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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ____)*
ANWORTH MORTGAGE ASSET CORP.
________________________________________________________________________________
(Name of Issuer)
Common Stock, par $0.01
________________________________________________________________________________
(Title of Class of Securities)
037347 101
_______________________________________________________________
(CUSIP Number)
Pamela J. Watson
1299 Ocean Avenue, Suite 200
Santa Monica, CA 90401
________________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
14-May-99
_______________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Check the following box if a fee is being paid with the statement [X]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
===============================================================================
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 037347 101 PAGE 2 OF 5 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Lloyd McAdams
Heather U. Baines
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
PF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
McAdams: United States of America; Baines: British
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF Lloyd McAdams : 5,000
Heather U. Baines : 10,000
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
102,200
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING Lloyd McAdams : 5,000
Heather U. Baines : 10,000
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
102,200
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
Lloyd McAdams : 133,574
Heather U. Baines : 138,574
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
Lloyd McAdams = 5.9% Heather Baines = 6.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
Item 1. Security and Issuer.
This statement relates to the common stock, par value $0.01 (the "Common
Stock"), of Anworth Mortgage Asset Corporation (the "Company"), whose offices
are located at 1299 Ocean Avenue, Suite 200, Santa Monica, CA 90401.
Item 2. Identity and Background.
The names of the reporting persons are Lloyd McAdams and Heather U. Baines.
Pertaining to Lloyd McAdams, Jr.:
(a) Joseph Lloyd McAdams, Jr.;
(b) 1299 Ocean Avenue, Suite 200
Santa Monica, CA 90401;
(c) Chief Investment Officer, Pacific Income Advisers, Inc.
1299 Ocean Avenue, Suite 200
Santa Monica, CA 90401;
(d) None;
(e) None; and
(f) United States of America
Pertaining to Heather Baines:
(a) Heather Una Hannah Baines;
(b) 1299 Ocean Avenue, Suite 200
Santa Monica, CA 90401;
(c) President, Pacific Income Advisers, Inc.
1299 Ocean Avenue, Suite 200
Santa Monica, CA 90401;
(d) None;
(e) None; and
(f) British.
<PAGE>
ITEM 3. Source and Amount of Funds or Other Considerations.
The securities were purchased in the open market with personal funds.
ITEM 4. Purpose of Transaction.
Lloyd McAdams is the Chief Executive Officer of the Company. Heather U. Baines
is his wife and is an Executive Vice President of the Company. The purpose of
the transaction is to acquire shares for investment purposes.
ITEM 5. Interest in Securities of the Issuer.
(a) As husband and wife, Lloyd McAdams and Heather U. Baines own, as
community property, 102,200 shares of the Common Stock or 4.4% of the
outstanding shares of the Common Stock, and Lloyd McAdams and Heather U.
Baines hold, as community property, the right to acquire 26,374 shares
of Common Stock or 1.2% of the outstanding shares of Common Stock as the
result of options granted pursuant to the Anworth Mortgage Asset
Corporation 1997 Stock Option and Awards Plan (the "Plan"). Taken
together, these positions amount to 128,574 shares or 5.6% of the
outstanding shares of the Common Stock. Lloyd McAdams separately owns
5,000 shares of the Common Stock in which Ms. Baines has no beneficial
interest and Heather U. Baines owns 10,000 shares of the Common Stock in
which Mr. McAdams has no beneficial interest. Lloyd McAdams' total
interest amounts to 133,574 shares or 5.9% of the outstanding shares of
the Common Stock and Heather U. Baines' total interest amounts to 138,574
or 6.1% of the outstanding shares of Common Stock;
(b) Both Lloyd McAdams and Heather U. Baines have shared power to vote and
shared dispositive power over 102,200 shares of the issue. Lloyd McAdams
has sole power to vote and sole dispositive power over 5,000 shares of
the Common Stock. Heather U. Baines has sole power to vote and sole
dispositive power over 10,000 shares of the Common Stock;
(c) The following transactions took place within the past sixty days:
<TABLE>
<CAPTION>
Purchaser Date # of Shares Price Where, how transacted
Purchased
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lloyd McAdams 4/27/99 3,600 4.50 Amex, limit order
- -------------------------------------------------------------------------------------------
Lloyd McAdams 4/28/99 6,400 4.50 Amex, limit order
- -------------------------------------------------------------------------------------------
Lloyd McAdams 5/14/99 5,000 4.75 Amex, limit order
- -------------------------------------------------------------------------------------------
Heather Baines 5/14/99 10,000 4.75 Amex, limit order
- -------------------------------------------------------------------------------------------
Lloyd McAdams 5/18/99 500 4.75 Amex, limit order
- -------------------------------------------------------------------------------------------
Lloyd McAdams 5/19/99 11,500 4.74 Amex, limit order
- -------------------------------------------------------------------------------------------
</TABLE>
(d) None; and
(e) Not applicable
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
<PAGE>
As Chief Executive Officer of the Issuer, Lloyd McAdams has been granted an
option to purchase 44,400 shares of the Common Stock with an exercise price of
$9.00 per share and has been awarded the right to receive an additional 4,400
shares upon exercise of the above option pursuant to dividend equivalent rights
issued in accordance with the Plan. The right to purchase one-third of these
shares vested on March 17, 1999; the remaining two-thirds will vest over the
next two years, one remaining third each year on March 17. Lloyd McAdams has
also been granted an option to purchase 12,500 shares of the Common Stock with
an exercise price of $4.60; this option will vest on April 17, 2002.
