<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14A-12
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
(Name of Registrant as Specified In Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
445 MARINE VIEW AVENUE, SUITE 230
DEL MAR, CALIFORNIA 92014
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1998
Dear Stockholder:
You are invited to attend the Annual Meeting of the Stockholders of
American Residential Investment Trust, Inc. (the "Company"), which will be held
on May 22, 1998, at 10:00 a.m. at the Del Mar Hilton, for the following
purposes:
1. To elect two Class I directors, each to hold office for a three-year
term and until their respective successors are elected and qualified.
Management has nominated the following persons for election at the
meeting: H. James Brown and Ray McKewon.
2. To consider and vote upon a proposal to amend the Company's 1997 Stock
Option Plan to increase the maximum aggregate number of shares reserved
for issuance thereunder by 300,000 and to establish a share grant
limitation.
3. To consider a proposal to ratify the appointment of KPMG Peat Marwick
LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1998.
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on April 10, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
By order of the Board of Directors,
CLAY STRITTMATTER
Secretary
Del Mar, California
April 22, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING POSTPAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE> 3
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 1
EXECUTIVE COMPENSATION AND OTHER MATTERS.................... 6
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION....................... 11
COMPARISON OF STOCKHOLDER RETURN............................ 13
ELECTION OF DIRECTORS....................................... 13
PROPOSAL TO AMEND THE 1997 STOCK OPTION PLAN................ 14
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS............................................... 17
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL
MEETING................................................... 18
TRANSACTION OF OTHER BUSINESS............................... 18
</TABLE>
i
<PAGE> 4
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
445 MARINE VIEW AVENUE, SUITE 230
DEL MAR, CALIFORNIA 92014
------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of American
Residential Investment Trust, Inc., a Maryland corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held May 22, 1998, or any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. The date of this Proxy Statement is April 22, 1998, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended December 31,
1997, is enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on April 10, 1998, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 8,114,000 shares of Common Stock, $0.01 par
value, of the Company issued and outstanding. Stockholders may vote in person or
in proxy. Each holder of shares of Common Stock is entitled to one vote for each
share of stock held on the proposals presented in this Proxy Statement. The
Company's bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting. Abstentions
and broker non-votes will each be counted as present for purposes of determining
a quorum.
Solicitation of Proxies. The cost of soliciting proxies will be borne by
the Company. In addition, the Company will solicit stockholders by mail through
its regular employees, and will request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors, and others to solicit proxies, personally or by telephone,
without additional compensation. In addition, the Company has engaged the
services of American Stock Transfer and Trust Company to solicit proxies. The
Company will pay a fee for such services, which it reasonably expects to be no
more than $500.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies a choice with respect to any matter to be acted upon, the shares will
be voted in accordance with the specification so made. If no choice is indicated
on the proxy, the shares will be voted in favor of the election of the nominees
for director and the proposals contained in this Proxy Statement and at the
discretion of the proxy holders on any other matter that comes before the
meeting. A stockholder giving a proxy has the power to revoke his or her proxy
at any time prior to the time it is voted by delivery to the Secretary of the
Company of either a written instrument revoking the proxy or a duly executed
proxy with a later date, or by attending the meeting and voting in person.
Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of March 6, 1998, with respect to the
beneficial ownership of the Company's Common Stock by (i) all persons known by
the Company to be the beneficial owners of more than 5% of the outstanding
Common Stock of the Company, (ii) each director and director-nominee of the
Company, (iii) each executive officer of the Company named in the Summary
Compensation Table, and (iv) all executive officers and directors of the Company
as a group.
1
<PAGE> 5
<TABLE>
<CAPTION>
SHARES OWNED(1)
----------------------
PERCENTAGE
NAME OF NUMBER OF
BENEFICIAL OWNER OF SHARES CLASS(2)
---------------- --------- ----------
<S> <C> <C>
MDC REIT Holdings, LLC(3)................................... 1,600,000 19.7%
Entities Affiliated with Putnam Investments, Inc.(4)........ 500,000 6.2
H. James Brown.............................................. -- *
Ray McKewon................................................. 1,500 *
Richard Pratt............................................... -- *
Mark Riedy.................................................. 2,000 *
David E. De Leeuw(5)........................................ 6,800 *
John M. Robbins(6).......................................... 168,200 2.0
Jay M. Fuller(6)............................................ 142,000 1.7
Mark A. Conger(7)........................................... 61,360 *
John Dahl(8)................................................ 75,000 *
Rollie O. Lynn(9)........................................... 42,800 *
All Directors and Executive Officers as a group (11 persons)
(5)(6)(10)................................................ 544,860 6.7
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Calculated on the basis of 8,114,000 shares of Common Stock outstanding,
except that shares of Common Stock underlying options exercisable within 60
days of March 6, 1998 are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities of the holders of such
options.
(3) The address for MDC REIT Holdings, LLC ("Holdings") is 445 Marine View
Avenue, Suite 230, Del Mar, CA 92014. Home Asset Management Corp. (the
"Manager") is the managing member of Holdings pursuant to an operating
agreement. Accordingly, the Manager may be deemed to have voting control of
the shares of the Company's Common Stock held by Holdings with respect to
ordinary and usual matters. Transactions which could result in the
disposition of the shares of the Company's Common Stock by Holdings require
the approval of the members of Holdings having membership interests which
constitute more than 80% of all membership interests. No single member or
group of affiliated members of Holdings holds 80% of the membership
interests of Holdings. The shares of the Company's Common Stock held by
Holdings have been pledged as collateral to certain entities affiliated
with TCW/Crescent Mezzanine, L.L.C.
(4) The address for Putnam Investments, Inc. ("PI") and its affiliates is one
Post Office Square, Boston Massachusetts, 02109. Information is derived
from a Schedule 13G filed on January 20, 1998, with the Securities and
Exchange Commission. Putnam Investment Management, Inc. ("PIM") and The
Putnam Advisory Company, Inc. ("PAC"), subsidiaries of PI, are registered
investment advisors and are the holders of 491,000 and 9,000 shares
respectively. All shares are beneficially owned by clients of PIM and PAC.
PIM and PAC each have shared dispository power with respect to all shares
held by them. PAC has shared voting power with respect to the shares held
by it. All shares held by PIM are held on behalf of the Putnam family of
mutual funds and must be voted at the direction of each mutual fund's
trustee.
(5) Mr. De Leeuw is also a director of the Manager. He disclaims beneficial
ownership of the shares of the Company's Common Stock held by Holdings. See
Note 3 above.
