted.
When a determination of Shareholders entitled to vote at any meeting of
Shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 5. SHARE LEDGER. The Trust shall maintain at its principal office or at
the office of its counsel, accountants or transfer agent, an original or
duplicate Share ledger containing the name and address of each Shareholder and
the number of Shares of each class or series held by such Shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Board of Trustees may issue
fractional Shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the Trust Agreement or these Bylaws, the Board of Trustees may issue units
consisting of different securities of the Trust. Any such security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Board of Trustees may provide that for a specified
period securities of the Trust issued in such unit may be transferred on the
books of the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Trustees shall have the power, from time to time, to fix the fiscal
year of the Trust by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Distributions upon the Shares of the Trust may be
authorized and declared by the Board of Trustees, subject to the provisions of
law and the Trust Agreement. Distributions may be paid in cash, property or
Shares of the Trust, subject to the provisions of law and the Trust Agreement.
Section 2. CONTINGENCIES. Before payment of any distributions, there may be set
aside out of any assets of the Trust available for distributions such sum or
sums as the Board of Trustees may from time to time, in its absolute discretion,
think proper as a reserve fund for contingencies, for equalizing distributions,
for repairing or maintaining any property of the Trust or for such other purpose
as the Board of Trustees shall determine to be in the best interest of the
Trust, and the Board of Trustees may, in its sole discretion, modify or abolish
any such reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Trust Agreement, the Board of Trustees may from
time to time adopt, amend, revise or terminate any policy or policies with
respect to investments by the Trust as it shall deem appropriate in its sole
discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Trustees may authorize the adoption of a seal by
the Trust. The seal shall contain the name of the Trust and the year of its
creation and the words "Delaware Statutory Trust." The Board of Trustees may
authorize one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is permitted or required to affix
its seal to a document, it shall be sufficient to meet the requirements of any
law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent
to the signature of the Person authorized to execute the document on behalf of
the Trust.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Delaware law in effect from time to time and
in addition to any rights set forth in the Trust Agreement, the Trust shall
indemnify and, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any individual who is a
present or former Trustee, Manager, officer (if any), employee (if any) or agent
of the Trust and who is made a party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a Trustee, Manager, officer
(if any), employee (if any) or agent of the Trust and at the request of the
Trust, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of such Person's service in that capacity. The Trust may,
with the approval of its Board of Trustees, provide such indemnification and
advance for expenses to a Person who served a predecessor of the Trust in any of
the capacities described in (a) or (b) above and to any officer (if any),
employee (if any) or agent of the Trust or a predecessor of the Trust.
Neither the amendment nor repeal of this Article, nor the adoption or amendment
of any other provision of the Bylaws or Trust Agreement inconsistent with this
Article, shall apply to or affect in any respect the applicability of the
preceding paragraph with respect to any act or failure to act which occurred
prior to such amendment, repeal, adoption or amendment.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Trust Agreement or
these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed
by the Person or Persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
Neither the business to be transacted at nor the purpose of any meeting need be
set forth in the waiver of notice, unless specifically required by statute. The
attendance of any Person at any meeting shall constitute a waiver of notice of
such meeting, except where such Person attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws; provided that
notwithstanding anything herein to the contrary, (i) any amendment, alteration
or repeal of any provisions of these Bylaws that require the vote of two-thirds
of the Board of Trustees for the taking of any action, and any adoption,
amendment or alteration of any other provisions of these Bylaws or the Trust
Agreement inconsistent with such provisions, shall require the approval of not
less than two-thirds of the members of the Board of Trustees, and (ii) any
amendment, alteration or repeal of any provisions of these Bylaws that require
the vote of a majority of the Independent Trustees (or a majority vote of the
Independent Trustees) for the taking of any action, and any adoption, amendment
or alteration of any other provisions of these Bylaws or the Trust Agreement
inconsistent with such provisions, shall require the approval of not less than a
majority of the Independent Trustees.
ARTICLE XV
REQUESTS FOR LISTS OF SHAREHOLDERS
Section 1. GENERAL. Any request for access to the lists of Shareholders must be
in writing setting forth with particularity a proper purpose reasonably related
to the current status of the Person making the request as a Shareholder in the
Trust at the time of the request. The request must certify that the Person
making the request is doing so solely on such Person's own behalf and not on
behalf of or for the benefit of any other Person. If any such request is for the
purpose of communicating with Shareholders, such request shall be accompanied by
a copy of the proposed communication. The Person making the request for the list
of Shareholders shall reimburse the Trust for all reasonable costs incurred by
the Trust in responding to such request. The Trust shall have no obligation to
maintain any list of the names or addresses of any Shareholders who are not
record owners of the Shares, including, without limitation, non-objecting
beneficial owners of the Shares.
Section 2. TENDER OFFERS. The Trust will not provide the Shareholders access to
or copies of any of the Trust's books and records or the lists of Shareholders
for the purpose of conducting or facilitating any tender offer or other offer or
solicitation to buy 5% or less of the outstanding Shares of the Trust (a
"MINI-TENDER OFFER") unless, in addition to compliance with all other applicable
legal requirements, the Person making such Mini-Tender Offer agrees in writing
to comply with all of the terms and conditions set forth herein:
(a) Such Mini-Tender Offer shall afford Shareholders withdrawal rights
during the entire period the Mini-Tender Offer remains open.