As Executive Vice President Officer of the Company, Heather Baines has been
granted an option to purchase 32,000 shares of the Common Stock with an exercise
price of $9.00 per share and has been awarded the right to receive an additional
3,521 shares upon exercise of the above option pursuant to dividend equivalent
rights issued in accordance with the Plan. The right to purchase one-third of
these shares vested on March 17, 1999; the remaining two-thirds will vest over
the next two years, one remaining third each year on March 17. Heather Baines
has also been granted an option to purchase 5,000 shares of the Common Stock
with an exercise price of $4.60; this option will vest on April 17, 2002.
Item 7. Material to Be Filed as Exhibits
Exhibit A - Stock option agreement between Anworth Mortgage Asset Corporation
and Lloyd McAdams, dated March 9, 1998.
Exhibit B - Stock option agreement between Anworth Mortgage Asset Corporation
and Heather U. Baines, dated March 9, 1998.
Exhibit C - Stock option agreement between Anworth Mortgage Asset Corporation
and Lloyd McAdams, dated June 16, 1999.
Exhibit D - Stock option agreement between Anworth Mortgage Asset Corporation
and Heather U. Baines, dated June 16, 1999.
Signature
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
16-JUN-99 /s/ Lloyd McAdams
- ------------------ ------------------------------
Date Signature
LLOYD MCADAMS
-------------------------
Name
16-JUN-99 /s/ Heather U. Baines
- ------------------ ------------------------------
Date Signature
HEATHER U. BAINES
-------------------------
Name
<PAGE>
EXHIBIT 99.1
EXHIBIT A
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT dated as of the 9th day of March 1998, between Anworth
Mortgage Asset Corporation, a Maryland corporation (the "Corporation"), and
Joseph Lloyd McAdams, Jr. (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Anworth Mortgage Asset Corporation 1997 Stock
Option and Awards Plan, as amended (the "Plan"), the Corporation has granted to
the employee, effective as of effective as of the effective date of the initial
public offering of the Corporation's common stock on Registration Statement Form
S-11 (the "Award Date"), an option to purchase all or any part of 40,000
authorized but unissued or treasury shares of Common Stock, $.01 par value, of
the Corporation upon the terms and conditions set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
---------------
to the Employee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of 40,000
shares of the Common Stock at the price of $9.00 per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date"). Such price equals the Fair Market
Value of the Corporation's Common Stock as of the Award Date. It is the intent
of the Corporation that this Option constitute an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code").
[3. Dividend Equivalent Rights.
--------------------------
(a) Pursuant to Section 5(k) of the Plan, the Administrator
hereby grants to the Employee Accrued DERs, which shall be accrued with
respect to the number of shares set forth in Section 2 that have not been
purchased by the Employee pursuant to the Option as of the date dividends
are declared on the Corporation's Common Stock. Accrued DERs shall also be
accrued with respect to Accrued DERs which, at the date dividends are
declared on the Corporation's Common Stock, had previously accrued with
respect to such Common Stock pursuant to this Agreement.
<PAGE>
(b) Accrued DERs as described in subsection (a) above shall be
accrued in accordance with the following formula:
(A x B) / C
under which "A" equals the number of shares subject to the Option
(including Accrued DERs which had previously accrued), "B" equals the
cash dividend per share or the value per share of the Common Stock or
other property being distributed, as the case may be and "C" equals
the Fair Market Value per share of Common Stock on the dividend
payment date.
(c) The Accrued DERs shall represent shares of Common Stock
which shall be issuable to the Employee proportionately as the Employee
exercises the Option.
(d) Notwithstanding anything to the contrary herein, Accrued DERs
granted with respect to the Option shall be accrued only to the extent of
the number of shares of Common Stock then reserved and available for
issuance under the Plan in excess of the number of shares subject to
issuance pursuant to outstanding Stock Option, Accrued DER, Stock
Appreciation Right, Limited Stock Appreciation Right, Deferred Stock or
Performance Share awards.
(e) Accrued DERs accruing hereunder shall expire on the
expiration of the Option pursuant to the terms of this Agreement.
(f) Any Common Stock issued to the Employee which is attributable
to accrued DERs shall not constitute an Incentive Stock Option within the
meaning of Section 422 of the Code. The tax consequences to the Employee
of any such Common Stock attributable to accrued DERs which is issued to
the Employee shall be determined under the rules provided in Section 83 of
the Code.]
4. Exercisability of Option. Except as earlier permitted by or
------------------------
pursuant to the Plan or by resolution of the Committee adopted after the date
hereof, no shares may be purchased by exercise of the Option until the
expiration of twelve months after the Award Date. The Option may be exercised
in installments as to 33.34% of the aggregate number of shares set forth in
Section 2 hereof [subject to adjustment in the number of shares for Accrued DERs
pursuant to Section 3 hereof and pursuant to Section 3(c) of the Plan] on and
after the first anniversary of the Award Date and as to an additional 33.3% of
such aggregate number of such shares [subject to adjustment in the number of
shares for Accrued DERs pursuant to Section 3 hereof and pursuant to Section
3(c) of the Plan] on each of the second and third anniversaries of the Award
Date.
To the extent the Employee does not in any year purchase all or any
part of the shares to which the Employee is entitled, the Employee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option
-2-
<PAGE>
terminates or expires. Fractional share interests shall be disregarded, but may
be cumulated. No fewer than 1,000 shares may be purchased at any one time,
unless the number purchased is the total number at the time available for
purchase under the Option.
5. Limitation on Exercise of Option. In the event the Employee is
--------------------------------
granted incentive stock options (whether under this Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the
case of simultaneously granted options, the Corporation may, in the manner and
to the extent permitted by law, designate which shares are to be treated as
stock acquired pursuant to the exercise of an incentive stock option.