2
<PAGE> 6
(6) Includes 136,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 6, 1998. Mr. Robbins and Mr. Fuller are
directors of the Manager. They each disclaim beneficial ownership of the
shares of the Company's Common Stock held by Holdings. See Note 3 above.
(7) Includes 61,360 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 6, 1998.
(8) Includes 75,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 6, 1998.
(9) Includes 42,800 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 6, 1998.
(10) Includes 501,160 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 6, 1998.
Directors. The table below sets forth certain information, as of March 6,
1998, with respect to age and background of the Company's directors, including
the Class I nominees to be elected at this meeting.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
---- ------------------------- --- --------
<S> <C> <C> <C>
Class I directors to be elected at the 1998 Annual Meeting of Stockholders:
H. James Brown Director 56 1997
Ray McKewon Director 49 1997
Class II directors whose terms expire at the 1999 Annual Meeting of Stockholders:
David E. De Leeuw Director 53 1997
Richard T. Pratt Director 61 1997
Class III directors whose terms expire at the 2000 Annual Meeting of Stockholders:
John M. Robbins Chairman of the Board, Chief 50 1997
Executive Officer and Director
Jay M. Fuller President, Chief Operating Officer 47 1997
and Director
Mark J. Riedy Director 55 1997
</TABLE>
H. James Brown, Ph.D. has served as the President and Chief Executive
Officer of the Lincoln Institute of Land Policy since 1996, an educational
institution formed to study and teach land policy, including land economics and
land taxation. Prior to 1996, Dr. Brown was a professor at the Kennedy School of
Government at Harvard University from 1970 to 1996. During his tenure at Harvard
University, Dr. Brown served as a director of the Joint Center Housing Studies,
Chairman of the City and Regional Planning Program and as Director of the State,
Local and Intergovernmental Center at Harvard University and MIT/Harvard
University Joint Center for Urban Studies. In addition, Dr. Brown has served as
a Managing Partner of Strategic Property Investments, Inc., a company
specializing in real estate asset management from 1988 to 1991. Dr. Brown also
serves as a director of BMC West Corporation and Pelican Companies, Inc.,
distributors and retailers of building materials.
3
<PAGE> 7
Ray McKewon is a co-founder and Executive Vice President of Accredited Home
Lenders, a mortgage banking firm founded in 1990 which specializes in sub-prime
credit. From 1980 to 1990, Mr. McKewon was a managing partner of the Enterprise
Management Company, a venture capital firm that he co-founded and which provided
capital to companies including Dura Pharmaceuticals, Cytotech (sold to Quidel),
Impulse Enterprise, McKewon & Timmins (sold to First Affiliated), Garden Fresh
Restaurants, Intelligent Images (merged into and renamed Darox) and Sunward
Technology (merged into Read-Rite).
David E. De Leeuw has served as a Director of the Company since its
formation in February 1997. Mr. De Leeuw is a co-founder and a Managing Partner
of McCown De Leeuw & Co., a private equity firm that buys and builds
middle-market companies in partnership with management teams. Prior to
co-founding McCown De Leeuw & Co. in 1984, Mr. De Leeuw was employed by Citibank
as Vice President and Deputy Head of the Merger and Acquisition Department and
as Head of the Leveraged Acquisition Unit. Mr. De Leeuw currently serves as a
Vice Chairman of Vans, Inc. and a director of Nimbus CD International, Inc. and
several other private companies.
Richard T. Pratt, Ph.D. currently serves as Chairman of Richard T. Pratt
Associates, a position he has held since 1992, performing consulting activities,
including strategic studies for the Federal Home Loan Mortgage Corporation,
on-site consulting for the Housing Section Perform Project in Russia and
Kazakhstan for the U.S. Agency for International Development and various
strategic consultations for private sector institutions. Dr. Pratt is also a
Professor of Finance at the David Eccles School of Business at the University of
Utah, a position he has held since 1966. From 1983 to 1991, Dr. Pratt served as
Chairman of Merrill Lynch Mortgage, Inc., a subsidiary of Merrill Lynch &
Company. From 1991 to 1994, Dr. Pratt served as Managing Director of the
Financial Institutions Group of Merrill Lynch. Dr. Pratt also serves as a member
of the Board of Directors of Avigen, a development level gene therapy company.
Dr. Pratt was Chairman of the Federal Home Loan Mortgage Corporation from 1981
to 1983, and served as Chairman of the Federal Savings and Loan Insurance
Corporation from 1981 to 1983.
John M. Robbins has served as Chairman of the Board of Directors and Chief
Executive Officer and Director of the Company since its formation in February
1997. Prior to joining the Company, Mr. Robbins was Chairman of the Board of
American Residential Mortgage Corporation ("AMRES Mortgage") from 1990 until
1994 and President of AMRES Mortgage from the time he co-founded it in 1983
until 1994. He also served as Executive Vice President of Imperial Savings
Association from 1983 to 1987. Mr. Robbins has worked in the mortgage banking
industry since 1973. Mr. Robbins has served two terms on the Board of Governors
and the Executive Committee of the Mortgage Association of America, and has
served on FNMA's National Advisory Board. Mr. Robbins also serves as a director
of Pacific Research & Engineering Corporation, Garden Fresh Restaurant
Corporation, National Bankcard and the University of San Diego.
Jay M. Fuller has served as President, Chief Operating Officer and Director
of the Company since its formation in February 1997. Prior to joining the
Company Mr. Fuller served as President of Victoria Mortgage from 1995 to 1996.
Mr. Fuller was an Executive Vice President and Chief Administration Officer of
AMRES Mortgage from 1985 to 1994 and Senior Vice President from 1983 to 1985. In
these capacities, at various times, Mr. Fuller was responsible for, among other
things, mortgage loan originations and servicing for AMRES Mortgage. Mr. Fuller
has worked in the mortgage banking industry continuously since 1975. Mr. Fuller
currently serves as President of Friends of Santa Fe Christian Schools.
Mark J. Riedy, Ph.D. is currently employed as an Ernest W. Hahn Professor
of Real Estate Finance at the University of San Diego. In such capacity, he
teaches courses in real estate finance. Prior to his employment at the
University, Dr. Riedy served as President and Chief Executive Officer of the
National Council of Community Bankers in Washington, D.C. from 1988 to 1992.
From 1987 to 1988, Dr. Riedy served as President and Chief Operating Officer of
the J. E. Robert Companies. Dr. Riedy was President, Chief Operating Officer and
Director of the Federal National Mortgage Association from 1985 to 1986.
During the fiscal year ended December 31, 1997, the Board held four
meetings. Except for Mr. McKewon, each director serving on the Board in fiscal
year 1997 attended at least 75% of such meetings of the Board and any committees
on which he served.
