<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ANWORTH MORTGAGE ASSET CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF ANWORTH MORTGAGE ASSET CORPORATION]
Anworth Mortgage Asset Corporation
1299 Ocean Avenue, Suite 200
Santa Monica, California 90401
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1999
The Annual Meeting of Stockholders of Anworth Mortgage Asset Corporation
(the "Company") will be held at the principal offices of the Company, 1299
Ocean Avenue, Suite 200, Santa Monica, California 90401, on Thursday, June 17,
1999 at 10:00 a.m., Pacific Time, for the following purposes:
1. To elect a Board of three directors to hold office until the 2000 Annual
Meeting;
2. To ratify the appointment of McGladrey & Pullen, LLP as independent
accountants of the Company for the year ending December 31, 1999; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 28, 1999 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or at any adjournment thereof. A list of
stockholders entitled to vote at the Annual Meeting will be available at the
meeting and for a period of ten days prior to the meeting at the Company's
address above.
If you will not be able to attend the Annual Meeting to vote in person,
please complete, sign and date the accompanying proxy and return it promptly
in the enclosed envelope. The giving of the proxy will not affect your right
to revoke the proxy or to vote in person if you attend the Annual Meeting.
By Order of the Board of Directors
/s/ Pamela J. Watson
Pamela J. Watson
Secretary
Dated: April 30, 1999
<PAGE>
[LOGO OF ANWORTH MORTGAGE ASSET CORPORATION]
Anworth Mortgage Asset Corporation
1299 Ocean Avenue, Suite 200
Santa Monica, California 90401
----------------
PROXY STATEMENT
----------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1999
The accompanying proxy is solicited by the Board of Directors of Anworth
Mortgage Asset Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held on Thursday, June 17, 1999 or at any adjournment
thereof (the "Annual Meeting"). The proxy will be voted as directed if
properly signed, received by the Secretary of the Company prior to the close
of voting at the Annual Meeting and not revoked. If no direction is given in
the proxy, it will be voted for the election of the directors nominated by the
Board of Directors and the ratification of the appointment of McGladrey &
Pullen, LLP as the Company's independent accountants for the year ending
December 31, 1999. Any proxy given may be revoked at any time prior to its
exercise by notifying the Secretary of the Company in writing of such
revocation, by giving another proxy bearing a later date, or by attending and
voting in person at the Annual Meeting.
Holders of record of the Company's Common Stock, $.01 par value, at the
close of business on April 28, 1999 are entitled to vote at the Annual
Meeting. On that date, 2,278,000 shares of Common Stock were outstanding. The
presence, in person or by proxy, of stockholders entitled to cast at least a
majority of the votes entitled to be cast by all stockholders will constitute
a quorum for the transaction of business at the Annual Meeting. Stockholders
are entitled to cast one vote per share on each matter presented for
consideration and action at the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting who will determine
whether or not a quorum is present. If a broker indicates on a proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, then those shares will not be considered as present and
entitled to vote with respect to that matter.
The affirmative vote of a plurality of all of the votes cast at a meeting at
which a quorum is present is necessary for the election of a director. For
purposes of the election of directors, abstentions will not be counted as
votes cast and will have no effect on the result of the vote, although they
will count toward the presence of a quorum. The affirmative vote of a majority
of all votes cast at a meeting at which a quorum is present is necessary for
the ratification of the appointment of McGladrey & Pullen, LLP as the
Company's independent accountants. For purposes of the vote on this matter,
abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although they will count toward the presence of a quorum.
Approval of all other proposals to be brought before the Annual Meeting will
require the affirmative vote of at least a majority in voting interest of the
stockholders present in person or by proxy at the Annual Meeting and entitled
to vote thereon.
This Proxy Statement, together with the accompanying proxy, is first being
mailed to stockholders on or about April 30, 1999.
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of three members. Directors
are elected annually to serve until the next annual meeting and until their
successors are elected and qualified. The Board of Directors proposes election
of the persons listed below, all of whom are currently directors. In the event
that any of the nominees is unable or unwilling to serve as director for any
reason, the proxy will be voted for the election of any substitute nominee
designated by the Board of Directors.
<TABLE>
<CAPTION>
Name, Age and Year Principal Occupation, Business Experience
First Became a Director and Other Directorships
----------------------- -----------------------------------------
<C> <S>
Lloyd McAdams (53) ..... Mr. McAdams has been the Chairman of the Board, President and
1997 Chief Executive Officer of the Company and of the Anworth
Mortgage Advisory Corporation (the "Manager") since their
formation. Mr. McAdams is also the Chairman of the Board, Chief
Investment Officer and co-founder of Pacific Income Advisers,
Inc. ("PIA"), an investment advisory firm organized in 1986 that
manages an investment portfolio for institutional and individual
clients. Mr. McAdams is also the President of Syndicated Capital,
Inc., a registered broker-dealer that, among other things, acts
as a distributor of mutual funds managed by PIA. Mr. McAdams is
an officer and a trustee of each of the mutual funds managed by
PIA. Before joining PIA, Mr. McAdams held the position of
President of Security Pacific Investment Managers, Inc. from 1981
to 1987, Senior Vice President of Trust Company of the West from
1975 to 1981, and an Investment Officer with the State of
Tennessee from 1973 to 1975. In 1983 Mr. McAdams served as a
Board member of the California Public Employees Retirement System
("CALPERS"). Along with Mr. Karagiannis, Mr. McAdams is the
author of "Using Yield Curve Shapes to Manage Bond Portfolios"
which was published in the Financial Analysts Journal, May 1994.