6. Method of Exercise of Option.
----------------------------
(a) The Option shall be exercisable by the delivery to the
Corporation of a written notice stating the number of shares to be
purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted in Section 5(c)(iv) of the Plan for
the full purchase price of the shares to be purchased, subject to such
further limitations and rules or procedures as the Administrator may from
time to time establish as to any non-cash payment. Shares delivered in
payment of the exercise price must have been owned by Employee for at least
six months prior to the exercise. In addition, the Employee shall furnish
any written statements required pursuant to Section 11(a) of the Plan.
(b) The Corporation may require that the Employee enter into an
arrangement providing for the payment by the Employee to the Corporation of
any tax withholding obligation of the Corporation arising by reason of (1)
the exercise of the Option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise.
7. Conditions to Exercise. Notwithstanding anything to the contrary
----------------------
contained herein, the Option may not be exercised unless the shares issuable
upon exercise of the Option are then registered under the Securities Act of
1933, as amended (the "Securities Act") or, if such shares are not then so
registered, the Corporation has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act. If the
Corporation, in its sole discretion, shall determine that it is necesary to
comply with applicable securities laws, the certificate or certificates
representing the shares issuable upon exercise of the Option shall bear an
appropriate legend in form and substance, as determined by the Corporation,
giving notice of applicable restrictions on transfer under or in respect of such
laws.
-3-
<PAGE>
8. Effect of Termination of Employment or Death: Change in Subsidiary
------------------------------------------------------------------
Status. The Option and all other rights hereunder, to the extent not exercised,
- ------
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any Subsidiary, except that:
(a) if the Employee voluntarily terminates or resigns, the
Employee may at any time within a period of three months after such
termination exercise the Option to the extent the Option was exercisable at
the date of such termination;
(b) if the Employee terminates by reason of becoming permanently
and totally disabled (within the meaning of Code Section 22(e)(3)), then
the Option shall, to the extent not theretofore exercised, fully vest and
may be exercised within a period of one year after the Employee's
termination from employment;
(c) if the Employee dies prior to a termination of employment, or
within three months after a termination of employment under subsection (a)
or (b) above, then the Option shall, to the extent not theretofore
exercised, fully vest and may be exercised within a period of one year
after the Employee's termination from employment pursuant to the provisions
of Section 5(g) of the Plan;
provided, however, that in no event may the Option be exercised by anyone under
this Section 8 or otherwise after the Expiration Date. If Employee is employed
by an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 8 to be a termination of employment described in
subsection (a) in respect of Employee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section 8 if the period of such absence does not
exceed 90 (ninety) days, or if longer, so long as the Employee's right to
reemployment with the Corporation or a Subsidiary is guaranteed either by
statute or by contract. Where the period of such absence exceeds 90 days and
where the individual's right to reemployment is not guaranteed either by statute
or by contract, the Employee's employment shall be deemed to have terminated
pursuant to subsection (a) of this Section 8 on the 91st day of such absence.
9. Investment Representation. You hereby covenant and agree with the
-------------------------
Corporation that if, at the time of exercise of the Option, there does not exist
a Registration Statement on an appropriate form under the Securities Act, which
Registration Statement shall have become effective and shall include a
prospectus which is current with respect to the shares subject to the Option,
(i) that you are purchasing the shares for your own account and not with a view
to the resale or distribution thereof, (ii) that any subsequent offer for sale
or sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, you shall, prior to any
offer for sale of sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the applicability of such
exemption and (iii) that you agree that the certificates evidencing such shares
shall bear a legend to the effect of the foregoing.
-4-
<PAGE>
10. Non-Transferability of Option. The Option and any other rights of
-----------------------------
the Employee under this Agreement or the Plan are nontransferable except as
provided in Section 5(f) of the Plan.
11. Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and addressed to the Corporation at its principal office
located at 1299 Ocean Avenue, Santa Monica, California 90401, to the attention
of the Chief Financial Officer and to the Employee at the address given beneath
the Employee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
12. Plan. The Option and all rights of Employee thereunder are
----
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Eligible
Employees. The Employee acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Administrator do not (and shall not be deemed to) create any rights in the
Employee unless such rights are expressly set forth herein or are otherwise in
the sole discretion of the Administrator so conferred by appropriate action of
the Administrator under the Plan after the date hereof.
13. Notice of Disposition. The Employee agrees to notify the
---------------------
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option, if such sale or disposition occurs within
two years after the Award Date or within one year after the date of such
exercise.
-5-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
ANWORTH MORTGAGE ASSET CORPORATION,
a Maryland corporation
By /s/ Pamela J. Watson
______________________________
Name: Pamela J. Watson
Title: Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
EMPLOYEE
/s/ Lloyd McAdams
________________________________
(Signature)
Lloyd McAdams
________________________________
(Print Name)
1200 Turquesa Lane
________________________________
(Address)
Pacific Palisades, CA 90272
________________________________
(City, State, Zip Code)
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
In consideration of the execution of the foregoing Incentive Stock
Option Agreement by Anworth Mortgage Asset Corporation, I, Heather U. Baines,
the spouse of the Employee herein named, do hereby join with my spouse in
executing the foregoing Incentive Stock Option Agreement and do hereby agree to
be bound by all of the terms and provisions thereof and of the Plan.
DATED: March 9, 1998
/s/ Heather U. Baines
___________________________
Signature of Spouse
-7-
<PAGE>
EXHIBIT 99.2
EXHIBIT B
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT dated as of the 9th day of March 1998, between Anworth
Mortgage Asset Corporation, a Maryland corporation (the "Corporation"), and
Heather U. Baines (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Anworth Mortgage Asset Corporation 1997 Stock
Option and Awards Plan, as amended (the "Plan"), the Corporation has granted to
the employee, effective as of the effective date of the initial public offering
of the Corporation's common stock on Registration Statement Form S-11 (the
"Award Date"), an option to purchase all or any part of 32,000 authorized but
unissued or treasury shares of Common Stock, $.01 par value, of the Corporation
upon the terms and conditions set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
---------------
to the Employee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of 32,000
shares of the Common Stock at the price of $9.00 per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date"). Such price equals the Fair Market
Value of the Corporation's Common Stock as of the Award Date. It is the intent
of the Corporation that this Option constitute an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code").