4
<PAGE> 8
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
auditors and management, the annual financial statements and independent
auditors' opinion, review the scope and results of the examination of the
Company's financial statements by the independent auditors, approve all
professional services performed by the independent auditors and related fees,
recommend the retention of the independent auditors to the Board and
periodically review the Company's accounting policies and internal accounting
and financial controls. Prior to the Company's initial public offering (the
"IPO"), there was no Audit Committee. The Audit Committee was established upon
the effectiveness of the IPO. The members of the Audit Committee for fiscal 1997
were H. James Brown, David E. De Leeuw and Richard T. Pratt. During the fiscal
year ended December 31, 1997, the Audit Committee did not hold meetings. In
April 1998, Dr. Pratt resigned from the Audit Committee and Mr. McKewon was
appointed as his replacement.
The Compensation Committee's function is to review salary and bonus levels
and approve stock option grants for the Company's executive officers. The
members of the Compensation Committee for fiscal 1997 were David E. De Leeuw,
Ray McKewon and Mark J. Riedy. The Company did not have a Compensation Committee
prior to the Company's IPO. During the fiscal year ended December 31, 1997, the
Compensation Committee held one meeting. For additional information concerning
the Compensation Committee, see "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION." In April 1998, Mr. McKewon
resigned from the Compensation Committee and Dr. Pratt was appointed as his
replacement.
5
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each of the Company's four other
most highly compensated executive officers (the "Named Executive Officers") for
services rendered in all capacities to the Company during the fiscal year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 LONG-TERM
1997 COMPENSATION
COMPENSATION AWARDS
--------------------- --------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) OPTIONS/SARS
--------------------------- --------- -------- --------------
<S> <C> <C> <C>
John M. Robbins........................................ $282,917 $150,000 220,000
CEO and Chairman of the Board of Directors
Jay M. Fuller.......................................... $230,208 $125,000 220,000
President and Chief Operating Officer
Mark A. Conger......................................... $137,292 $112,500 70,000
Executive Vice President and Chief Financial Officer
John Dahl.............................................. $ 43,750 $100,000(3) 75,000
Executive Vice President, Capital Markets and Loan
Production
Rollie O. Lynn......................................... $ 92,916 $ 56,250 50,000
Senior Vice President, Capital Markets
</TABLE>
- ---------------
(1) All base salary amounts are paid directly by the Company and reimbursed to
the Company by the Manager pursuant to a Management Agreement. See "Certain
Relationships and Related Transactions."
(2) Bonus amounts were paid by the Manager. Each executive officer has elected
to defer receipt of all or a portion of the bonus pursuant to the Manager's
Executive Deferred Compensation Plan. Bonuses with respect to 1997 were paid
solely in the discretion of the Board of Directors of the Manager.
(3) At the commencement of his employment, Mr. Dahl received $100,000 from the
Manager representing a signing bonus and his bonus for 1997.
6
<PAGE> 10
The following table provides information with respect to stock option
grants to the Named Executive Officers during the year ended December 31, 1997.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN 1997 POTENTIAL REALIZED
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL EXERCISE ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) 1997 ($/SH) DATE 5%($)(2) 10%($)(2)
---- ------------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Robbins............ 140,000(3) 19.2% $12.50 2/11/07 $1,100,568 $2,789,052
80,000(4) 11.0% $15.00 10/27/07 $ 754,672 $1,912,488
Jay M. Fuller.............. 140,000(3) 19.2% $12.50 2/11/07 $1,100,568 $2,789,052
80,000(4) 11.0% $15.00 10/27/07 $ 754,672 $1,912,488
Mark A. Conger............. 14,400(5) 2.0% $12.50 2/11/07 $ 113,201 $ 286,874
16,000(4) 2.2% $15.00 10/27/07 $ 150,934 $ 382,498
39,600(6) 5.4% $15.00 12/15/07 $ 373,563 $ 946,683
John Dahl.................. 75,000(4) 10.3% $15.00 10/27/07 $ 707,505 $1,792,958
Rollie O. Lynn............. 12,000(5) 1.6% $12.50 2/11/07 $ 94,334 $ 239,062
14,400(4) 2.0% $15.00 10/27/07 $ 135,841 $ 344,248
23,600(6) 3.2% $15.00 12/15/07 $ 222,629 $ 564,185
</TABLE>
- ---------------
(1) Options issued by the Company to date provide for acceleration of vesting at
such time as the Company receives cumulative gross proceeds from all public
and private offerings of at least $150,000,000. In addition, the options
accelerate and become fully vested upon the consummation of a transaction
resulting in a change of control of the Company.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term and does not
include any incremental value in Stock Appreciation Rights ("SARs") granted
in tandem with stock options. See footnote 3. The assumed 5% and 10% rates
of stock price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future price of the Common Stock. The potential realizable
value set forth in the table is based on the fair market value of the Common
Stock on the date of grant, as determined by the Board of Directors.
(3) Includes options to purchase 140,000 shares of Common Stock and SARs with
respect to an additional 140,000 shares of Common Stock granted in tandem
with such options. The SARs are for 35% of the difference between the fair
market value of the Common Stock at the time the related option is exercised
and the exercise price, up to a maximum of $20 per share. Options and tandem
SARs are each vested and exercisable as to 40% of the shares of Common Stock
with an additional 20% to vest and become exercisable on February 11, 1999,
2000 and 2001.
(4) These options are immediately exercisable and vested as to 20% of the shares
of Common Stock with an additional 20% to vest on November 3, 1998, 1999,
2000 and 2001.
(5) These options to purchase Common Stock of the Company are vested and
exercisable as to 40% of the shares of Common Stock with an additional 20%
to vest and become exercisable on February 11, 1999, 2000 and 2001.
(6) These options are immediately exercisable and vested as to 20% of the shares
of Common Stock with an additional 20% to vest on December 15, 1998, 1999,
2000 and 2001.
7
<PAGE> 11
None of the Named Executive Officers exercised any options during the year
ended December 31, 1997. The following table provides information with respect
to unexercised options held as of December 31, 1997, by the Named Executive
Officers.
AGGREGATED OPTION/SAR EXERCISES
AND FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED
OPTIONS/SARS
AT DECEMBER 31, 1997
----------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
John M. Robbins............................................. 108,000(2) 112,000(2)
Jay M. Fuller............................................... 108,000(2) 112,000(2)
Mark A. Conger.............................................. 58,480 11,520
John Dahl................................................... 75,000 --
Rollie O. Lynn.............................................. 40,400 9,600
</TABLE>
- ---------------
(1) The fiscal year-end value of "in-the-money" stock options and SARs granted
in tandem with such options represents the difference or a portion of the
difference between the exercise price of such options and SARs,
respectively, and the fair market value of the Company's Common Stock as of
December 31, 1997. The fair market value of the Company's Common Stock on
December 31, 1997 was $11.88 per share, the closing price of the Common
Stock reported on the New York Stock Exchange on such date. None of the
options or SARs held by the named Executive Officers were "in the-money" on
December 31, 1997.