Mr. McAdams is also the author of the following articles:
"Embedded Options: Understanding Callable/Putable Bonds" which
appeared in Derivative Strategies for Managing Portfolio Risk
published by the Association for Investment Management and
Research in 1993 and "Modifying Portfolio Characteristics Using
Options" which appeared in Options and Futures: New Route to
Risk/Return Management published by The Institute of Chartered
Financial Analysts in 1984. Mr. McAdams holds a Bachelor of
Science in Statistics from Stanford University, and a Masters in
Business Administration from the University of Tennessee.
Mr. McAdams is a Chartered Financial Analyst, Chartered
Investment Counselor and a Certified Employee Benefit Specialist.
Joe E. Davis (64)*...... Mr. Davis has been a director of the Company since its formation.
1997 Since 1982, Mr. Davis has been a private investor. From 1974 to
1982, Mr. Davis served as President and Chief Executive Officer
of National Health Enterprises, Inc. Mr. Davis serves as a
director of BMC Industries, Inc. and Wilshire Technologies, Inc.
and as a trustee of American Variable Insurance Trust.
Charles H. Black (72)*.. Mr. Black has been a director of the Company since its formation.
1997 Since 1985, Mr. Black has been a private investor and financial
consultant. From 1985 to 1987, he served as Vice Chairman and
Director of Pertron Controls Corporation. From 1982 to 1985, Mr.
Black served as the Executive Vice President, Director, Chief
Financial Officer and Chairman of Investment Committee for Kaiser
Steel Corporation. From 1980 to 1982 Mr. Black served as
Executive Vice President and Chief Financial Officer of Great
Western Financial Corporation. From 1957 to 1980, Mr. Black
served at Litton Industries where he ultimately held the position
of Corporate Vice President and Treasurer. Mr. Black is a member
of the Board of Governors of the Pacific Exchange, Inc. Mr. Black
serves as a director of Investment Company of America, Orincon
Corporation, James Mitchell & Co., Wilshire Technologies, Inc.
and Windsor Capital Group, Inc. He is also a trustee of American
Variable Insurance Trust.
</TABLE>
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* Member of Audit Committee
2
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Information Regarding Board of Directors
Directors are elected annually to serve until the next Annual Meeting of
stockholders and until their successors are elected and qualified.
During 1998, the Company's Board of Directors had an Audit Committee, but
not a Compensation Committee or a Nominating Committee. The Audit Committee is
responsible for making recommendations concerning the engagement of
independent certified public accountants, approving professional services
provided by the independent public accountants and reviewing the adequacy of
the Company's internal accounting controls. The Audit Committee is currently
comprised of Messrs. Davis and Black.
The Company does not have a Compensation Committee since the Company has no
paid officers or employees. However, the Board of Directors of the Company,
which consists of a majority of directors not affiliated with the Manager (the
"Unaffiliated Directors"), administers the Company's 1997 Stock Option and
Awards Plan (the "Stock Option and Awards Plan"). In addition, the
Unaffiliated Directors review from time to time the Management Agreement dated
March 17, 1998 between the Company and the Manager (the "Management
Agreement") to determine whether the contracted fee schedule is reasonable in
relation to the nature and quality of services performed by the Manager
thereunder.
During 1998 (since the Company's initial public offering which was completed
in March 1998), the Board of Directors held 3 meetings and the Audit Committee
held 1 meeting. Each Director attended each of the meetings of the Board of
Directors and each member of the Audit Committee attended the meeting held by
the Audit Committee during 1998.
Unaffiliated Directors receive a fee of $6,000 per year, payable
semiannually, and $1,000 for each meeting of the Board of Directors attended.
Directors are reimbursed reasonable expenses incurred in attending Board and
committee meetings. Concurrently upon the initial public offering of the
Company's Common Stock in March 1998, the Company granted each Unaffiliated
Director options to purchase 6,000 shares of Common Stock under the Stock
Option and Awards Plan at an exercise price of $9.00 per share. Such options
vested 100% on September 17, 1998.
Directors are required to devote only so much of their time to the Company's
affairs as is necessary or required for the effective conduct and operation of
the Company's business. Because the Management Agreement provides that the
Manager will assume principal responsibility for managing the affairs of the
Company, the directors of the Company, in their capacities as such, are not
expected to devote substantial portions of their time to the affairs of the
Company. However, in their capacities as officers or employees of the Manager,
or its affiliates, they will devote such portion of their time to the affairs
of the Manager as is required for the performance of the duties of the Manager
under the Management Agreement.