[3. Dividend Equivalent Rights.
--------------------------
(a) Pursuant to Section 5(k) of the Plan, the Administrator
hereby grants to the Employee Accrued DERs, which shall be accrued with
respect to the number of shares set forth in Section 2 that have not been
purchased by the Employee pursuant to the Option as of the date dividends
are declared on the Corporation's Common Stock. Accrued DERs shall also be
accrued with respect to Accrued DERs which, at the date dividends are
declared on the Corporation's Common Stock, had previously accrued with
respect to such Common Stock pursuant to this Agreement.
<PAGE>
(b) Accrued DERs as described in subsection (a) above shall be
accrued in accordance with the following formula:
(A x B) / C
under which "A" equals number of shares subject to the Option
(including Accrued DERs which had previously accrued), "B" equals the
cash dividend per share or the value per share of the Common Stock or
other property being distributed, as the case may be and "C" equals
the Fair Market Value per share of Common Stock on the dividend
payment date.
(c) The Accrued DERs shall represent shares of Common Stock which
shall be issuable to the Employee proportionately as the Employee exercises
the Option.
(d) Notwithstanding anything to the contrary herein, Accrued DERs
granted with respect to the Option shall be accrued only to the extent of
the number of shares of Common Stock then reserved and available for
issuance under the Plan in excess of the number of shares subject to
issuance pursuant to outstanding Stock Option, Accrued DER, Stock
Appreciation Right, Limited Stock Appreciation Right, Deferred Stock or
Performance Share awards.
(e) Accrued DERs accruing hereunder shall expire on the
expiration of the Option pursuant to the terms of this Agreement.
(f) Any Common Stock issued to the Employee which is attributable
to accrued DERs shall not constitute an Incentive Stock Option within the
meaning of Section 422 of the Code. The tax consequences to the Employee
of any such Common Stock attributable to accrued DERs which is issued to
the Employee shall be determined under the rules provided in Section 83 of
the Code.]
4. Exercisability of Option. Except as earlier permitted by or
------------------------
pursuant to the Plan or by resolution of the Committee adopted after the date
hereof, no shares may be purchased by exercise of the Option until the
expiration of twelve months after the Award Date. The Option may be exercised
in installments as to 33.34% of the aggregate number of shares set forth in
Section 2 hereof [subject to adjustment in the number of shares for Accrued DERs
pursuant to Section 3 hereof and pursuant to Section 3(c) of the Plan] on and
after the first anniversary of the Award Date and as to an additional 33.3% of
such aggregate number of such shares [subject to adjustment in the number of
shares for Accrued DERs pursuant to Section 3 hereof and pursuant to Section
3(c) of the Plan] on each of the second and third anniversaries of the Award
Date.
To the extent the Employee does not in any year purchase all or any
part of the shares to which the Employee is entitled, the Employee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option
-2-
<PAGE>
terminates or expires. Fractional share interests shall be disregarded, but may
be cumulated. No fewer than 1,000 shares may be purchased at any one time,
unless the number purchased is the total number at the time available for
purchase under the Option.
5. Limitation on Exercise of Option. In the event the Employee is
--------------------------------
granted incentive stock options (whether under this Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the
case of simultaneously granted options, the Corporation may, in the manner and
to the extent permitted by law, designate which shares are to be treated as
stock acquired pursuant to the exercise of an incentive stock option.
6. Method of Exercise of Option.
----------------------------
(a) The Option shall be exercisable by the delivery to the
Corporation of a written notice stating the number of shares to be
purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted in Section 5(c)(iv) of the Plan for
the full purchase price of the shares to be purchased, subject to such
further limitations and rules or procedures as the Administrator may from
time to time establish as to any non-cash payment. Shares delivered in
payment of the exercise price must have been owned by Employee for at least
six months prior to the exercise. In addition, the Employee shall furnish
any written statements required pursuant to Section 11(a) of the Plan.
(b) The Corporation may require that the Employee enter into an
arrangement providing for the payment by the Employee to the Corporation of
any tax withholding obligation of the Corporation arising by reason of (1)
the exercise of the Option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise.
7. Conditions to Exercise. Notwithstanding anything to the contrary
----------------------
contained herein, the Option may not be exercised unless the shares issuable
upon exercise of the Option are then registered under the Securities Act of
1933, as amended (the "Securities Act") or, if such shares are not then so
registered, the Corporation has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act. If the
Corporation, in its sole discretion, shall determine that it is necesary to
comply with applicable securities laws, the certificate or certificates
representing the shares issuable upon exercise of the Option shall bear an
appropriate legend in form and substance, as determined by the Corporation,
giving notice of applicable restrictions on transfer under or in respect of such
laws.
-3-
<PAGE>
8. Effect of Termination of Employment or Death: Change in Subsidiary
------------------------------------------------------------------
Status. The Option and all other rights hereunder, to the extent not exercised,
- ------
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any Subsidiary, except that:
(a) if the Employee voluntarily terminates or resigns, the
Employee may at any time within a period of three months after such
termination exercise the Option to the extent the Option was exercisable at
the date of such termination;
(b) if the Employee terminates by reason of becoming permanently
and totally disabled (within the meaning of Code Section 22(e)(3)), then
the Option shall, to the extent not theretofore exercised, fully vest and
may be exercised within a period of one year after the Employee's
termination from employment;
(c) if the Employee dies prior to a termination of employment, or
within three months after a termination of employment under subsection (a)
or (b) above, then the Option shall, to the extent not theretofore
exercised, fully vest and may be exercised within a period of one year
after the Employee's termination from employment pursuant to the provisions
of Section 5(g) of the Plan;
provided, however, that in no event may the Option be exercised by anyone under
this Section 8 or otherwise after the Expiration Date. If Employee is employed
by an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 8 to be a termination of employment described in
subsection (a) in respect of Employee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section 8 if the period of such absence does not
exceed 90 (ninety) days, or if longer, so long as the Employee's right to
reemployment with the Corporation or a Subsidiary is guaranteed either by
statute or by contract. Where the period of such absence exceeds 90 days and
where the individual's right to reemployment is not guaranteed either by statute
or by contract, the Employee's employment shall be deemed to have terminated
pursuant to subsection (a) of this Section 8 on the 91st day of such absence.