(2) Includes options to purchase shares of Common Stock and SARs granted in
tandem with certain options. The SARs are for 35% of the difference between
the fair market value of the Common Stock at the time the related option is
exercised and the exercise price, up to a maximum of $20 per share.
8
<PAGE> 12
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Manager has entered into Employment and Non-Competition Agreements with
Mr. Robbins and Mr. Fuller effective as of February 11, 1997 (the "Employment
Agreements"). The Employment Agreements are for a term of five years, commencing
on February 11, 1997 and provide for a minimum monthly base salary of not less
than $25,000 in the case of Mr. Robbins and $20,833 in the case of Mr. Fuller.
The Employment Agreements also provide for one year's salary to be paid upon
termination of either of such employees without cause. Bonus payments in 1997
and 1998 will be at the discretion of the Board of Directors of the Manager.
Subsequent to 1998, the Employment Agreements provide for payment of a bonus of
up to 100% of base salary if certain financial targets and objectives are
achieved. The annual base compensation for Mr. Robbins and Mr. Fuller was
subsequently increased to $400,000 and $300,000, respectively.
Mr. Robbins and Mr. Fuller each purchased stock of the Manager which is
subject to repurchase by the Manager in the event the executive officer
terminates his employment with the Company and the Manager. See "Certain
Transactions."
The Manager has also entered into letter agreements with Mr. Conger, Mr.
Dahl and Mr. Lynn which provide for base compensation of $150,000, $175,000 and
$100,000 per year, respectively. The annual base compensation for Mr. Conger and
Mr. Lynn was subsequently increased to $175,000 and $125,000, respectively. In
addition, the agreements provide for bonus payments after 1998 of up to 75%,
100% and 75%, respectively, of the employee's base salary if certain financial
targets and objectives are achieved. Mr. Conger and Mr. Lynn were each issued
Contingent Warrants to purchase up to 34,299 shares of the common stock of the
Manager at an exercise price of $0.01 per share (the "Contingent Warrants"). The
Contingent Warrants expire on February 11, 2007 and are exercisable only to the
extent that certain letters of credit which collateralize debt of the Manager
are reduced from their current principal amounts. Mr. Conger and Mr. Lynn were
also issued percentage interests in Holdings initially equal to 1.5% each. These
interests may also vary based upon the extent to which such letters of credit
continue to be outstanding. See "Certain Transactions."
All options and SARs granted to date pursuant to the Company's 1997 Stock
Incentive Plan and the Company's 1997 Stock Option Plan contain provisions
pursuant to which unvested portions of outstanding options become fully vested
upon a change of control in the Company, as defined under the relevant plan.
Each of the officers of the Manager has modified his Employment Agreement
with the Manager which allowed each such person to become an employee of the
Company upon the closing of the IPO. The Manager will reimburse the Company on a
dollar for dollar basis for the actual cost to the Company of paying the base
salaries of such officers.
COMPENSATION OF DIRECTORS
Each independent director of the Company will be paid annual compensation
of $15,000 with an additional $1,000 paid for attendance at a regularly
scheduled Board of Directors meeting and $500 for attendance at a special or
committee meeting. All directors will be reimbursed for any expenses related to
attendance at meetings of the Board of Directors or committees of the Board of
Directors. In addition to cash compensation, each non-employee director of the
Company, except Mr. De Leeuw, receives an initial grant of options to purchase
7,500 shares of the Common Stock of the Company at the time he begins service as
a director. The initial grant is at fair market value and will vest over a three
year period (one-third every twelve months). Thereafter, following the annual
meeting of stockholders, the Company anticipates making annual grants to each
non-employee director, except Mr. De Leeuw, of options to purchase 2,500 shares
of the Company's Common Stock which will vest after one year.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer or employee of the Company has participated in deliberations by
the Company's Board of Directors concerning executive officer compensation,
except that Mr. Robbins and Mr. Fuller participated in the determination of Mr.
Dahl's compensation at the time he was hired by the Company.
Mr. McKewon is a director of the Company and a member of the Compensation
Committee. Mr. McKewon is an executive officer and director of Accredited Home
Lenders. Mr. Robbins serves as a director and member of the Compensation
Committee of Accredited Home Lenders. The Company acquired approximately $74
million in Mortgage Loans from Accredited Home Lenders in 1997. The Company
believes that this transaction was on terms as favorable to the Company as could
have been obtained from unaffiliated third parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following transactions were concluded in connection with the formation
of the Company and involve the Company, the Manager and certain executive
officers, directors and affiliates of the Company and the Manager. Because of
the relationships between the parties to each transaction, there can be no
assurance that transactions described below were on terms as favorable to the
Company as could have been obtained from unaffiliated third parties.
On February 11, 1997, in connection with the founding of the Company,
Holdings, Mr. Robbins and Mr. Fuller each purchased 1.6 million, 8,000 and 6,000
shares, respectively, of the Company's Common Stock at a price of $12.50 per
share in cash.
The Company and the Manager entered into a Management Agreement pursuant to
which the Company pays base Management fees and incentive compensation to the
Manager. The Company has entered into a Management Agreement with the Manager
for an initial term of two years beginning February 11, 1997. The Management
Agreement is renewed automatically for successive one year periods unless a
notice of non-renewal is timely delivered by the Company. In 1997, the Manager
accrued approximately $283,000 in fees pursuant to the Management Agreement. The
executive officers and certain directors of the Company are also executive
officers and directors of the Manager. For a detailed description of the
Management Agreement see information set forth under the caption "Business --
The Management Agreement" in the Company's Annual Report provided with this
Proxy Statement.
On February 11, 1997, in connection with the founding of the Company, the
Manager issued the following securities to the Company's officers, directors,
beneficial holders of 5% or more of the Company's Common Stock and their
Affiliates:
- The Manager issued 1,000,000 shares of its common stock to entities
affiliated with McCown De Leeuw & Co. and 127,032 shares to each of Mr.
Robbins and Mr. Fuller. The shares of Manager's common stock were issued
at a purchase price of $0.01 per share and paid in cash.
- The Manager issued 12% senior secured notes in the principal amount of
$25,000,000 (the "Notes") to entities affiliated with TCW/Crescent
Mezzanine, L.L.C. The Notes were issued at a purchase price equal to
$994.56 per $1,000 principal amount, paid in cash.