No family relationships exist between any of the executive officers or
directors of the Company, except that Lloyd McAdams and Ms. Baines are husband
and wife and Lloyd McAdams and Joseph E. McAdams are father and son.
3
<PAGE>
EXECUTIVE OFFICERS
All officers serve at the discretion of the Board of Directors. Although the
Company may have salaried employees, it currently has no such employees. The
persons below are the executive officers of the Company as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Lloyd McAdams........... 53 Chairman of the Board, President and Chief Executive Officer
Pamela J. Watson........ 44 Executive Vice President, Chief Financial Officer and Secretary
Heather U. Baines....... 57 Executive Vice President
Evangelos Karagiannis... 37 Vice President
Joseph E. McAdams....... 30 Vice President
</TABLE>
Biographical information regarding each executive officer who is not a
director is set forth below:
Pamela J. Watson has been an Executive Vice President and the Chief
Financial Officer, Treasurer and Secretary of the Company since its formation
and an Executive Vice President and the Chief Financial Officer and Secretary
of the Manager since its formation. Ms. Watson joined PIA in 1996 and holds
the position of Vice President. Prior to joining PIA, from 1990 to 1995, Ms.
Watson was employed by Kleinwort Benson Cross Financing Inc. and Kleinwort
Benson Capital Management Inc., an interest rate swap dealer and investment
management firm owned by the British merchant bank Kleinwort Benson Group
plc., where Ms. Watson served as Chief Financial Officer from 1991 to 1995.
From 1989 to 1990, Ms. Watson was employed by Security Pacific State Trust
Company as a Business Manager and from 1986 to 1989 she held the position of
Vice President of Capital Research and Management Company, the mutual fund arm
of The Capital Group. Ms. Watson holds a Bachelor of Science degree from
Lehigh University and a Masters in Business Administration from Claremont
Graduate School.
Heather U. Baines has been an Executive Vice President of the Company and
the Manager since their formation. Since 1987, she has held the position of
President and Chief Executive Officer of PIA. From 1978 to 1987, Ms. Baines
was employed by Security Pacific Investment Managers, Inc., ultimately holding
the position of Sr. Vice President and Director. Ms. Baines holds a bachelors
degree from Antioch College.
Evangelos Karagiannis has been a Vice President of the Company and the
Manager since their formation. Mr. Karagiannis joined PIA in 1992 and holds
the position of Vice President. Mr. Karagiannis serves as Fixed Income
Portfolio Manager with a specialty in mortgage-backed securities and is also
responsible for PIA's quantitative research. Mr. Karagiannis has been the
author, and co-author with Mr. McAdams, of articles on fixed income portfolio
management and for PIA's internal research. Mr. Karagiannis filed a petition
for bankruptcy under Chapter 7 of the Bankruptcy Code in 1996. Mr. Karagiannis
holds a Doctor of Philosophy degree in physics from the University of
California at Los Angeles ("UCLA") and, prior to joining PIA, was a post-
doctoral fellow at UCLA, where he was a Fulbright Scholar. Mr. Karagiannis is
also a Chartered Financial Analyst.
Joseph E. McAdams has been a Vice President of the Company and the Manager
since June 19, 1998. Mr. McAdams joined PIA in 1998 and holds the position of
Vice President. Mr. McAdams serves as Fixed Income Portfolio Manager with a
specialty in mortgage-backed securities and is also responsible for PIA's
fixed income trading. Prior to joining PIA, from 1993 to 1998, Mr. McAdams was
employed by Donaldson, Lufkin & Jenrette Securities Corp. as a mortgage-backed
security trader and analyst. Mr. McAdams holds a Master of Arts degree in
Economics from the University of Chicago and a Bachelor of Science degree in
Economics from the Wharton School of the University of Pennsylvania. Mr.
McAdams is also a Chartered Financial Analyst.
EXECUTIVE COMPENSATION AND RELATED MATTERS
The Company has not paid, and does not intend to pay, any annual
compensation to the Company's executive officers for their services as
executive officers. The Company may, from time to time, in the discretion of
the Board of Directors, grant options to purchase shares of Company Common
Stock to the executive officers and directors pursuant to the Stock Option and
Awards Plan.