9. Investment Representation. You hereby covenant and agree with the
-------------------------
Corporation that if, at the time of exercise of the Option, there does not exist
a Registration Statement on an appropriate form under the Securities Act, which
Registration Statement shall have become effective and shall include a
prospectus which is current with respect to the shares subject to the Option,
(i) that you are purchasing the shares for your own account and not with a view
to the resale or distribution thereof, (ii) that any subsequent offer for sale
or sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, you shall, prior to any
offer for sale of sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the applicability of such
exemption and (iii) that you agree that the certificates evidencing such shares
shall bear a legend to the effect of the foregoing.
-4-
<PAGE>
10. Non-Transferability of Option. The Option and any other rights of
-----------------------------
the Employee under this Agreement or the Plan are nontransferable except as
provided in Section 5(f) of the Plan.
11. Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and addressed to the Corporation at its principal office
located at 1299 Ocean Avenue, Santa Monica, California 90401, to the attention
of the Chief Financial Officer and to the Employee at the address given beneath
the Employee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
12. Plan. The Option and all rights of Employee thereunder are
----
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Eligible
Employees. The Employee acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Administrator do not (and shall not be deemed to) create any rights in the
Employee unless such rights are expressly set forth herein or are otherwise in
the sole discretion of the Administrator so conferred by appropriate action of
the Administrator under the Plan after the date hereof.
13. Notice of Disposition. The Employee agrees to notify the
---------------------
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option, if such sale or disposition occurs within
two years after the Award Date or within one year after the date of such
exercise.
-5-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
ANWORTH MORTGAGE ASSET CORPORATION,
a Maryland corporation
By /s/ Joseph Lloyd McAdams
--------------------------------
Name: Joseph Lloyd McAdams
Title: Chairman of the Board, President and Chief
Executive Officer
EMPLOYEE
/s/ Heather U. Baines
--------------------------------
(Signature)
Heather U. Baines
--------------------------------
(Print Name)
1200 Turquesa Lane
--------------------------------
(Address)
Pacific Palisades, CA 90272
--------------------------------
(City, State, Zip Code)
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
In consideration of the execution of the foregoing Incentive Stock
Option Agreement by Anworth Mortgage Asset Corporation, I, Lloyd McAdams, the
spouse of the Employee herein named, do hereby join with my spouse in executing
the foregoing Incentive Stock Option Agreement and do hereby agree to be bound
by all of the terms and provisions thereof and of the Plan.
DATED: March 9, 1998 /s/ Lloyd McAdams
--------------------------------
Signature of Spouse
-7-
<PAGE>
EXHIBIT 99.3
EXHIBIT C
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT dated as of the 16th day of June,1999, between Anworth
Mortgage Asset Corporation, a Maryland corporation (the "Corporation"), and
Joseph Lloyd McAdams, Jr. (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Anworth Mortgage Asset Corporation 1997 Stock
Option and Awards Plan, as amended (the "Plan"), the Corporation has granted to
the employee, effective as of April 16, 1999 (the "Award Date"), an option to
purchase all or any part of 12,500 authorized but unissued or treasury shares of
Common Stock, $.01 par value, of the Corporation upon the terms and conditions
set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
---------------
to the Employee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of 12,500
shares of the Common Stock at the price of $4.60 per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date"). Such price slightly exceeds the Fair
Market Value of the Corporation's Common Stock as of the Award Date. It is the
intent of the Corporation that this Option constitute an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code").
[3. Dividend Equivalent Rights.
--------------------------
(a) Pursuant to Section 5(k) of the Plan, the Administrator
hereby grants to the Employee Accrued DERs, which shall be accrued with
respect to one-quarter of the number of shares set forth in Section 2 that
have not been purchased by the Employee pursuant to the Option as of the
date dividends are declared on the Corporation's Common Stock. Accrued
DERs shall also be accrued with respect to Accrued DERs which, at the date
dividends are declared on the Corporation's Common Stock, had previously
accrued with respect to such Common Stock pursuant to this Agreement.
<PAGE>
(b) Accrued DERs as described in subsection (a) above shall be
accrued in accordance with the following formula:
(A x B) / C
under which "A" equals one-quarter of the number of shares subject to
the Option (including Accrued DERs which had previously accrued), "B"
equals the cash dividend per share or the value per share of the
Common Stock or other property being distributed, as the case may be
and "C" equals the Fair Market Value per share of Common Stock on the
dividend payment date.
(c) The Accrued DERs shall represent shares of Common Stock which
shall be issuable to the Employee proportionately as the Employee exercises
the Option.
(d) Notwithstanding anything to the contrary herein, Accrued DERs
granted with respect to the Option shall be accrued only to the extent of
the number of shares of Common Stock then reserved and available for
issuance under the Plan in excess of the number of shares subject to
issuance pursuant to outstanding Stock Option, Accrued DER, Stock
Appreciation Right, Limited Stock Appreciation Right, Deferred Stock or
Performance Share awards.