- The Manager issued warrants to purchase up to 666,667 shares of its
common stock to entities affiliated with TCW/Crescent Mezzanine, L.L.C.
The warrants were purchased at a price of $0.20 per warrant share paid in
cash and have an exercise price of $0.01 per share. The warrants expire
on February 11, 2007; the Company paid TCW/Crescent Mezzanine, L.L.C. a
fee of approximately $500,000 in connection with the sale and issuance of
the Notes and these warrants.
- The Manager issued warrants to purchase up to 17,149, 51,448, 34,299, and
34,299 shares of its common stock to entities affiliated with
TCW/Crescent Mezzanine, L.L.C., entities affiliated with McCown De Leeuw
& Co., Mr. Conger and Mr. Lynn, respectively. The warrants have an
exercise price of $0.01 per share. The warrants expire on February 11,
2007. The warrants are not currently exercisable and will become
exercisable only to the extent that certain letters of credit issued for
the benefit of the Manager are reduced over a period of four years.
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The shares of the Manager's common stock held by Mr. Robbins and Mr. Fuller
are subject to a right of repurchase by the Manager which lapses after the
earlier of February 11, 2002 and the closing of a public offering by the Company
which generates proceeds to the Company, which, when aggregated with the
proceeds of all other public offerings, equals $150 million or more. The
purchase price for the shares of the Manager's common stock in the event of a
repurchase shall be (i) equal to the book value of the securities in the event
that the executive officer's employment is terminated without cause or in the
event that the executive officer resigns for good cause, (ii) fair market value
of the securities in the case of death, and (iii) a nominal amount in all other
circumstances.
In connection with the founding of the Company, on February 11, 1997,
Holdings issued 29.91%, 45.98%, 1.5% and 1.5% ownership interests to entities
affiliated with TCW/Crescent Mezzanine, L.L.C., entities affiliated with McCown
De Leeuw & Co., Mr. Conger and Mr. Lynn, respectively.
The Manager and MDC Management Company II, L.P., ("MDC"), an affiliate of
McCown De Leeuw & Co., have entered into an advisory services agreement pursuant
to which MDC will provide financial and management services to the Manager.
Under the terms of the advisory services agreement, the Manager has accrued an
initial fee obligation of $500,000 with an additional accrued annual fee of
$250,000 to be paid to MDC. The annual payments will begin in March 1998 and
continue for a minimum of five years. The initial fee will be paid only after
the Manager has retired certain debt and preferred equity obligations.
The Company has entered into employment agreements with certain of its
executive officers. See "Employment Contracts, Termination of Employment and
Change in Control Arrangements." The Company has also entered into an
Indemnification Agreement with certain of its directors, officers and other key
personnel.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% stockholders were complied with, except that Mr. De
Leeuw, Mr. McKewon and Mr. Riedy were late with respect to filing one report
each.
CHANGES TO BENEFIT PLANS
1997 Stock Option Plan. The Board of Directors of the Company has adopted,
subject to stockholder approval, an amendment to the 1997 Stock Option Plan (the
"Option Plan") to increase the maximum number of shares that may be issued
thereunder by 300,000 shares. See "PROPOSAL TO AMEND THE 1997 STOCK OPTION
PLAN." As of March 31, 1998, no grant of options had been made to any person
conditioned upon stockholder approval of the increase in the share reserve of
the Option Plan.
Information regarding options granted under the Option Plan to the Named
Executive Officers is set forth in the Section "EXECUTIVE COMPENSATION AND OTHER
MATTERS." In addition, Lisa Faulk, Senior Vice President, Operations, was
granted 50,000 options at an exercise price of $15.00 per option. The executive
officers as a group were granted 378,600 options under the Option Plan. Each
option granted to an executive officer under the Option Plan was granted at an
exercise price of $15.00 per option and the non-executive officer employees as a
group were granted an aggregate of 54,600 options at a weighted average exercise
price of $13.65 per option.
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<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of three non-management directors
of the Board of Directors. No member of the Committee has been an executive
officer or employee of the Company since the Company commenced operations on
February 11, 1997. One member, Mr. De Leeuw, is also a director of the Manager.
The Compensation Committee is responsible for reviewing the annual base and
incentive compensation for executive officers and setting and administering the
policies governing equity compensation of executive officers. Aggregate
compensation is intended to be set at a level competitive with the amounts paid
to the management of similarly sized companies in similar industries. The
Committee also evaluates the performance of management.
Compensation of the Company's executive officers consists primarily of base
salary, bonuses based upon each executive officer's performance and longer term
equity incentives. Prior to the Company's initial public offering in October
1997, all compensation matters were determined in the sole discretion of the
Manager and base salaries were paid by the Manager. Subsequent to the IPO,
although the Company pays the base salaries of the executive officers, it is
reimbursed monthly by the Manager for all costs incurred with respect to such
payments. Accordingly, all salary levels for executive officers are determined
by the board of directors of the Manager, rather than the Compensation
Committee. In addition, all annual incentive bonus amounts are paid by the
Manager and accordingly are determined by the Manager's board of directors.
Subsequent to the IPO, the Committee has determined and will continue to
determine the levels of stock option grants to be made to executive officers
under the 1997 Stock Option Plan.
BASE SALARIES.
The CEO's and President's annual base salaries were originally set pursuant
to the terms of at-will employment agreements negotiated with investors at the
time of the Company's initial organization in February 1997. Each other
executive officer's base salary was originally negotiated at the time the
executive officer was hired. See "EXECUTIVE COMPENSATION AND OTHER MATTERS --
Employment Contracts, Termination of Employment and Change in Control
Arrangements." Subsequent to the IPO, the Manager reviewed the base salaries of
each executive officer who had served as an executive officer of the Company
since its formation, and increased base salaries by between 17 and 34%.
BONUSES.
Pursuant to the agreements between the Manager and each of the executive
officers, the board of directors of the Manager has established an incentive
compensation program for executive officers. This program permits the board of
directors of the Manager to award cash bonuses annually to executive officers.
Bonus payments in 1997 were at the discretion of the Manager. The Manager paid
performance related bonuses to the Company's executive officers of between 50%
and 75% of base salary. Two executive officers who joined the Company in the
fall of 1997 were paid signing bonuses and did not participate in the incentive
bonus program.
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EQUITY COMPENSATION.
It is the policy of the Compensation Committee that a significant portion
of the annual compensation of each executive officer be contingent upon the
performance of the Company. The Committee also believes that employee equity
ownership provides a major incentive to employees in building stockholder value
and serves to align the interests of employees with stockholders.