4
<PAGE>
Options Granted in 1998
The following table sets forth information with respect to grants of options
to purchase shares of the Company's Common Stock to the executive officers
during 1998. The Company did not grant any stock appreciation rights in 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Potential
Realized
Value at Assumed
Percent Annual Rates of
Number of Of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term(4)
Options Employees in Base Price Expiration -----------------
Name Granted(#)(1) Fiscal Year(2) ($/Sh) Date(3) 5%($) 10%($)
- ---- ------------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lloyd McAdams (5)....... 40,000 29.4% $9.00 3/11/08 $226,402 $573,747
Pamela J. Watson (5).... 32,000 23.5% $9.00 3/11/08 181,122 458,998
Heather U. Baines (5)... 32,000 23.5% $9.00 3/11/08 181,122 458,998
Evangelos Karagiannis
(5).................... 32,000 23.5% $9.00 3/11/08 181,122 458,998
Joseph E. McAdams....... -- -- -- -- -- --
</TABLE>
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(1) Excludes shares issuable upon the exercise of options pursuant to accrued
dividend rights ("DERs") granted in conjunction with such options, which
shares are set forth below.
(2) Based upon 136,000 shares issuable upon exercise of options granted to
officers in 1998 under the Stock Option and Awards Plan.
(3) Such stock options expire ten years from the date of grant or earlier upon
termination of employment.
(4) The dollar amounts set forth are the result of calculations of the 5% and
10% rates set forth in the Securities and Exchange Commission's rules
regarding the disclosure of executive compensation, and therefore are not
intended to forecast possible future appreciation of the Company's Common
Stock.
(5) Such stock options vest 33.3% each year following the date of grant and
include grants of accrued DERs.
1998 Year-End Values
The following table sets forth for the number and dollar value of
unexercised options held by the Company's executive officers at December 31,
1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#)(1) Options at FY-End ($)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Lloyd McAdams............... 0/40,000 0/0
Pamela J. Watson............ 0/32,000 0/0
Heather U. Baines........... 0/32,000 0/0
Evangelos Karagiannis....... 0/32,000 0/0
Joseph E. McAdams........... -- --
</TABLE>
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(1) Excludes shares issuable upon the exercise of options pursuant to accrued
DERs granted in conjunction with such options, which shares are set forth
below.
5
<PAGE>
Shares Accrued Pursuant to DERs in 1998
The following table sets forth the number of additional shares issuable upon
the exercise of stock options as a result of dividends paid by the Company in
1998 and DERs granted to executive officers of the Company.
SHARES ACCRUED PURSUANT TO DERs IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Shares Accrued Shares Vested
Name Pursuant to DERs(1) Pursuant to DERs(2)
---- ------------------- -------------------
<S> <C> <C>
Lloyd McAdams...................... 3,216 0
Pamela J. Watson................... 2,572 0
Heather U. Baines.................. 2,572 0
Evangelos Karagiannis.............. 2,572 0
Joseph E. McAdams.................. -- --
</TABLE>
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(1) Based upon DERs issued in conjunction with stock option grants. The shares
accrued pursuant to DERs represent shares issuable (assuming the
underlying options have vested) proportionately upon the exercise of the
related stock options at no additional consideration. The number of shares
is derived from (a) the product of the dividend per share paid during 1998
multiplied by the number of shares subject to stock options granted to the
respective executive officer divided by (b) the fair market value of the
Company's Common Stock on the dividend payment date.
(2) The additional shares vest 33.3% per year in accordance with the vesting
schedule for the related options. The DERs expire ten years from the date
of grant or earlier upon termination of employment in accordance with the
expiration and termination of the related options.
1997 Stock Options and Awards Plan
In December 1997, the Company adopted the Stock Option and Awards Plan which
provides for the grants of (i) qualified incentive stock options ("ISOs")
which meet the requirements of Section 422 of the Code; (ii) stock options not
so qualified ("NQSOs"); (iii) deferred stock, in which delivery of Common
Stock occurs upon expiration of a deferral period; (iv) restricted stock, in
which Common Stock is granted to participants subject to restrictions on
transferability and other restrictions, which lapse over time; (v) performance
shares, consisting of a right to receive Common Stock subject to restrictions
based upon the attainment of specified performance criteria; (vi) stock
appreciation rights, whether in conjunction with the grant of stock options or
independent of such grant, or stock appreciation rights that are only
exercisable in the event of a change in control of the Company (as defined in
the Stock Option and Awards Plan) or upon other events (collectively, items
(iii) through (vi) are referred to herein as "Awards"); and (vii) DERs,
consisting of a right to receive cash or stock equal in value to dividends
paid with respect to a specified number of shares of Common Stock, or other
periodic payments. The amount of cash that may be paid under a grant of DERs
is limited only by the number of DERs awarded and the amount of dividends paid
by the Company to its stockholders.
The purpose of the Stock Option and Awards Plan is to provide a means of
compensation in order to attract and retain qualified personnel and to provide
an incentive to others whose job performance affects the Company. The Stock
Option and Awards Plan is administered by the Board of Directors or a
Committee appointed by the Board of Directors (the "Administrator"). Under the
terms of the Awards Plan, if the Administrator is a Committee, the Committee
shall be composed entirely of two or more individuals who meet the
qualifications to be a "Non-Employee Director" as defined in Rule 16b-3 as
promulgated by the Commission under the Exchange Act. The Administrator is
currently the Board of Directors, the majority of which are Unaffiliated
Directors. ISOs may be granted to the officers and key employees of the
Company, its subsidiaries or parent corporation. NQSOs and Awards may be
granted to the directors, officers, key employees and agents and consultants
of the Company, subsidiaries or parent corporation, if any, and to the
directors, officers and key employees of the Manager.