(e) Accrued DERs accruing hereunder shall expire on the
expiration of the Option pursuant to the terms of this Agreement.
(f) Any Common Stock issued to the Employee which is attributable
to accrued DERs shall not constitute an Incentive Stock Option within the
meaning of Section 422 of the Code. The tax consequences to the Employee
of any such Common Stock attributable to accrued DERs which is issued to
the Employee shall be determined under the rules provided in Section 83 of
the Code.]
4. Exercisability of Option. Except as earlier permitted by or
------------------------
pursuant to the Plan or by resolution of the Committee adopted after the date
hereof, no shares may be purchased by exercise of the Option until the
expiration of thirty-six months after the Award Date. The Option may be
exercised as to 100% of the aggregate number of shares set forth in Section 2
hereof [subject to adjustment in the number of shares for Accrued DERs pursuant
to Section 3 hereof and pursuant to Section 3(c) of the Plan] on and after the
third anniversary of the Award Date.
To the extent the Employee does not in any year purchase all or any
part of the shares to which the Employee is entitled, the Employee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option terminates or expires. Fractional share
interests shall be disregarded, but may be cumulated. No fewer than 1,000
shares may be purchased at any one time, unless the number purchased is the
total number at the time available for purchase under the Option.
-2-
<PAGE>
5. Limitation on Exercise of Option. In the event the Employee is
--------------------------------
granted incentive stock options (whether under this Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the
case of simultaneously granted options, the Corporation may, in the manner and
to the extent permitted by law, designate which shares are to be treated as
stock acquired pursuant to the exercise of an incentive stock option.
6. Method of Exercise of Option.
----------------------------
(a) The Option shall be exercisable by the delivery to the
Corporation of a written notice stating the number of shares to be
purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted in Section 5(c)(iv) of the Plan for
the full purchase price of the shares to be purchased, subject to such
further limitations and rules or procedures as the Administrator may from
time to time establish as to any non-cash payment. Shares delivered in
payment of the exercise price must have been owned by Employee for at least
six months prior to the exercise. In addition, the Employee shall furnish
any written statements required pursuant to Section 11(a) of the Plan.
(b) The Corporation may require that the Employee enter into an
arrangement providing for the payment by the Employee to the Corporation of
any tax withholding obligation of the Corporation arising by reason of (1)
the exercise of the Option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise.
7. Conditions to Exercise. Notwithstanding anything to the contrary
----------------------
contained herein, the Option may not be exercised unless the shares issuable
upon exercise of the Option are then registered under the Securities Act of
1933, as amended (the "Securities Act") or, if such shares are not then so
registered, the Corporation has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act. If the
Corporation, in its sole discretion, shall determine that it is necesary to
comply with applicable securities laws, the certificate or certificates
representing the shares issuable upon exercise of the Option shall bear an
appropriate legend in form and substance, as determined by the Corporation,
giving notice of applicable restrictions on transfer under or in respect of such
laws.
8. Effect of Termination of Employment or Death: Change in Subsidiary
------------------------------------------------------------------
Status. The Option and all other rights hereunder, to the extent not exercised,
- ------
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any Subsidiary, except that:
-3-
<PAGE>
(a) if the Employee voluntarily terminates or resigns, the
Employee may at any time within a period of three months after such
termination exercise the Option to the extent the Option was exercisable at
the date of such termination;
(b) if the Employee terminates by reason of becoming permanently
and totally disabled (within the meaning of Code Section 22(e)(3)), then
the Option shall, to the extent not theretofore exercised, fully vest and
may be exercised within a period of one year after the Employee's
termination from employment;
(c) if the Employee dies prior to a termination of employment, or
within three months after a termination of employment under subsection (a)
or (b) above, then the Option shall, to the extent not theretofore
exercised, fully vest and may be exercised within a period of one year
after the Employee's termination from employment pursuant to the provisions
of Section 5(g) of the Plan;
provided, however, that in no event may the Option be exercised by anyone under
this Section 8 or otherwise after the Expiration Date. If Employee is employed
by an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 8 to be a termination of employment described in
subsection (a) in respect of Employee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section 8 if the period of such absence does not
exceed 90 (ninety) days, or if longer, so long as the Employee's right to
reemployment with the Corporation or a Subsidiary is guaranteed either by
statute or by contract. Where the period of such absence exceeds 90 days and
where the individual's right to reemployment is not guaranteed either by statute
or by contract, the Employee's employment shall be deemed to have terminated
pursuant to subsection (a) of this Section 8 on the 91st day of such absence.
9. Investment Representation. You hereby covenant and agree with the
-------------------------
Corporation that if, at the time of exercise of the Option, there does not exist
a Registration Statement on an appropriate form under the Securities Act, which
Registration Statement shall have become effective and shall include a
prospectus which is current with respect to the shares subject to the Option,
(i) that you are purchasing the shares for your own account and not with a view
to the resale or distribution thereof, (ii) that any subsequent offer for sale
or sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, you shall, prior to any
offer for sale of sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the applicability of such
exemption and (iii) that you agree that the certificates evidencing such shares
shall bear a legend to the effect of the foregoing.
10. Non-Transferability of Option. The Option and any other rights of
-----------------------------
the Employee under this Agreement or the Plan are nontransferable except as
provided in Section 5(f) of the Plan.
-4-
<PAGE>
11. Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and addressed to the Corporation at its principal office
located at 1299 Ocean Avenue, Santa Monica, California 90401, to the attention
of the Chief Financial Officer and to the Employee at the address given beneath
the Employee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
12. Plan. The Option and all rights of Employee thereunder are
----
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Eligible
Employees. The Employee acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Administrator do not (and shall not be deemed to) create any rights in the
Employee unless such rights are expressly set forth herein or are otherwise in
the sole discretion of the Administrator so conferred by appropriate action of
the Administrator under the Plan after the date hereof.