Like base salary, the level of options to purchase the Company's stock
granted to each executive officer at the time of his or her employment and at
the time of the IPO were negotiated at the time each executive officer was
initially employed by the Manager pursuant to an employment agreement. After the
Company's IPO, the Committee compared the stock ownership and options held by
each executive officer with equity positions held by executive officers of
similarly sized companies in similar industries. Based upon the Committee's
review and the recommendation of the Company's CEO and President, the Committee
granted two additional stock options to executive officers. The Committee
believes that these grants were necessary to provide compensation to these
executive officers at a level that approximates the median of the amounts paid
to executive officers of similarly sized companies in similar industries. See
"EXECUTIVE COMPENSATION AND OTHER MATTERS -- Option/SAR Grants in Last Fiscal
Year."
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Compensation of the Chief Executive Officer is based upon the same
criteria outlined above for the executive officers of the Company. Mr. Robbins
received bonus compensation with respect to 1997 equal to 50% of his base
salary. Mr. Robbins received option grants pursuant to the terms of his
employment agreement with the Company. He did not receive any grants after the
Company's IPO.
THE COMPENSATION COMMITTEE
David E. De Leeuw
Ray McKewon
Mark J. Riedy
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COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing changes in the cumulative total
return on the Company's Common Stock, a broad market index (the "S&P-500 Index")
and a peer group industry index ("Peer Group Index") for the period commencing
on October 28, 1997, the date the Common Stock commenced trading on the New York
Stock Exchange, and ending on December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM OCTOBER 28, 1997 THROUGH DECEMBER 31
1997(1)
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., PEER GROUP INDEX (2), S&P 500 INDEX
[PERFORMANCE GRAPH]
10/28/97 12/31/97
-------- --------
The Company 100.00 79.17
Peer Group Index 100.00 91.15
S&P - 500 Index 100.00 105.27
- ---------------
(1) Assumes that $100.00 was invested on October 28, 1997 in the Company's
Common Stock and each index, and that all dividends were reinvested.
Dividends have been declared on the Company's Common Stock. Stockholder
returns over the indicated period should not be considered indicative of
future stockholder returns.
(2) The self determined Peer Group Index is comprised of the following
companies: INMC Mortgage Holdings Inc.; Novastar Financial Inc.; Imperial
Credit Mortgage Holdings; Annaly Mortgage Management Inc.; Redwood Trust
Inc.; Dynex Capital Inc.; Capstead Mortgage Corp.; and Thornburg Mortgage
Asset Corp. These are publicly traded companies that are predominantly in
the residential mortgage REIT business.
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<PAGE> 18
ELECTION OF DIRECTORS
The Company has a classified Board of Directors currently consisting of two
Class I directors (H. James Brown and Ray McKewon), two Class II directors
(David E. De Leeuw and Richard T. Pratt), and three Class III directors (John M.
Robbins, Jay M. Fuller and Mark J. Riedy), who will serve until the Annual
Meetings of Stockholders to be held in 1998, 1999 and 2000, respectively, and
until their respective successors are duly elected and qualified. Directors in a
class are elected for a term of three years to succeed the directors in such
class whose terms expire at such annual meeting. Information regarding each
Director is set forth in the Section captioned "GENERAL
INFORMATION -- Directors."
Management's nominees for election at the Annual Meeting of Stockholders to
fill the Class I positions on the Board of Directors are H. James Brown and Ray
McKewon. If elected, the nominees will serve as directors until the Company's
Annual Meeting of Stockholders in 2001, and until their successors are elected
and qualified. If a nominee declines to serve or becomes unavailable for any
reason, or if a vacancy occurs before the election, the proxies may be voted for
such substitute nominee as the proxy holders may designate.
If a quorum is present, either in person or by proxy, the two nominees for
the positions as Class I directors receiving the highest number of votes will be
elected. Abstentions and broker non-votes will have no effect on the vote. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED ABOVE.
PROPOSAL TO AMEND THE 1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors on August 6, 1997. As of April 7, 1998, only 41,600 shares
remained available for future option grants under the Option Plan. The Board of
Directors believes this amount is insufficient to satisfy the Company's
anticipated equity incentive objectives. Accordingly, on April 7, 1998 the Board
of Directors approved, subject to stockholder approval, the reservation of an
additional 300,000 shares for issuance under the Option Plan.
The Internal Revenue Code of 1986, as amended (the "Code") limits the
amount of compensation paid to a corporation's chief executive officer and four
other most highly compensated officers that the corporation may deduct as an
expense for federal income tax purposes. To enable the Company to continue to
deduct in full all amounts of ordinary income recognized by its executive
officers in connection with options granted under the Option Plan, the Board of
Directors has amended the Option Plan, subject to stockholder approval, to limit
to 250,000 the maximum number of shares for which options may be granted to any
employee in any fiscal year (the "Grant Limit"). However, the Company's stock
option grants typically do not approach this limit.
The stockholders are now being asked to approve the increase from 474,800
to 774,800 shares as the maximum aggregate number of shares that may be issued
under the Option Plan and the establishment of the Grant Limit. The Board of
Directors believes that approval of these amendments is in the best interests of
the Company and its stockholders because the availability of an adequate stock
option program is an important factor in attracting, motivating and retaining
qualified officers, employees and consultants essential to the success of the
Company and in aligning their long-term interests with those of the
stockholders.
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SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan, as amended, is qualified in its
entirety by the specific language of the Option Plan, a copy of which is
available to any stockholder upon request.
General. The Option Plan provides for the grant of incentive stock options
within the meaning of section 422 of the Code and nonstatutory stock options. As
of April 7, 1998, the Company had outstanding options to purchase an aggregate
of 433,200 shares at a weighted average exercise price of $14.83 per share. The
exercise price of all options granted under the Option Plan has been at least
equal to the fair market value per share of the Common Stock on the date of
grant as determined in good faith by the Board of Directors. As of April 7,
1998, no options to purchase shares of Common Stock granted pursuant to the
Option Plan had been exercised, and 341,600 shares of Common Stock remained
available for future grants under the Option Plan, provided that the
stockholders approve the increase in the number of shares authorized under the
Option Plan and approved by the Board of Directors on April 7, 1998.
Shares Subject to Plan. The Board has amended the Option Plan, subject to
stockholder approval, to increase by 300,000 the maximum number of authorized
but unissued or reacquired shares of the Company's Common Stock issuable
thereunder to an aggregate of 774,800. In the event of any stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification, or
similar change in the capital structure of the Company, appropriate adjustments
will be made to the shares subject to the Option Plan, to the Grant Limit and to
outstanding options. To the extent any outstanding option under the Option Plan
expires or terminates prior to exercise in full or if shares issued upon
exercise of an option are repurchased by the Company, the shares of Common Stock
for which such option is not exercised or the repurchased shares are returned to
the Option Plan and become available for future grant.