Grants made by the Administrator under the Stock Option and Awards Plan are
discretionary, although the Administrator may consider such factors as a
grantee's ability, ingenuity and industry. The Administrator has
6
<PAGE>
the authority under the Stock Option and Awards Plan, among other things, to:
(i) select the employees of the Company, any subsidiary, a parent corporation
or the Manager who shall be eligible under the Stock Option and Awards Plan;
(ii) determine the form of options or Awards, or combinations thereof, and
whether such options or Awards are to operate on a tandem basis or in
conjunction with other options or Awards; (iii) determine the number of shares
of Common Stock or rights covered by an option or award; and (iv) determine
the terms and conditions of any options or Awards granted under the Stock
Option and Awards Plan. There is no limit as to the amount of stock options
that may be granted to any individual and stock options and Awards granted are
in addition to the incentive compensation the Manager will earn under the
Management Agreement.
The Stock Option and Awards Plan provides for granting of DERs in tandem
with all options granted under the Stock Option and Awards Plan, in the
discretion of the Administrator. Such DERs accrue for the account of the
optionee shares of Common Stock upon the payment of cash dividends on
outstanding shares of Common Stock. The number of shares accrued is determined
by a formula and such shares are transferred to the optionee only upon
exercise of the related option. The Stock Option and Awards plan permits DERs
to be granted under the Stock Option and Awards Plan with certain
characteristics. First, DERs can be issued in "current-pay" form so that
payment can be made to the optionee at the same time as dividends are paid to
holders of outstanding Common Stock. Second, DERs can be made eligible to
participate not only in cash distributions but also distributions of stock or
other property made to holders of outstanding Common Stock. Shares of Common
Stock accrued for the account of the optionee pursuant to a DER grant may also
be made eligible to receive dividends and distributions. Finally, DERs can be
made "performance based" by conditioning the right of the holder of the DER to
receive any dividend equivalent payment or accrual upon the satisfaction of
specified performance objective.
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option and Awards Plan currently authorizes the
grant of options to purchase, and Awards of, an aggregate of 300,000 shares.
There is no limit to the amount of Stock Options that may be granted to any
individual. If an option granted under the Stock Options and Awards Plan
expires or terminates, or an Award is forfeited, the shares subject to any
unexercised portion of such option or Award will again become available for
the issuance of further options or Awards under the Stock Option and Awards
Plan.
Unless previously terminated by the Board of Directors, the Stock Option and
Awards Plan will terminate in December 2007, and no options or Awards may be
granted under the Stock Option and Awards Plan thereafter.
Options granted under the Stock Option and Awards Plan will become
exercisable in accordance with the terms of the grant made by the
Administrator. Awards will be subject to the terms and restrictions of the
Award made by the Administrator. The Administrator has discretionary authority
to select participants from among eligible persons and to determine at the
time an option or Award is granted when and in what increments shares covered
by the option may be purchased and, in the case of options, whether it is
intended to be an ISO or a NQSO provided, however, that certain restrictions
applicable to ISOs are mandatory, including a requirement that ISOs not be
issued for less than 100% of the then fair market value of the Common Stock
(110% in the case of a grantee who holds more than 10% of the outstanding
Common Stock) and a maximum term of ten years (five years in the case of a
grantee who holds more than 10% of the outstanding Common Stock).
Under current law, ISOs may not be granted to any director of the Company
who is not also an employee, or to directors, officers and other employees of
entities unrelated to the Company. No options or Awards may be granted under
the Stock Option and Awards Plan to any person who, assuming exercise of all
options held by such person, would own or be deemed to own more than 9.8% of
the outstanding shares of equity stock of the Company.
Each option must terminate no more than 10 years from the date it is granted
(or five years in the case of ISOs granted to an employee who is deemed to own
in excess of 10% of the combined voting power of the Company's outstanding
equity stock). Options may be granted on terms providing for exercise either
in whole or
7
<PAGE>
in any part at any time or times during their respective terms, or only in
specified percentages at stated time periods or intervals during the term of
the option.
The exercise price of any option granted under the Stock Option and Awards
Plan is payable in full in cash, or its equivalent as determined by the
Administrator. The Company may make loans available to option holders to
exercise options evidenced by a promissory note executed by the optionholder
and secured by a pledge of Common Stock with fair market value at least equal
to the principal of the promissory note unless otherwise determined by the
Administrator.
The Board of Directors may from time to time revise or amend the Stock
Option and Awards Plan, and may suspend or discontinue it at any time.