13. Notice of Disposition. The Employee agrees to notify the
---------------------
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option, if such sale or disposition occurs within
two years after the Award Date or within one year after the date of such
exercise.
-5-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
ANWORTH MORTGAGE ASSET CORPORATION,
a Maryland corporation
By /s/ Pamela J. Watson
________________________________
Name: Pamela J. Watson
Title: Executive Vice President
EMPLOYEE
/s/ Lloyd McAdams
__________________________________
(Signature)
Lloyd McAdams
__________________________________
(Print Name)
1200 Turquesa Lane
__________________________________
(Address)
Pacific Palisades, CA 90272
__________________________________
(City, State, Zip Code)
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
In consideration of the execution of the foregoing Incentive Stock
Option Agreement by Anworth Mortgage Asset Corporation, I, Heather U. Baines,
the spouse of the Employee herein named, do hereby join with my spouse in
executing the foregoing Incentive Stock Option Agreement and do hereby agree to
be bound by all of the terms and provisions thereof and of the Plan.
DATED: June 16, 1999 /s/ Heather U. Baines
____________________________
Signature of Spouse
-7-
<PAGE>
EXHIBIT 99.4
EXHIBIT D
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT dated as of the 16th day of June,1999, between Anworth
Mortgage Asset Corporation, a Maryland corporation (the "Corporation"), and
Heather U. Baines (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Anworth Mortgage Asset Corporation 1997 Stock
Option and Awards Plan, as amended (the "Plan"), the Corporation has granted to
the employee, effective as of April 16, 1999 (the "Award Date"), an option to
purchase all or any part of 5,000 authorized but unissued or treasury shares of
Common Stock, $.01 par value, of the Corporation upon the terms and conditions
set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
---------------
to the Employee of the right and option to purchase, on the terms and conditions
set forth herein and in the Plan, all or any part of an aggregate of 5,000
shares of the Common Stock at the price of $4.60 per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the day before the tenth anniversary
of the Award Date (the "Expiration Date"). Such price slightly exceeds the Fair
Market Value of the Corporation's Common Stock as of the Award Date. It is the
intent of the Corporation that this Option constitute an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code").
[3. Dividend Equivalent Rights.
--------------------------
(a) Pursuant to Section 5(k) of the Plan, the Administrator
hereby grants to the Employee Accrued DERs, which shall be accrued with
respect to one-quarter of the number of shares set forth in Section 2 that
have not been purchased by the Employee pursuant to the Option as of the
date dividends are declared on the Corporation's Common Stock. Accrued
DERs shall also be accrued with respect to Accrued DERs which, at the date
dividends are declared on the Corporation's Common Stock, had previously
accrued with respect to such Common Stock pursuant to this Agreement.
<PAGE>
(b) Accrued DERs as described in subsection (a) above shall be
accrued in accordance with the following formula:
(A x B) / C
under which "A" equals one-quarter of the number of shares subject to
the Option (including Accrued DERs which had previously accrued), "B"
equals the cash dividend per share or the value per share of the
Common Stock or other property being distributed, as the case may be
and "C" equals the Fair Market Value per share of Common Stock on the
dividend payment date.
(c) The Accrued DERs shall represent shares of Common Stock which
shall be issuable to the Employee proportionately as the Employee exercises
the Option.
(d) Notwithstanding anything to the contrary herein, Accrued DERs
granted with respect to the Option shall be accrued only to the extent of
the number of shares of Common Stock then reserved and available for
issuance under the Plan in excess of the number of shares subject to
issuance pursuant to outstanding Stock Option, Accrued DER, Stock
Appreciation Right, Limited Stock Appreciation Right, Deferred Stock or
Performance Share awards.
(e) Accrued DERs accruing hereunder shall expire on the
expiration of the Option pursuant to the terms of this Agreement.
(f) Any Common Stock issued to the Employee which is attributable
to accrued DERs shall not constitute an Incentive Stock Option within the
meaning of Section 422 of the Code. The tax consequences to the Employee
of any such Common Stock attributable to accrued DERs which is issued to
the Employee shall be determined under the rules provided in Section 83 of
the Code.]
4. Exercisability of Option. Except as earlier permitted by or
------------------------
pursuant to the Plan or by resolution of the Committee adopted after the date
hereof, no shares may be purchased by exercise of the Option until the
expiration of thirty-six months after the Award Date. The Option may be
exercised as to 100% of the aggregate number of shares set forth in Section 2
hereof [subject to adjustment in the number of shares for Accrued DERs pursuant
to Section 3 hereof and pursuant to Section 3(c) of the Plan] on and after the
third anniversary of the Award Date.
To the extent the Employee does not in any year purchase all or any
part of the shares to which the Employee is entitled, the Employee has the right
cumulatively thereafter to purchase any shares not so purchased and such right
shall continue until the Option terminates or expires. Fractional share
interests shall be disregarded, but may be cumulated. No fewer than 1,000
shares may be purchased at any one time, unless the number purchased is the
total number at the time available for purchase under the Option.
-2-
<PAGE>
5. Limitation on Exercise of Option. In the event the Employee is
--------------------------------
granted incentive stock options (whether under this Agreement or any other
incentive stock option agreement) and the aggregate fair market value
(determined as of the respective dates of grant of such options) of the Common
Stock with respect to which such options are first exercisable in any calendar
year exceeds $100,000, the most recently granted options shall be treated as
nonqualified stock options to the extent of the excess. In addition, in the
case of simultaneously granted options, the Corporation may, in the manner and
to the extent permitted by law, designate which shares are to be treated as
stock acquired pursuant to the exercise of an incentive stock option.