Administration. The Option Plan is administered by the Board of Directors
or a duly appointed committee of the Board (hereinafter referred to as the
"Board"). With respect to the participation of individuals whose transactions in
the Company's equity securities are subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Option Plan must be administered
in compliance with the requirements, if any, of Rule 16b-3 under the Exchange
Act. Subject to the provisions of the Option Plan, the Board determines the
persons to whom options are to be granted, the number of shares to be covered by
each option, whether an option is to be an incentive stock option or a
nonstatutory stock option, the terms of exercisability of each option and the
vesting of the shares acquired, including the effect thereon of an optionee's
termination of service, the exercise price and type of consideration to be paid
to the Company upon exercise of an option, the duration of each option, and all
other terms and conditions of the options. The Option Plan authorizes the Board
to amend, modify, extend or renew, or grant a new option in substitution for,
any option, to waive any restrictions or conditions applicable to any option or
any shares acquired upon the exercise thereof. Subject to certain limitations,
the Option Plan provides for indemnification by the Company of any director,
officer or employee against all reasonable expenses, including attorneys' fees,
incurred in connection with any legal action arising from such person's action
or failure to act in administering the Option Plan. The Board will interpret the
Option Plan and options granted thereunder, and all determinations of the Board
will be final and binding on all persons having an interest in the Option Plan
or any option.
Eligibility. All employees, directors and consultants of the Company or of
any present or future parent or subsidiary corporations of the Company are
eligible to participate in the Option Plan. In addition, options may be granted
to prospective employees, consultants and directors in connection with written
offers of employment or engagement. However, any such options may not become
exercisable prior to such individual's commencement of service. As of March 31,
1998, the Company had 15 employees, including 6 executive officers, 7 directors
and 2 consultants. Any person eligible under the Option Plan may be granted a
nonstatutory option. However, only employees may be granted incentive stock
options.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share must equal at least the fair market value of a
share of the Company's Common Stock on the date of grant of an incentive stock
option and at least 85% of the fair market value of a share of the Common Stock
on the date
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<PAGE> 20
of grant of a nonstatutory stock option. The exercise price of any option
granted to a person who at the time of grant owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company (a "Ten Percent Stockholder")
must be at least 110% of the fair market value of a share of the Company's
Common Stock on the date of grant. On April 6, 1998, the closing price of a
share of the Company's Common Stock was $11.50, as reported on the New York
Stock Exchange.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of Common Stock being acquired upon the exercise of the option, by means
of a promissory note, by any other lawful consideration approved by the Board or
by any combination of these. The Board may restrict the forms of payment
permitted in connection with any option grant.
Options granted under the Option Plan will become exercisable and vested at
such times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan are exercisable on and after the date of
grant, subject to the right of the Company to reacquire at the optionee's
exercise price any unvested shares held by the optionee upon termination of
employment or service with the Company or if the optionee attempts to transfer
any unvested shares (the "Unvested Share Repurchase Option"). Shares subject to
options generally vest in installments subject to the optionee's continued
employment or service.
The maximum term of an option granted under the Option Plan is ten years, except
that an incentive stock option granted to a Ten Percent Stockholder may not have
a term longer than five years.
Options are nontransferable by the optionee other than by will or by the
laws of descent and distribution, and are exercisable during the optionee's
lifetime only by the optionee.
Change in Control. The Option Plan provides that in the event of (i) a sale
or exchange by the stockholders of more than 50% of the Company's voting stock,
(ii) a merger or consolidation to which the Company is a party, (iii) the sale,
exchange or transfer of all or substantially all of the assets of the Company,
or (iv) a liquidation or dissolution of the Company, wherein the stockholders of
the Company immediately before any such event do not retain direct or indirect
beneficial ownership of more than 50% of the total combined voting power of the
voting stock of the Company, its successor, or the corporation to which the
assets of the Company were transferred (a "Change in Control"), any
unexercisable or unvested portion of the outstanding options will become fully
exercisable and vested prior to the Change in Control. In addition, the Board
may arrange with the surviving, continuing, purchasing or successor corporation
or parent corporation thereof (the "Acquiring Corporation") to assume or
substitute substantially equivalent new options for the options outstanding
under the Option Plan. To the extent that the options outstanding under the
Option Plan are not assumed, replaced, or exercised prior to such event, they
will terminate.
Termination or Amendment. The Option Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the Option Plan have been issued and all
restrictions on such shares under the terms of the Option Plan and the option
agreements have lapsed, provided that all options must be granted by August 6,
2007, which is ten years from the date the Board approved the Option Plan. The
Board may terminate or amend the Option Plan at any time. However, subject to
changes in the law that would permit otherwise, without stockholder approval,
the Board may not adopt an amendment to the Option Plan which would increase the
total number of shares of Common Stock issuable thereunder, change the class of
persons eligible to receive incentive stock options, or otherwise require
approval of the Company's stockholders under any applicable law, regulation or
rule. No amendment may adversely affect an outstanding option without the
consent of the optionee, unless the amendment is required to preserve the
option's status as an incentive stock option or is necessary to comply with any
applicable law.
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SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be mid-term if the optionee's holding period is between 12 and 18 months or
long-term if the optionee's holding period is more than 18 months. Any ordinary
income recognized by the optionee upon the disqualifying disposition of the
shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or (ii)
the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. A capital gain or
loss will be mid-term if the optionee's holding period is between 12 and 18
months or long-term if the optionee's holding period is more than 18 months. No
tax deduction is available to the Company with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to such grant.
The Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option, except to the extent such deduction is limited by
applicable provisions of the Code or the regulations thereunder.
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VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions will have the same
effect as a negative vote. Broker non-votes will have no effect on the outcome
of the vote.
The Board of Directors believes that approval of the increase in the number
of shares issuable under the Option Plan and the establishment of the Grant
Limit is in the best interests of the Company and the stockholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE INCREASE IN THE SHARE RESERVE OF THE 1997 STOCK
OPTION PLAN AND THE ESTABLISHMENT OF THE GRANT LIMIT.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected KPMG Peat Marwick LLP as
its independent accountants to audit the financial statements of the Company for
the fiscal year ended December 31, 1998. KPMG Peat Marwick LLP has acted in such
capacity since its appointment on April 2, 1997. A representative of KPMG Peat
Marwick LLP is expected to be present at the Annual Meeting with the opportunity
to make a statement if the representative desires to do so, and is expected to
be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal.