However, no such revision or amendment may impair the rights of any
participant under any outstanding Award without his consent or may, without
stockholder approval, increase the number of shares subject to the Stock
Option and Awards Plan or decrease the exercise price of a stock option to
less than 100% of fair market value on the date of grant (with the exception
of adjustments resulting from changes in capitalization), materially modify
the class of participants eligible to receive options or Awards under the
Stock Option and Awards Plan, materially increase the benefits accruing to
participants under the Stock Option and Awards Plan or extend the maximum
option term under the Stock Option and Awards Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors, officers and persons holding more than 10% of the
Company's Common Stock are required to file forms reporting their beneficial
ownership of the Company's Common Stock and subsequent changes in that
ownership with the Securities and Exchange Commission. Such persons are also
required to furnish the Company copies of the forms so filed. Based solely
upon a review of copies of such forms filed with the Company, the Company
believes that during 1998 its officers and directors complied with the Section
16(a) filing requirements, except with respect to initial Form 3s filed by
Messrs. Lloyd McAdams, Karagiannis, Davis and Black and Ms. Baines and Ms.
Watson, which in each case were filed approximately one month late.
Compensation Committee Interlocks and Insider Participation
None of the executive officers of the Company has served on the Board of
Directors or on the compensation committee of any other entity which had
officers who served on the Company's Board of Directors. The Company does not
have a Compensation Committee since the Company has no paid officers or
employees.
8
<PAGE>
TOTAL RETURN COMPARISON
The following graph presents a total return comparison of the Company's
Common Stock, since the commencement of the Company's operations on March 17,
1998 through December 31, 1998, with the Standard & Poor's 500 Index, the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT") All
REIT Index and NAREIT Mortgage REIT Index. The total return reflects stock
price appreciation, if any, and the value of dividends for the Company's
Common Stock and for each of the comparative indices. The graph assumes that
$100 was invested on March 17, 1998 (the date of the Company's commencement of
operations) in the Company's Common Stock and each of the indexes, and that
all dividends were reinvested. The total return performance shown in this
graph is not necessarily indicative of and is not intended to suggest future
total return performance.
Total Return Comparison Since the Company's Commencement of Operations
Through December 31, 1998
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
ANWORTH S&P NAREIT
MORTGAGE COMPOSITE- NAREIT ALL MORTGAGE
ASSET CORP 500 INDEX REIT INDEX REIT INDEX
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
3/17/98 $100.00 $100.00 $100.00 $100.00
3/31/98 $ 97.22 $102.31 $100.75 $100.32
6/30/98 $ 91.67 $105.69 $ 96.08 $ 96.79
9/30/98 $ 52.48 $ 95.18 $ 85.60 $ 84.20
12/31/98 $ 47.35 $115.48 $ 82.23 $ 69.01
</TABLE>
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 28, 1999, there were 2,278,000 shares of the Company's Common
Stock outstanding. The following table sets forth certain information known to
the Company with respect to the beneficial ownership of the Company's Common
Stock as of April 28, 1999, by (i) each director of the Company, (ii) each of
the executive officers of the Company, (iii) each person who is known to the
Company to beneficially own more than 5% of the Company's Common Stock, and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percentof
Beneficial Owner Beneficial Ownership Class
- ---------------- -------------------- ---------
<S> <C> <C>
Putnam Investments, Inc.(1).................... 148,000 6.3%
Lloyd McAdams(2)............................... 94,985 4.1
Pamela J. Watson(3)............................ 11,828 0.5
Heather U. Baines(4)........................... 11,828 0.5
Evangelos Karagiannis(5)....................... 11,828 0.5
Joe E. Davis (6)............................... 9,000 0.4
Charles H. Black(7)............................ 6,000 0.3
Joseph E. McAdams.............................. -- --
All Directors and Officers as a Group(6
Persons)(8)................................... 145,469 6.2%
</TABLE>
- --------
(1) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission and reflects ownership as of February
4, 1999. According to the Schedule 13G, Putnam Investments, Inc. is wholly
owned by Marsh & McLennan, Inc. and wholly owns (i) Putnam Investment
Management, Inc., which is the investment adviser to the Putnam family of
mutual funds, and (ii) The Putnam Advisory Company, Inc., which is the
investment adviser to Putnam's institutional clients. Both subsidiaries
have dispository power over the shares as investment managers, but each of
the mutual fund's trustees have voting power over the shares held by each
fund, and The Putnam Advisory Company, Inc. has shared voting power over
the shares held by the institutional clients. The address for Putnam
Investments, Inc. is One Post Office Square, Boston Massachusetts 02109.
(2) Includes 80,200 shares held by Lloyd McAdams and Ms. Baines as community
property and 14,785 shares subject to stock options exercisable within 60
days of April 28, 1999.
(3) Includes 11,828 shares subject to stock options exercisable within 60 days
of April 28, 1999.
(4) Includes 11,828 shares subject to stock options exercisable within 60 days
of April 28, 1999 and excludes 80,200 shares held by Ms. Baines and Lloyd
McAdams as community property.