(b) Such Mini-Tender Offer shall afford Shareholders proration rights for
all Shares of the Trust tendered during the entire period the
Mini-Tender Offer remains open.
(c) Such Mini-Tender Offer shall truthfully and completely disclose all
material facts pertaining to such Mini-Tender Offer, the Trust and the
market and prices for the Shares of the Trust that the Person making
the Mini-Tender Offer knows or reasonably should know.
(d) Such Mini-Tender Offer shall fully comply in all respects with all
applicable federal and state laws.
(e) At least seven business days prior to the commencement of any
Mini-Tender Offer, the Persons conducting such Mini-Tender Offer shall
deliver to the Trust copies of all written materials respecting such
Mini-Tender Offer that the Person making the Mini-Tender Offer intends
to disseminate to the Shareholders.
(f) The Trust shall have the right to require any Person making any
Mini-Tender Offer to deliver to the Trust an opinion rendered by legal
counsel, in form and substance satisfactory to the Trust, stating that
such Mini-Tender Offer is in full compliance in all respects with
applicable federal and state laws.
Section 3. MAILING BY THE TRUST IN LIEU OF PROVIDING SHAREHOLDER LIST. In lieu
of providing any other form of access to the lists of Shareholders (and subject
to any such communication complying with all requirements of this instrument,
the Trust Agreement and applicable law), the Trust reserves the right to mail
any such communication (including, without limitation, copies of all written
materials that a Person making a Mini-Tender Offer intends to disseminate to the
Shareholders) to Shareholders on behalf of the requesting Shareholder at the
expense of the Shareholder.
ARTICLE XVI
DEFINITIONS
Section 1. CERTAIN DEFINITIONS. All terms not otherwise defined in these Bylaws
shall have the meanings ascribed to them in the Second Amended and Restated
Trust Agreement of the Trust, as amended from time to time (the "TRUST
AGREEMENT"). As used in these Bylaws, the following terms shall have the
meanings set forth below:
"ENTITY" shall mean any general partnership, limited partnership,
corporation, joint venture, trust, business or statutory trust, real estate
investment trust, limited liability company, cooperative or association.
"EXCHANGE ACT" shall have the meaning ascribed to such term in Article II,
Section 12(a)(2) hereof.
"FIRST MORTGAGE BONDS" shall mean tax-exempt participating or
non-participating first mortgage bonds issued by various state or local
governments or their agencies or authorities.
"MANAGEMENT AGREEMENT" shall mean the agreement between the Trust and the
Manager, as amended from time to time, pursuant to which the Manager will be
engaged by the Trust to conduct the business and affairs of the Trust upon the
terms and conditions therein.
"MANAGER" shall mean such Person to which the Board of Trustees delegates
the authority to conduct the business and affairs of the Trust in all matters as
set forth in the Management Agreement with the Manager.
"MINI-TENDER OFFER" shall have the meaning ascribed to such term in Article
XV, Section 2 hereof.
"MINORITY POSITION" shall mean a minority position of a First Mortgage
Bond, which is subordinated to the credit position of the holders of the
remaining portions of such First Mortgage Bond.
"MORTGAGE LOAN" shall mean the first mortgage and related mortgage loan on
an Underlying Property which has been financed with the proceeds of a First
Mortgage Bond.
"PERSON" shall mean an individual or Entity.
"PUBLIC ANNOUNCEMENT" shall have the meaning ascribed to such term in
Article II, Section 12(d)(2) hereof.
"TAX-EXEMPT SECURITIES" shall mean securities, the income from which is
exempt from federal income taxation, which are rated not lower than A1 by
Moody's Investors Service, Inc. or A+ by Standard & Poor's Ratings Group, or are
unrated but which the Manager determines are of comparable quality.
"TRUST AGREEMENT" shall have the meaning ascribed to such term in Article
XVI, Section 1 hereof.
"UNDERLYING PROPERTIES" shall mean the properties which secure the
obligations under the Mortgage Loans, First Mortgage Bonds and other mortgage
investments.
Notes: Amended and restated by vote of the Board of Trustees on September 15,
2004 to reflect amendments and other updates approved since adoption of Second
Amended and Restated Bylaws on November 17, 2003.
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending September 30, 2004 of CharterMac;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors or persons performing the equivalent
functions:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 4, 2004 By: /s/Stuart J. Boesky
-------------------
Stuart J. Boesky
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Alan P. Hirmes, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending September 30, 2004 of CharterMac;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors or persons performing the equivalent
functions:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 4, 2004 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Financial Officer
Exhibit 32.1
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(UNITED STATES CODE, TITLE 18, CHAPTER 63, SECTION 1350)
ACCOMPANYING QUARTERLY REPORT ON FORM 10-Q OF
CHARTERMAC FOR THE QUARTER ENDED SEPTEMBER 30, 2004
In connection with the Quarterly Report on Form 10-Q of CharterMac for the
quarterly period ending September 30, 2004, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), Stuart J. Boesky, as
Chief Executive Officer of our Company, and Alan P. Hirmes, as Chief Financial
Officer of our Company, each hereby certifies, pursuant to 18 U.S.C. Section
1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of our Company.
By: /s/ Stuart J. Boesky By: /s/ Alan P. Hirmes
-------------------- ------------------
Stuart J. Boesky Alan P. Hirmes
Chief Executive Officer Chief Financial Officer
November 4, 2004 November 4, 2004