Abstentions and broker non-votes will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1998.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at 445 Marine View Avenue, Suite 230, Del Mar, California 92014, not
later than January 22, 1999 and satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
CLAY STRITTMATTER
Secretary
April 22, 1998
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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The American Residential Investment Trust, Inc.
1997 Stock Option Plan (the "PLAN") is hereby established effective as of August
6, 1997.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted by
the Board or the date the Plan is duly approved by the stockholders of the
Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means American Residential Investment Trust, Inc.,
a Maryland corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
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(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company group because
of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the New York Stock
Exchange or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in the Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to be (as
set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
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(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one or more
Options.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(M)" means Section 162(m) of the Code.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(w) "SERVICE" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either upon
an actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the
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Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination.
(x) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(z) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 COMMITTEE COMPLYING WITH SECTION 162(M). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
3.4 POWERS OF THE BOARD. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
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(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or otherwise
adjust the exercise price of, or grant a new Option in substitution for, any
Option or to waive any restrictions or conditions applicable to any Option or
any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
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4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Seven Hundred Seventy-Four Thousand Eight
Hundred (774,800). If any outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan, in the Section 162(m) Grant Limit set forth in Section 5.4 and to
any outstanding Options and in the exercise price per share of any outstanding
Options. If a majority of the shares which are of the same class as the shares
that are subject to outstanding Options are exchanged for, converted into, or
otherwise become (whether or not pursuant to an Ownership Change Event, as
defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the exercise price per share of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"EMPLOYEES," "CONSULTANTS" and "DIRECTORS" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company
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Group, including the Plan) become exercisable by an Optionee for the first time
during any calendar year for stock having a Fair Market Value greater than One
Hundred Thousand Dollars ($100,000), the portion of such options which exceeds
such amount shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5.3, options designated as Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
stock shall be determined as of the time the option with respect to such stock
is granted. If the Code is amended to provide for a different limitation from
that set forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required or permitted by such amendment to the Code. If an Option is treated as
an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
5.4 SECTION 162(M) GRANT LIMIT. Subject to adjustment as provided in
Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than two hundred fifty thousand (250,000) shares
(the "SECTION 162(M) GRANT LIMIT").
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten
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(10) years after the effective date of grant of such Option, (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after
the expiration of five (5) years after the effective date of grant of such
Option, (c) no Option granted to a prospective Employee, prospective Consultant
or prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION Authorized. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the
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<PAGE> 31
Option is granted. The Board shall have the authority to permit or require the
Optionee to secure any promissory note used to exercise an Option with the
shares of Stock acquired upon the exercise of the Option or with other
collateral acceptable to the Company. Unless otherwise provided by the Board, if
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board in its sole discretion at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no
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later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of six (6) months (or such
longer period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within one (1) month after
the Optionee's termination of Service.
(iii) OTHER TERMINATION OF Service. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within one (1) month (or such longer period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 12 below, the
Option shall remain exercisable until one (1) month after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as an "INCENTIVE STOCK
OPTION" shall comply with and be subject to the terms and conditions set forth
in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as a "NONSTATUTORY STOCK
OPTION" shall comply with and be subject to the terms and conditions set forth
in the form of Nonstatutory
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Stock Option Agreement adopted by the Board concurrently with its adoption of
the Plan and as amended from time to time.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or
a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON Options. In the event of a Change
in Control, any unexercisable or unvested portion of the outstanding Options
shall be immediately exercisable and vested in full as of the date ten (10) days
prior to the date of the Change in
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Control. The exercise or vesting of any Option that was permissible solely by
reason of this Section 8.2 shall be conditioned upon the consummation of the
Change in Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may either assume the Company's rights and obligations
under outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired upon exercise of an
Option prior to the Change in Control and any consideration received pursuant to
the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of the Option Agreement evidencing such Option
except as otherwise provided in such Option Agreement. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and income
statement for the just completed fiscal year shall be made available to each
Optionee and purchaser of shares of Stock upon the exercise of an Option. The
Company shall not be required to provide such information to persons whose
duties in connection with the Company assure them access to equivalent
information.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative. No
Option shall be assignable or transferable by the Optionee, except by will or by
the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon exercise
of Options shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities
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<PAGE> 35
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, no Option
may be exercised unless (a) a registration statement under the Securities Act
shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (b) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have
as members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
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14. STOCKHOLDER APPROVAL.
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4.1 (the "MAXIMUM SHARES") shall be
approved by the stockholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to stockholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the stockholders shall become exercisable no earlier than the date of
stockholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing is the American Residential Investment Trust, Inc. 1997 Stock
Option Plan as duly adopted by the Board on August 6, 1997 and amended by the
Board on April 7, 1998.
-----------------------------------
Secretary
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<PAGE> 37
PROXY
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints John Robbins, Jay Fuller and Mark Conger, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of stock of American Residential Investment Trust,
Inc. (the "Company") which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Del Mar Hilton, Del
Mar, California on Friday, May 22, 1998 at 10:00 a.m., and at any adjournment
thereof (i) as hereinafter specified upon the proposals listed on the reverse
side and as more particularly described in the Company's Proxy Statement,
receipt of which is hereby acknowledged, and (ii) in their discretion upon such
other matters as may properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2 AND 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 38
<TABLE>
<S> <C>
A vote FOR the following proposals is recommended by the 3. To approve the selection of KPMG Peat Marwick LLP as
Board of Directors: the Company's independent public accountants for the
year ending December 31, 1998.
1. ELECTION OF DIRECTORS
FOR WITHHELD FOR AGAINST ABSTAIN
Nominee: H. James Brown [ ] [ ] [ ] [ ] [ ]
FOR WITHHELD Even if you are planning to attend the meeting in
Nominee: Ray McKewon [ ] [ ] person, you are urged to sign and mail this Proxy in
the return envelope so that your stock may be
represented at the meeting.
2. To approve the amendment of the Company's 1997 Stock
Option Plan to increase the maximum aggregate number Sign exactly as your name(s) appears on your stock
of shares reserved for issuance thereunder by 300,000 certificates. If shares of stock stand on record in
and to establish the share grant limitation. the names of two or more persons or in the name of
husband and wife, whether as joint tenants or
FOR AGAINST ABSTAIN otherwise, both or all of such persons should sign
[ ] [ ] [ ] this Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the
President or Vice President and the Secretary or
Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other
fiduciaries who execute this Proxy for a deceased
stockholder should give their title. Please date this
Proxy.
Signature(s)___________________________________________________ Date__________________
___________________________________________________
</TABLE>