(5) Includes 11,828 shares subject to stock options exercisable within 60 days
of April 28, 1999.
(6) Includes 6,000 shares subject to stock options exercisable within 60 days
of April 28, 1999.
(7) Includes 6,000 shares subject to stock options exercisable within 60 days
of April 28, 1999.
(8) Anworth Mortgage Asset Corporation and each of such persons may be reached
at 1299 Ocean Avenue, Suite 200, Santa Monica, California 90401, telephone
(310) 394-0115.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
The Company entered into the Management Agreement with the Manager effective
March 17, 1998 for an initial term of five years. The Management Agreement may
be terminated by the Company without cause at any time upon 60 days written
notice by a majority vote of the Unaffiliated Directors or by a vote of the
holders of a majority of the outstanding shares of capital stock having the
right to vote. In addition, the Company has the right to terminate the
Management Agreement for "cause" upon a material breach by the Manager of any
provision contained in the Management Agreement or the bankruptcy or
insolvency of the Manager. These events are not related to the Company's
performance.
The Manager receives a per annum base management fee based on the Average
Net Invested Assets of the Company and its subsidiaries for such year, payable
monthly in arrears, equal to 1% of the first $300 million of Average Net
Invested Assets, plus 0.8% of the portion above $300 million. For services
performed during 1998, such management fee paid by the Company to the Manager
was $145,457. The term "Average Net Invested Assets" means for any period the
difference between (i) the aggregate book value of the consolidated assets of
the Company and its subsidiaries, before reserves for depreciation or bad
debts or other similar non cash reserves and (ii) the book value of average
debt associated with the Company's ownership of Mortgage Assets, computed by
taking the average of such net values at the end of each month during such
period.
The Manager is entitled to receive as incentive compensation for each fiscal
quarter, an amount equal to 20% of the Net Income of the Company, before
Incentive Compensation, in excess of the amount that would produce an
annualized Return on Equity equal to the Ten Year U.S. Treasury Rate (average
of weekly average yield to maturity for U.S. Treasury securities (adjusted to
a constant maturity of 10 years) as published weekly by the Federal Reserve
Board during a quarter) plus 1%. The incentive compensation calculation and
payment are made quarterly in arrears. The Manager's incentive compensation
for 1998 was $1,955. The term "Return on Equity" is calculated for any quarter
by dividing the Company's Net Income for the quarter by its Average Net Worth
for the quarter. For such calculations, the "Net Income" of the Company means
the taxable income of the Company before the Manager's incentive compensation,
net operating loss deductions arising from losses in prior periods and
deductions permitted by the Code in calculating taxable income for a REIT plus
the effects of adjustments, if any, necessary to record hedging and interest
transactions in accordance with generally accepted accounting principles. A
deduction for all of the Company's interest expenses for borrowed money is
taken in calculating Net Income. "Average Net Worth" for any period means the
arithmetic average of the sum of the gross proceeds from any offering of its
equity securities by the Company, before deducting any underwriting discounts
and commissions and other expenses and costs relating to the offering, plus
the Company's retained earnings (without taking into account any losses
incurred in prior periods) computed by taking the average of such values at
the end of each month during such period. For purposes of calculating the
incentive compensation payable, the definition, Return on Equity, is not
related to the actual distributions received by stockholders. The incentive
compensation payments to the Manager are made before any income distributions
are made to stockholders.
The Company's Board of Directors reviews and approves the calculation of the
base and incentive compensation paid to the Manager quarterly, one quarter in
arrears, during each quarterly scheduled Board of Directors meeting.
The terms of the Management Agreement have not been negotiated on an arm's-
length basis and may not be as favorable as the Company could have obtained
from an unaffiliated third party.
Certain Relationships
Pursuant to the terms of the Management Agreement, the Manager and its
affiliates, including Pacific Income Advisors ("PIA"), agree on the allocation
of mortgage securities between the Company and other accounts over which the
Manager and its affiliates have control. Pursuant to such allocation, the
Manager bases
11
<PAGE>
allocation decisions on the procedures the Manager considers fair and
equitable, including, without limitation, such considerations as investment
objectives, restrictions and time horizon, availability of cash and the amount
of existing holdings. In some cases, some forms of pro rata allocations may be
used and, in other cases, random allocation processes may be used. In other
cases, neither may be used.
Notwithstanding the foregoing, the aforementioned conflict may result in
decisions or allocations of mortgage securities to affiliates of the Manager,
including PIA, that are not in the best interests of the Company. In
particular, it is possible that asset allocations made by the Manager could
favor affiliates of the Manager, and the Company's operating income and
distributions to stockholders could be materially and adversely affected.