6. Method of Exercise of Option.
----------------------------
(a) The Option shall be exercisable by the delivery to the
Corporation of a written notice stating the number of shares to be
purchased pursuant to the Option and accompanied by payment made in
accordance with and in a form permitted in Section 5(c)(iv) of the Plan for
the full purchase price of the shares to be purchased, subject to such
further limitations and rules or procedures as the Administrator may from
time to time establish as to any non-cash payment. Shares delivered in
payment of the exercise price must have been owned by Employee for at least
six months prior to the exercise. In addition, the Employee shall furnish
any written statements required pursuant to Section 11(a) of the Plan.
(b) The Corporation may require that the Employee enter into an
arrangement providing for the payment by the Employee to the Corporation of
any tax withholding obligation of the Corporation arising by reason of (1)
the exercise of the Option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise.
7. Conditions to Exercise. Notwithstanding anything to the contrary
----------------------
contained herein, the Option may not be exercised unless the shares issuable
upon exercise of the Option are then registered under the Securities Act of
1933, as amended (the "Securities Act") or, if such shares are not then so
registered, the Corporation has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act. If the
Corporation, in its sole discretion, shall determine that it is necesary to
comply with applicable securities laws, the certificate or certificates
representing the shares issuable upon exercise of the Option shall bear an
appropriate legend in form and substance, as determined by the Corporation,
giving notice of applicable restrictions on transfer under or in respect of such
laws.
8. Effect of Termination of Employment or Death: Change in Subsidiary
------------------------------------------------------------------
Status. The Option and all other rights hereunder, to the extent not exercised,
- ------
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any Subsidiary, except that:
-3-
<PAGE>
(a) if the Employee voluntarily terminates or resigns, the
Employee may at any time within a period of three months after such
termination exercise the Option to the extent the Option was exercisable at
the date of such termination;
(b) if the Employee terminates by reason of becoming permanently
and totally disabled (within the meaning of Code Section 22(e)(3)), then
the Option shall, to the extent not theretofore exercised, fully vest and
may be exercised within a period of one year after the Employee's
termination from employment;
(c) if the Employee dies prior to a termination of employment, or
within three months after a termination of employment under subsection (a)
or (b) above, then the Option shall, to the extent not theretofore
exercised, fully vest and may be exercised within a period of one year
after the Employee's termination from employment pursuant to the provisions
of Section 5(g) of the Plan;
provided, however, that in no event may the Option be exercised by anyone under
this Section 8 or otherwise after the Expiration Date. If Employee is employed
by an entity which ceases to be a Subsidiary, such event shall be deemed for
purposes of this Section 8 to be a termination of employment described in
subsection (a) in respect of Employee. Absence from work caused by military
service or authorized sick leave shall not be considered as a termination of
employment for purposes of this Section 8 if the period of such absence does not
exceed 90 (ninety) days, or if longer, so long as the Employee's right to
reemployment with the Corporation or a Subsidiary is guaranteed either by
statute or by contract. Where the period of such absence exceeds 90 days and
where the individual's right to reemployment is not guaranteed either by statute
or by contract, the Employee's employment shall be deemed to have terminated
pursuant to subsection (a) of this Section 8 on the 91st day of such absence.
9. Investment Representation. You hereby covenant and agree with the
-------------------------
Corporation that if, at the time of exercise of the Option, there does not exist
a Registration Statement on an appropriate form under the Securities Act, which
Registration Statement shall have become effective and shall include a
prospectus which is current with respect to the shares subject to the Option,
(i) that you are purchasing the shares for your own account and not with a view
to the resale or distribution thereof, (ii) that any subsequent offer for sale
or sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, you shall, prior to any
offer for sale of sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the applicability of such
exemption and (iii) that you agree that the certificates evidencing such shares
shall bear a legend to the effect of the foregoing.
10. Non-Transferability of Option. The Option and any other rights of
-----------------------------
the Employee under this Agreement or the Plan are nontransferable except as
provided in Section 5(f) of the Plan.
-4-
<PAGE>
11. Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and addressed to the Corporation at its principal office
located at 1299 Ocean Avenue, Santa Monica, California 90401, to the attention
of the Chief Financial Officer and to the Employee at the address given beneath
the Employee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other.
12. Plan. The Option and all rights of Employee thereunder are
----
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this reference,
to the extent such provisions are applicable to options granted to Eligible
Employees. The Employee acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof. Unless otherwise expressly provided in other Sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Administrator do not (and shall not be deemed to) create any rights in the
Employee unless such rights are expressly set forth herein or are otherwise in
the sole discretion of the Administrator so conferred by appropriate action of
the Administrator under the Plan after the date hereof.
13. Notice of Disposition. The Employee agrees to notify the
---------------------
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option, if such sale or disposition occurs within
two years after the Award Date or within one year after the date of such
exercise.
-5-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
ANWORTH MORTGAGE ASSET CORPORATION,
a Maryland corporation
By /s/ Joseph Lloyd McAdams
----------------------------------
Name: Joseph Lloyd McAdams
Title: President
EMPLOYEE
/s/ Heather U. Baines
------------------------------------
(Signature)
Heather U. Baines
------------------------------------
(Print Name)
1200 Turquesa Lane
------------------------------------
(Address)
Pacific Palisades, CA 90272
------------------------------------
(City, State, Zip Code)
-6-
<PAGE>
CONSENT OF SPOUSE
-----------------
In consideration of the execution of the foregoing Incentive Stock
Option Agreement by Anworth Mortgage Asset Corporation, I, Lloyd McAdams, the
spouse of the Employee herein named, do hereby join with my spouse in executing
the foregoing Incentive Stock Option Agreement and do hereby agree to be bound
by all of the terms and provisions thereof and of the Plan.
DATED: June 16, 1999 /s/ Lloyd McAdams
----------------------------------
Signature of Spouse