The Company is subject to additional conflicts of interest arising from its
relationships with PIA and their officers, directors and affiliates. The
Manager renders management services to the Company and is paid a management
fee on a quarterly basis, resulting in a direct benefit to its owner, who is
an officer and director of the Company. The Manager oversees the day-to-day
operations of the Company pursuant to policies established by the Board of
Directors and the authority delegated to the Manager under the Management
Agreement. The Manager entered into an administrative services agreement with
PIA upon the closing of the Company's initial public offering, pursuant to
which PIA renders certain administrative services to the Manager. Such
services include administrative, secretarial, data processing, operations and
settlement, employee benefit and research services. The Manager and PIA
determines the fee to be paid based upon what the parties believed such
services are valued at if negotiated between unaffiliated third parties on an
arms-length basis. Mr. McAdams, the Company's Chairman of the Board, President
and Chief Executive Officer, and Heather Baines, a Company Executive Vice
President, own beneficially all of the outstanding Common Stock of the
Manager. Additionally, Mr. McAdams and Ms. Baines own beneficially 95 shares,
representing 95% of the outstanding stock, of PIA and Mr. McAdams and Ms.
Baines are husband and wife. Additionally, the officers and employees of the
Manager are also officers of the Company and officers and employees of PIA.
RATIFICATION OF McGLADREY & PULLEN, LLP AS INDEPENDENT ACCOUNTANTS
The Board of Directors, with the concurrence of the Audit Committee, has
selected McGladrey & Pullen, LLP to audit the accounts of the Company for its
fiscal year ending December 31, 1999. The Company has been advised by
McGladrey & Pullen, LLP that the firm has no relationship with the Company or
its subsidiaries or affiliates other than that arising from the firm's
engagement as auditors, tax advisors, and consultants. If the selection of
McGladrey & Pullen, LLP is not ratified by the affirmative vote of at least a
majority of the shares casting votes on the matter at the meeting, or if prior
to the Annual Meeting, McGladrey & Pullen, LLP should decline to act or
otherwise become incapable of acting, or if its employment should be otherwise
discontinued by the Board of Directors, then in any such case the Board of
Directors will appoint other independent auditors whose employment for any
period subsequent to the 1999 Annual Meeting will be subject to ratification
by the stockholders at the 1999 Annual Meeting. A representative of McGladrey
& Pullen, LLP will not be present in person at the Annual Meeting, but will be
available via telephone conference to make a statement, if he or she so
desires, and to respond to appropriate questions.
OTHER MATTERS
Management of the Company knows of no matters other than those referred to
above to be voted upon at the Annual Meeting. However, if any other matters
are properly presented to the meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy in accordance with their
judgment on such matters.
12
<PAGE>
MISCELLANEOUS
The Company will bear the expense of this proxy solicitation. Directors
officers and employees of the Company may solicit proxies by telephone or in
person (but will receive no additional compensation for such solicitation). In
addition, brokerage firms and other custodians, nominees and fiduciaries will
be requested to forward the soliciting material to beneficial owners and to
obtain authorization for the execution of proxies, and the Company will
reimburse such brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy materials to beneficial owners
of Common Stock of the Company.
ANNUAL REPORT
A copy of the Annual Report of the Company for the year ended December 31,
1998, including financial statements for the year then ended, is transmitted
herewith.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders for consideration at the 2000 Annual Meeting of
Stockholders must be received by the Company no later than the close of
business on January 10, 2000, in order to be included in the Company's proxy
statement and proxy relating to that meeting.
The deadline for submission of stockholder proposals to be presented at the
2000 Annual Meeting of Stockholders, but which will not be included in the
proxy statement and form of proxy relating to such meeting, is March 16, 2000.
Any such proposal received by the Company after such date will be considered
untimely and the persons named in the proxy for such meeting may exercise
their discretionary voting power with respect to such proposal.
By Order of the Board of Directors
/s/ Pamela J. Watson
Pamela J. Watson
Secretary
Dated: April 30, 1999
13
<PAGE>
ANWORTH MORTGAGE ASSET CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JUNE 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lloyd McAdams and Pamela J. Watson, or either
of them, each with full power of substitution, as proxies of the undersigned to
attend and act for the undersigned at the Annual Meeting of Stockholders of
Anworth Mortgage Asset Corporation, a Maryland corporation, to be held at its
offices, 1299 Ocean Avenue, Suite 200, Santa Monica, California 90401 on
Thursday, June 17, 1999 at 10:00 a.m., Pacific Time.
1. Election of Directors
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all the nominees
below) listed below
Lloyd McAdams . Joe E. Davis . Charles H. Black
INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
- --------------------------------------------------------------------------------
2. To ratify the appointment of McGladrey & Pullen, LLP as independent
accountants for the year ending December 31, 1999.
The Board of Directors recommends a vote FOR.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, upon any and all such matters as may properly come
before the meeting or any adjournment or postponement thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE THREE NOMINEES FOR ELECTION AND FOR PROPOSALS 2 AND 3.
(Please sign exactly as name
appears. When shares are
held by joint tenants, both
should sign. When signing as
attorney, as executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.)
_______________________, 1999
Date
_____________________________
Signature
_____________________________
Signature, if held jointly
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES
