FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31,June 30, 2001 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-13991
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3974868
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
399 Park Avenue, 36th Floor, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 935-8760
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares of the Registrant's common stock outstanding on May 9,August
10, 2001, was 8,694,164.
- i -19,034,850.
-i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
BALANCE SHEETS
March 31,June 30, 2001
(Unaudited) Dec. 31, 2000
--------------- ---------------
Assets
Investment in mortgage securities (Note 3) $ 498,998,160781,966,309 $ 470,575,671
Investment in corporate debt securities (Note 4) 15,742,92613,047,632 15,665,727
Investment in corporate equity securities (Note 5) 9,936,5667,319,292 9,010,538
Cash and cash equivalents
Unrestricted 14,899,52263,220,273 8,400,539
Restricted 1,207,4289,576,290 498,875
Accrued interest and dividends receivable 3,845,0714,742,597 3,433,256
Other investments (Note 6) 9,932,1469,854,673 6,540,570
Goodwill, net 7,338,3227,288,396 7,388,247
Other assets 772,201867,350 976,889
--------------- ---------------
$ 562,672,342897,882,812 $ 522,490,312
=============== ===============
Liabilities
Repurchase agreements (Note 7) $ 482,148,607748,851,456 $ 448,583,432
Accrued interest payable 2,133,4553,018,545 2,038,887
Accounts payable 1,082,118803,939 550,209
Dividends payable 1,517,8623,419,474 1,406,288
--------------- ---------------
486,882,042756,093,414 452,578,816
--------------- ---------------
Stockholders' Equity
Common stock, $.01 par value; 375,000,000 shares authorized
8,694,16419,034,850 and 8,692,825 issued and outstanding in 2001
and 2000, respectively 86,941(Note 8) 190,348 86,928
Additional paid-in capital 74,381,228141,459,589 74,362,801
Retained earnings (accumulated deficit) 2,111,176915,393 (440,084)
Accumulated other comprehensive income (789,045)(775,932) (4,098,149)
--------------- ---------------
75,790,300141,789,398 69,911,496
--------------- ---------------
$ 562,672,342897,882,812 $ 522,490,312
=============== ===============
The accompanying notes are an integral part of the financial statements.
- 1 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended March 31,Months Ended Months Ended
June 30, 2001 March 31,June 30, 2000 June 30, 2001 June 30, 2000
----------------- --------------- -------------- -------------
Mortgage securities income $ 8,020,6228,155,306 $ 8,177,1528,434,999 $ 16,175,928 $ 16,612,151
Corporate debt securities income 467,355 240,374433,043 255,986 900,398 496,360
Dividend income 250,843 204,031189,233 255,019 440,076 459,050
Interest income on cash and cash equivalents 158,576 152,834177,593 140,174 336,169 293,008
--------------- --------------- -------------- -------------
Total interest and dividend income 8,897,396 8,774,3918,955,175 9,086,178 17,852,571 17,860,569
Interest expense on borrowed funds 6,535,736 6,966,3955,814,162 7,626,956 12,349,898 14,593,351
--------------- --------------- -------------- -------------
Net interest and dividend income 2,361,660 1,807,9963,141,013 1,459,222 5,502,673 3,267,218
--------------- --------------- -------------- -------------
Income (loss) from other investments 2,954,182 148,220(9,061) 354,142 2,945,121 502,362
Net lossgain (loss) on investments (80,172) -(170,747) 119,619 (250,919) 119,619
--------------- --------------- 2,874,010 148,220-------------- -------------
(179,808) 473,761 2,694,202 621,981
--------------- --------------- -------------- -------------
General and administrative expenses 1,167,373 461,465738,389 512,495 1,905,762 973,960
--------------- --------------- -------------- -------------
Net income $ 4,068,2972,222,816 $ 1,494,7511,420,488 $ 6,291,113 $ 2,915,239
=============== =============== ============== =============
Net income, basic, per share $ 0.47.24 $ 0.17.16 $ .71 $ .33
=============== =============== ============== =============
Net income, fully diluted, per share $ 0.46.24 $ 0.17.16 $ .70 $ .33
=============== =============== ============== =============
Weighted average number of shares outstanding,
8,692,840 9,003,083
basic 9,150,323 8,877,434 8,922,845 8,906,186
Weighted average number of shares outstanding,
8,757,435 9,010,290
fully diluted 9,248,396 8,892,407 9,005,596 8,917,468
The accompanying notes are an integral part of the financial statements.
- 2 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2001
(UNAUDITED)
Stockholders' Equity
------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Paid-in Retained Comprehensive
# of Shares Amount Capital Earnings Income Total
------------ ------------ ------------ ------------ ----- ------- ------------
Balance at December 31, 2000 8,692,825 $ 86,928 $ 74,362,801 $ (440,084) $ (4,098,149) $ 69,911,496
Comprehensive income:
Net income - - - 4,068,2976,291,113 - 4,068,2976,291,113
Net unrealized holding gains
arising during the period - - - - 3,309,104 3,309,1043,322,217 3,322,217
------------ ------------ ------------- ------------ ------------ ------------
Comprehensive income - - - 4,068,297 3,309,104 7,377,4016,291,113 3,322,217 9,613,330
Dividends declared - - - (1,517,037)(4,935,636) - (1,517,037)(4,935,636)
Stock options
revaluation adjustment - - 8,43718,937 - - 8,43718,937
Issuance of common stock 1,339 13 9,9906,811 68 49,935 - - 10,00350,003
Issuance of common stock,
net of offering expenses 10,335,214 103,352 67,027,916 - - 67,131,268
------------ ------------ ------------- ------------ ------------ ------------
Balance at March 31,June 30, 2001 8,694,16419,034,850 $ 86,941190,348 $141,459,589 $ 74,381,228915,393 $ 2,111,176 $ (789,045) $ 75,790,300(775,932) $141,789,398
============ ============ ============= ============ ============ ============
The accompanying notes are an integral part of the financial statements.
- 3 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the ThreeSix For the ThreeSix
Months Ended Months Ended
March 31,June 30, 2001 March 31,June 30, 2000
--------------- ---------------
Cash flows from operating activities
Net income $ 4,068,2976,291,113 $ 1,494,7512,915,239
Adjustments to reconcile net income to net cash
from operating activities:
Net (gain) loss on investments 80,172 -(2,506,605) (119,619)
Amortization of premium 461,303 352,3121,069,743 749,282
Amortization of goodwill 49,925 49,92699,851 99,851
Other amortization 342,394 -395,980 43,496
Changes in assets and liabilities:
Increase in interest and dividends receivable (411,815) (617,354)(1,309,341) (610,905)
(Increase) decrease in other assets (118,441) 97,926(215,800) 157,797
Increase (decrease) in accounts payable 531,909 (100,019)253,730 (177,784)
Increase (decrease) in accrued interest payable 94,568 (1,886,824)979,658 (1,367,847)
---------------- ---------------
Net cash provided by (used in) operating activities 5,098,312 (609,282)5,058,329 1,689,510
---------------- ---------------
Cash flows from investing activities
Principal payments on mortgage securities 34,865,556 21,497,10074,047,714 47,821,943
Proceeds from sale of mortgage securities 5,543,828 -5,018,677
Proceeds from sale of corporate debt securities 1,960,875 372,500
Proceeds from sale of corporate equity securities 3,423,397 42,294
Purchases of mortgage securities (67,067,471) (59,419,766)(389,682,506) (67,095,668)
Purchases of corporate debt securities - (978,750)(4,963,750)
Purchases of corporate equity securities - (4,639,591)(392,053) (6,480,808)
Increase in other investments (3,391,576) (123,260)(537,577) (41,136)
---------------- ---------------
Net cash used in investing activities (30,049,663) (43,664,267)(305,636,322) (25,325,948)
---------------- ---------------
Cash flows from financing activities
Net borrowings from repurchase agreements 33,565,175 32,491,450300,268,024 20,314,026
Net proceeds from stock offering 67,131,268 -
(Increase) decrease in restricted cash (708,553) 3,118,270(9,077,415) 2,781,882
Stock purchased for retirement - (392,170)(558,452)
Dividends paid (1,406,288) (1,293,410)(2,924,150) (2,591,412)
---------------- ---------------
Net cash provided by financing activities 31,450,334 33,924,140355,397,727 19,946,044
---------------- ---------------
Net increase (decrease) in unrestricted cash
and cash equivalents 6,498,983 (10,349,409)54,819,734 (3,690,394)
Unrestricted cash and cash equivalents at
beginning of period 8,400,539 19,895,833
---------------- ---------------
Unrestricted cash and cash equivalents at
end of period $ 14,899,52263,220,273 $ 9,546,42416,205,439
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,441,16811,370,240 $ 8,853,219
The accompanying notes are an integral part of the consolidated financial statements.15,961,198
During the quartersix months ended March 31,June 30, 2001 and 2000, the Company issued 1,3396,811
and 7,804 shares of common stock, with arespectively, to its non-employee
directors in partial payment of the annual retainer paid by the Company to
such directors. The aggregate value of $10,003 to a non-employee director.such common stock issued during the six
months ended June 30, 2001 and 2000 was $50,003 and $39,996, respectively.
The accompanying notes are an integral part of the financial statements.
- 4 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2001
(UNAUDITED)
1. Organization
America First Mortgage Investments, Inc. (the Company) was incorporated in
Maryland on July 24, 1997. The Company began operations on April 10, 1998
when it merged with three partnerships: America First Participating/Preferred
Equity Mortgage Fund Limited Partnership (Prep Fund 1), America First Prep
Fund 2 Limited Partnership (Prep Fund 2) and America First Prep Fund 2
Pension Series Limited Partnership (Pension Fund).
The Company has entered into an advisory agreement with America First Mortgage
Advisory Company (the Advisor) which provides advisory services in connection
with the conduct of the Company's business activities.
2. Summary of Significant Accounting Policies
A) Basis of Presentation
The accompanying interim unaudited financial statements have been prepared
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted according to such
rules and regulations, although management believes that the disclosures
are adequate to make the information presented not misleading. The
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000. In the opinion of
management, all normal and recurring adjustments necessary to present
fairly the financial position at March 31,June 30, 2001 and results of
operations for all periods presented have been made. The results of
operations for the three-monthsix-month period ended March 31,June 30, 2001 are not
necessarily indicative of the results to be expected for the full year.
As more fully discussed in Note 6, the Company has an investment in a
corporation and investments in fourfive real estate limited partnerships, none
of which are controlled by the Company. These investments are accounted
for under the equity method.
The financial statements are prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid
investments with original maturities of three months or less. The
carrying amount of cash equivalents approximates their fair value.
Restricted cash represents amounts held with certain lending
institutions with which the Company has repurchase agreements. Such
amounts may be used to make principal and interest payments on the related
repurchase agreements.
C) Mortgage Securities, Corporate Debt Securities and Corporate Equity
Securities
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115), requires
the Company to classify its investments in mortgage securities,
corporate debt securities and corporate equity securities (collectively
referred to as investment securities) as either held-to-maturity,
available-for-sale or trading.
- 5 -
Although the Company generally intends to hold most of its mortgage
securities until maturity, it may, from time to time, sell any of its
- 5 -
mortgage securities as part of its overall management of its business.
In order to be prepared to respond to potential future opportunities in the
market, to sell mortgage securities in order to optimize the portfolio's
total return and to retain its ability to respond to economic conditions
that require the Company to sell assets in order to maintain an appropriate
level of liquidity, the Company has classified all its mortgage securities
as available-for-sale. Likewise, the Company has classified all its
corporate equity securities as available-for-sale. Mortgage securities and
corporate equity securities classified as available-for-sale are reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in other comprehensive income. Corporate debt securities are
classified as held-to-maturity and are carried at amortized cost.
Unrealized losses on investment securities that are considered
other-than-temporary, as measured by the amount of decline in fair value
attributable to factors other than temporary, are recognized in income and
the cost basis of the investment security is adjusted.
Other-than-temporary unrealized losses are based on management's assessment
of various factors affecting the expected cash flow from the investment
securities, including an other-than-temporary deterioration of the credit
quality of the underlying mortgages and/or the credit protection
available to the related mortgage pool.
Gains or losses on the sale of investment securities are based on the
specific identification method.
Interest income is accrued based on the outstanding principal amount
of the investment securities and their contractual terms. Premiums
and discounts associated with the purchase of the investment securities
are amortized into interest income over the lives of the securities using
the effective yield method. Such calculations are adjusted for actual
prepayment activity.
Dividend income is recognized based on the ex-dividend date.
D) Credit Risk
The Company limits its exposure to credit losses on its investment
portfolio by requiring that at least 50% of its investment portfolio
consist of adjustable rate mortgage securities that are insured or
guaranteed as to principal and interest by an agency of the U.S.
government, such as the Government National Mortgage Association (GNMA),
the Federal National Mortgage Association (FNMA), or the Federal Home
Loan Mortgage Corporation (FHLMC). The remainder of the Company's assets
may be either: (i) investments in multifamily apartment properties; (ii)
investments in limited partnerships, real estate investment trusts or
closed-end funds owning a portfolio of mortgage assets; or (iii) other
fixed-income instruments (corporate debt or equity securities or mortgage
backed securities) that provide increased call protection relative to the
Company's mortgage assets. Corporate debt that is rated below
investment-grade will be limited to less than 5% of the Company's total
assets. As of March 31,June 30, 2001, and December 31, 2000, approximately 77%79% and
75%, respectively, of the Company's total assets consisted of adjustable
rate mortgage securities insured or guaranteed by the U.S. government or an
agency thereof. At March 31,June 30, 2001, management determined no allowance for
credit losses was necessary.necessary, except for the permanent impairment losses
described in Notes 4 and 5.
E) Other Investments
Other investments consist of certain non-consolidated investments accounted
for under the equity method, including: (i) non-voting preferred stock of a
corporation owning interests in real estate limited partnerships, and
(ii) investments in limited partnerships owning real estate.
F) Net income per Share
Net income per share is based on the weighted average number of common
shares and common equivalent shares (e.g., stock options), if dilutive,
outstanding during the period. Basic net income per share is computed by
dividing net income available to shareholders by the weighted average
number of common shares outstanding during the period. Diluted net
income per share is computed by dividing the diluted net income available
- 6 -
to common shareholders by the weighted average number of common shares and
common equivalent shares outstanding during the period. The common
equivalent shares are calculated using the treasury stock method which
assumes that all dilutive common stock equivalents are exercised and the
- 6 -
funds generated by the exercise are used to buy back outstanding common
stock at the average market price during the reported period.
As more fully discussed in Note 8, options to purchase 520,000 and
300,000 shares of common stock were granted on April 6, 1998, and August
13, 1999, respectively. During the quarters ended March 31,June 30, 2001 and 2000,
the average price of the Company's stock was greater than the exercise
price of the options granted on August 13, 1999. As such, exercise of such
options under the treasury stock method is dilutive. Accordingly, these
dilutive securities were considered in fully diluted earnings per share.
With regard to the options granted on April 6, 1998, the exercise price wasis
greater than the average stock price during the quarters ended March 31,June 30,
2001, and March 31,June 30, 2000; therefore, exercise of such options under the
treasury stock method would be anti-dilutive. Accordingly, these
potentially dilutive securities were not considered in fully diluted
earnings per share.
The following table sets forth the reconciliation of the weighted average
shares outstanding for the calculation of basic earnings per share to the
weighted average shares outstanding for the calculation of fully diluted
earnings per share for each period presented:
For the Three For the Three For the Six For the Six
Months Ended Months Ended March 31,Months Ended Months Ended
June 30, 2001 March 31,June 30, 2000 June 30, 2001 June 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
Weighted average shares outstanding for
basic earnings per share 8,692,840 9,003,0839,150,323 8,877,434 8,922,845 8,906,186
Add effect of assumed shares issued under
treasury stock method for stock options 64,595 7,20798,073 14,973 82,751 11,282
Weighted average shares outstanding for -------------- --------------- ------------- --------------
diluted earnings per share 8,757,435 9,010,2909,248,396 8,892,407 9,005,596 8,917,468
============== =============== ============= ==============
G) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the Company to display and report
comprehensive income, which includes all changes in Stockholders' Equity
with the exception of additional investments by or dividends to
shareholders. Comprehensive income for the Company includes net income and
the change in net unrealized holding gains (losses) on investments.
Comprehensive income for the three and six months ended March 31,June 30, 2001, and
March
31,June 30, 2000 was as follows:
For the Three For the Three For the Six For the Six
Months Ended Months Ended March 31,Months Ended Months Ended
June 30, 2001 March 31,June 30, 2000 June 30, 2001 June 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- --------------- ------------- -------------
Net income $ 4,068,2972,222,816 $ 1,494,7511,420,488 $ 6,291,113 $ 2,915,239
Change in net unrealized holding gains (losses) 3,309,104 (2,515,588)13,113 218,697 3,322,217 (2,296,891)
--------------- ------------------------------- -------------- --------------
Comprehensive income (loss) $ 7,377,4012,235,929 $ (1,020,837)1,639,185 $ 9,613,330 $ 618,348
=============== =============================== ============== ==============
H) Federal Income Taxes
The Company has elected to be taxed as a real estate investment trust
(REIT) under the provisions of the Internal Revenue Code and the
corresponding provisions of state law. As such, no provision for income
taxes has been made in the accompanying consolidated financial statements.
- 7 -
I) New Accounting Pronouncement
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities " (FAS 133). Certain provisions of FAS
133 were amended by Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" (FAS 138) in
- 7 -
June, 2000. These statements provide new accounting and reporting standards
for the use of derivative instruments. Adoption of these
statements is required by the Company effective January 1, 2001.
Management intends to adopt these statements as required in fiscal 2001. Although the Company has
not historically used such instruments, it is not precluded from doing so.
In the future, management anticipates using such derivative instruments only
as hedges to manage interest rate risk. Management does not anticipate
entering into derivatives for speculative or trading purposes. As of January
1, 2001, the Company had no outstanding derivative hedging instruments nor
any imbedded derivatives requiring bifurcation and separate accounting under
FAS 133, as amended. Accordingly, there was no cumulative effect upon
adoption of FAS 133, as amended, on January 1, 2001.
J) Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. Mortgage Securities
The following table presents the Company's mortgage securities as of March 31,June 30,
2001 and December 31, 2000.
As of
March 31,June 30, 2001 As of
(Unaudited) December 31, 2000
----------------- -----------------
FNMA Certificates $ 420,073,485611,984,228 $ 377,668,990
GNMA Certificates 16,787,09315,077,050 24,529,046
FHLMC Certificates 8,280,47092,787,049 8,981,226
Commercial mortgage-backed securities 11,696,42411,714,604 17,135,031
Private label CMOs 42,160,688Non-agency AAA assets 50,403,378 42,261,378
----------------- -----------------
$ 498,998,160781,966,309 $ 470,575,671
================= =================
At March 31,June 30, 2001, and December 31, 2000, mortgage securities consisted of
pools of adjustable-rate mortgage securities with carrying values of
$486,018,154$769,355,081 and $450,992,165, respectively, and fixed-rate mortgage
securities with carrying values of $12,980,006$12,611,228 and $19,583,506,
respectively.
The Federal National Mortgage Association (FNMA) Certificates are backed by
first mortgage loans on pools of single-family properties. The FNMA
Certificates are debt securities issued by FNMA and are guaranteed by FNMA as
to the full and timely payment of principal and interest on the underlying
loans.
The Government National Mortgage Association (GNMA) Certificates are backed by
first mortgage loans on multifamily residential properties and pools of
single-family properties. The GNMA Certificates are debt securities issued
by a private mortgage lender and are guaranteed by GNMA as to the full and
timely payment of principal and interest on the underlying loans.
The Federal Home Loan Mortgage Corporation (FHLMC) Certificates are backed by
first mortgage loans on pools of single-family properties. The FHLMC
Certificates are debt securities issued by FHLMC and are guaranteed by FHLMC
as to the full and timely payment of principal and interest on the underlying
loans.
The commercial mortgagemortgage-backed securities are rated AA or A by Standard and
Poor's.
The private label CMOs (collateralized mortgage obligations)non-agency assets are generally rated AAA by Standard and Poor's.
- 8 -
At March 31,June 30, 2001, and December 31, 2000, all mortgage securities were
- 8 -
classified as available-for-sale and as such are carried at their fair value.
The following table presents the amortized cost, gross unrealized gains, gross
unrealized losses and fair value of mortgage securities March 31,at June 30, 2001, and
December 31, 2000, respectively:
As of
March 31,June 30, 2001 As of
(Unaudited) Dec. 31, 2000
------------------ ------------------
Amortized cost $ 500,801,848783,546,747 $ 474,638,436
Gross unrealized gains 841,9211,528,217 351,662
Gross unrealized losses (2,645,609)(3,108,655) (4,414,427)
------------------ ------------------
Fair value $ 498,998,160781,966,309 $ 470,575,671
================== ==================
4. Corporate Debt Securities
Corporate debt securities are classified as held-to-maturity. The following
table presents the amortized cost, gross unrealized gains, gross unrealized
losses and fair value of the corporate debt securities as of March 31,June 30, 2001,
and December 31, 2000:
As of
March 31,June 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------
Amortized cost $ 15,742,92613,047,632 $ 15,665,727
Gross unrealized gains 44,689- 24,900
Gross unrealized losses (6,009,365)(6,842,507) (3,795,002)
------------------ ------------------
Fair value $ 9,778,2506,205,125 $ 11,895,625
================== ==================
The Company recognized a permanent impairment loss of $273,890 during the
three and six months ended June 30, 2001, on one of its investments in
corporate debt securities. The amortized cost basis of such security was
adjusted accordingly.
5. Corporate Equity Securities
Corporate equity securities are classified as available-for-sale. The
following table presents the cost, gross unrealized gains, gross unrealized
losses and fair value of the corporate equity securities as of March 31,June 30, 2001,
and December 31, 2000:
As of
March 31,June 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------
Cost $ 8,921,9236,514,786 $ 9,045,923
Gross unrealized gains 1,269,7701,077,343 613,843
Gross unrealized losses (255,127)(272,837) (649,228)
------------------ -------------------------------------
Fair value $ 9,936,5667,319,292 $ 9,010,538
================== =====================================
The Company recognized a permanent impairment loss of $124,000 forduring the threesix
months ended March 31,June 30, 2001, on one of its investments in corporate equity
securities. The cost basis of such security was adjusted accordingly.
- 9 -
6. Other Investments
Other investments consisted of the following as of March 31,June 30, 2001 and December
31, 2000:
As of
March 31,June 30, 2001 As of
(Unaudited) Dec. 31, 2000
-------------- -------------
Investment in Retirement Centers Corporation $ 5,421,4295,446,197 $ 2,540,180
Investment in and advances to real estate limited partnerships 4,510,7174,408,476 4,000,390
------------- -------------
Total $ 9,932,1469,854,673 $ 6,540,570
============= =============
The Company's investment in Retirement Centers Corporation (RCC) represents a
95% ownership interest in such corporation. The Company owns 100% of the
non-voting preferred stock of RCC and a third party owns 100% of the common
stock. The Company accounts for its investment in RCC on the equity method.
As of March 31,June 30, 2001, RCC owned (i) a 128-unit apartment property located in
Omaha, Nebraska, which was acquired on January 12, 2000 and (ii) an 88.3%
undivided interest in a 192-unit apartment property located in Lawrenceville,
Georgia, which was acquired on January 18, 2001.
At December 31, 2000, RCC owned (i) the 128-unit apartment property referenced
above and (ii) a limited partnership interest in a real estate limited
partnership which operates an assisted living center located in Salt Lake
City, Utah. On January 2, 2001, the limited partnership which owned the
assisted living center was liquidated with RCC receiving an undivided interest
in the net assets of such partnership. RCC then sold its undivided interest
in the net assets of the assisted living center. Such sale contributed
approximately $2,100,000 ($2,600,000 less an incentive fee of approximately
$511,000) (see Note 9) to the Company's net income for the quartersix months ended
March
31,June 30, 2001. The proceeds of such sale were utilized to acquire the
192-unit apartment property on January 18, 2001 as discussed above.
Investments in and advances to unconsolidated real estate limited partnerships
consist of investments in or advances made to limited partnerships which own
properties. These investments are not insured or guaranteed by any government
agency or third party. The value of these investments is a function of the
underlying value of the real estate owned by such limited partnerships. They
are accounted for under the equity method of accounting. Certain of the
investments have a zero carrying value and, as such, earnings are recorded
only to the extent distributions are received. Such investments have not been
reduced below zero through recognition of allocated investment losses since
the Company has no legal obligation to provide additional cash support to the
underlying property partnerships as it is not the general partner, nor has it
indicated any commitment to provide this support. As of March 31,June 30, 2001, and
December 31, 2000, the Company had investments in fourfive (including the
acquisition described below) such limited partnerships. On January 18, 2001,
the Company and one of its real estate limited partnerships acquired the
remaining 11.7% undivided interest in the 192-unit apartment property
discussed above.
7. Repurchase Agreements
As of March 31,June 30, 2001, the Company had outstanding balances of $482,148,607$748,851,456
under 6272 repurchase agreements with a weighted average borrowing rate of 5.38%4.2%
and a weighted average remaining maturity of 2.63.9 months. As of March 31,June 30, 2001,
all of the Company's borrowings were fixed-rate term repurchase agreements
with original maturities that range from one to twelve months. As of December
31, 2000, the Company had outstanding balances of $448,583,432 under 55
repurchase agreements with a weighted average borrowing rate of 6.60% and a weighted average maturity of approximately one month..
- 10 -
At March 31,June 30, 2001, the repurchase agreements had the following remaining
maturities:
Within 30 days $ 311,618,478276,397,709
30 to 90 days 64,540,969208,369,587
90 days to one year 105,989,160264,084,160
-------------
$ 482,148,607748,851,456
=============
The repurchase agreements are collateralized by the Company's mortgage
securities and corporate debt securities with an aggregate current face value
of approximately $509.1$786.5 million and corporate equity securities with a current
market value of approximately $9.9$7.3 million. The repurchase agreements bear
interest at rates that are LIBOR based.
8. Stockholders' Equity
Common Stock Offering
- ------------------------
The Company filed a registration statement with respect to a public offering
and sale of 9,000,000 shares of its common stock that became effective June
21, 2001. In addition, the Company granted the underwriters an option to
purchase up to 1,335,214 additional shares to cover over-allotments which the
underwriters exercised in full. The public offering closed on June 27, 2001.
The shares were priced at $7 per share with the Company receiving net proceeds
of approximately $67.1 million after deducting total offering costs of
approximately $5.2 million, including underwriting discounts.
1997 Stock Option Plan
- ---------------------
The Company has a 1997 Stock Option Plan (the Plan) which authorizes the
granting of options to purchase an aggregate of up to 1,000,0001,400,000 shares of the
Company's common stock, but not more than 10% of the total outstanding shares
of the Company's common stock. The Company has adopted an amendment to the
Plan that would increase the total number of options for shares available for
issuance to 1,400,000, subject to shareholder approval at its 2001 annual
meeting. The Plan authorizes the board of directors, or
a committee of the board of directors, to grant Incentive Stock Options (ISOs)
as defined under section 422 of the Internal Revenue Code, Non-Qualified Stock
Options (NQSOs) and Dividend Equivalent Rights (DERs) to eligible persons,
other than non-employee directors. Non-employee directors are eligible to
receive grants of NQSOs with DERs pursuant to the provisions of the Plan. The
exercise price for any options granted to eligible persons under the Plan
shall not be less than the fair market value of the common stock on the day of
the grant. The options expire if not exercised ten years after the date
granted.
On April 6, 1998, 500,000 ISOs were granted to buy common shares at an
exercise price of $9.375 per share (the 1998 Grant). In addition, 20,000
NQSOs were issued at an exercise price of $9.375 per share. On August 13,
1999, 300,000 ISOs were granted to buy common shares at an exercise price of
$4.875 per share (the 1999 Grant). Prior to the 1998 Grant, no other options
were outstanding. As of March 31,June 30, 2001 and December 31, 2000, 525,000 ISOs
were vested and exercisable. As of March 31,June 30, 2001 and December 31, 2000,
20,000 NQSOs were vested and exercisable. As of March 31,June 30, 2001, no options had
been exercised.
In addition to the options granted on April 6, 1998, 500,000 and 5,000 DERs
were also granted on the ISOs and NQSOs, respectively, based on the provisions
of the Plan. No DERs were granted on the ISOs granted on August 13, 1999.
DERs on the ISOs vest on the same basis as the options. DERs on NQSOs became
fully vested in April, 1999. Payments are made on vested DERs only. Vested
DERs are paid only to the extent of ordinary income and not on returns of
capital. Dividends paid on ISOs are charged to stockholders' equity when
declared and dividends paid on NQSOs are charged to earnings when declared.
For the three and six months ended March 31,June 30, 2001, and March 31, 2000, the Company recorded charges
of $82,500$87,500 and $35,000,$170,000, respectively, to stockholders' equity (included in
dividends paid or accrued) associated with the DERs on ISOs and charges of
$825$875 and $1,400,$1,700, respectively, to earnings associated with DERs on NQSOs.
For the three and six months ended June 30, 2000, the Company recorded charges
of $70,000 and $105,00, respectively, to stockholders' equity (included in
dividends paid or accrued) associated with DERs on ISOs and charges of $700
- 11 -
and $2,100, respectively, to earnings associated with DERs on NQSOs.
The options and related DERs issued were accounted for under the provisions of
SFAS 123, "Accounting for Stock Based Compensation". Because the ISOs were
not issued to officers who are direct employees of the Company, ISOs granted
were accounted for under the option value method as variable plan grants and a
periodic charge is recognized based on the vesting schedule. The charge
for options which vested immediately with the 1998 Grant was included as
capitalized transaction costs in connection with the Merger. Until fixed and
determinable, management estimates the value of the ISOs granted as of each
balance sheet date using a Black-Scholes valuation model, as adjusted for the
- 11 -
discounted value of dividends not to be received under the unvested DERs. In
the absence of comparable historical market information for the Company,
management originally utilized assumptions consistent with activity of a
comparable peer group of companies including an estimated option life, a
volatility rate, a risk-free rate and a current dividend yield (or 0% if the
related DERs are issued). For the three and six months ended March 31,June 30, 2001,
as part of operations, the Company reflected earnings charges of $10,500 and
March 31,$136,143, respectively, representing the value of ISOs/DERs granted over their
vesting period. For the three and six months ended June 30, 2000, as part of
operations, the Company reflected earnings charges of $125,643$55,821 and $96,854,$152,675,
respectively, representing the value of the ISOs/DERs granted over their
vesting period. NQSOs granted were accounted for using the intrinsic method
and, accordingly, no earnings charge was reflected since the exercise price
was equal to the fair market value of the common stock at the date of the
grant.
Dividends/Distributions
- -----------------------
On February 12, 2001,The Company pays its non-employee directors a portion of their annual retainer
in common stock of the Company's board of directors declared a dividend of
$.165 per share forCompany. During the quartersix months ended March 31, 2001, payable on AprilJune 30, 2001,
and 2000, the Company issued 6,811 and 7,804 shares of its common stock with
an aggregate value of $50,003 and $39,996, respectively, to shareholderssuch directors
(5,472 and 7,804 shares with an aggregate value of record as of April 16, 2001.$40,000 and $39,996 during
the three months ended June 30, 2001 and 2000, respectively).
Dividends
- ---------
The Company declared the following dividends during 2001 and 2000:
Amount per
Declaration Date Record Date Payment Date Share
- ---------------- ------------ ------------ -----------
During 2001:
February 12, 2001 April 16, 2001 April 30, 2001 $ .165
April 9, 2001 June 30, 2001 July 16, 2001 $ .175
During 2000:
March 17, 2000 April 14, 2000 May 17, 2000 $ .140
June 14, 2000 June 30, 2000 August 17, 2000 $ .140
September 8, 2000 October 16, 2000 November 17, 2000 $ .155
December 14, 2000 January 15, 2001 January 30, 2001 $ .155
Stock Repurchase Plan
- ---------------------
In connection with the Company's 600,000 share repurchase program, the Company
purchased and retired 293,621 shares during the year ended December 31, 2000,
at an aggregate cost of $1,511,613. During the year ended December 31, 1999,
the Company purchased and retired 84,600 share at an aggregate cost of
$412,208. Since implementing the stock repurchase program during the fourth quarter of 1999, the Company implemented a 600,000 share
repurchase program. Pursuant to this program, through March 31,June 30, 2001, the
Company has purchased and retired 378,221 shares at an aggregate cost of
$1,923,821 (none during the quarter or six months ended March 31,June 20, 2001).
9. Related Party Transactions
The Advisor manages the operations and investments of the Company and performs
administrative services for the Company. In turn, the Advisor receives a
management fee payable monthly in arrears in an amount equal to 1.10% per
annum of the first $300 million of Stockholders' Equity of the Company, plus
.80% per annum of the portion of Stockholders' Equity of the Company above
- 12 -
$300 million. The Company also pays the Advisor, on a quarterly basis, an
incentive compensation fee of 20% of the amount by which its Return on Equity
for each quarter exceeds a return based on the Ten-Year U.S. Treasury Rate
plus 1%. For the three and six months ended March 31,June 30, 2001, the Advisor earned
a base management fee of $271,046 and March 31,$480,050, respectively, and incentive
compensation of $257,134 and $1,009,923, respectively. For the three and six
months ended June 30, 2000, the Advisor earned a base management fee of
$209,004$179,422 and $182,925,$362,347, respectively, and incentive compensation of $752,789$53,969 and
$71,260,$125,229, respectively.
Approximately $511,000 of the incentive fee earned in 2001 was attributable to
the sale described in Note 6. America First Properties Management Company L.L.C.,
(the Manager), provides property management services for multifamily
properties in which the Company has an interest. The Manager receives a
management fee equal to a stated percentage of the gross revenues generated by
the properties under management, ranging from 3.5% to 4% of gross revenues.
Such fees paid by the entities which own the multifamily properties in which
the Company has an interest for the three and six months ended March 31,June 30, 2001,
amounted to $111,141 and March 31,$219,576, respectively, and such fees paid for the
three and six months ended June 30, 2000, amounted to $108,435$97,017 and $94,549,$191,566,
respectively.
10. Subsequent Events
On April 30,Through August 10, 2001, the Company filed a Registration Statement on Form S-2acquired ten FNMA whole-pool
mortgage-backed certificates with an aggregate remaining principal balance of
$235.7 million (FNMA Certificates). The FNMA Certificates bear interest at
rates ranging from 5.78% to 7.66% per annum. The total purchase price paid
for the FNMA Certificates, including accrued interest, was approximately
$241.3 million. The Company also acquired two FHLMC whole-pool
mortgage-backed certificates with an aggregate remaining principal balance of
$36.0 million (FHLMC Certificates). The FHLMC Certificates bear interest at
rates of 6.12% and 6.75% per annum. The total purchase price paid for the
FHLMC Certificates, including accrued interest, was approximately $36.9
million. In addition, the Company acquired two non-agency AAA assets with an
aggregate remaining principal balance of $97.5 million. The non-agency AAA
assets bear interest at rates of 5.93% and 6.00% per annum. The total
purchase price paid for the non-agency AAA assets, including accrued interest,
was approximately $97.9 million. The acquisitions were financed with the
Securitiesproceeds of various LIBOR-based repurchase agreements aggregating $333.8
million and Exchange Commission offering 7,500,000 sharescash of its
common stock. The Registration Statement also covers an additional 1,125,000
shares that may be issued to cover the underwriter's over allotment option.
Net proceeds from the proposed offering of common stock will be utilized to
acquire additional mortgage-backed securities, interests in multifamily
apartment properties and other investments consistent with the Company's
investment criteria.$42.3 million.
- 1213 -
Item 2.
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with all of the
financial statements and notes included in Item 1 of this report as well as
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
General
The Company was incorporated in Maryland on July 24, 1997. The Company began
operations on April 10, 1998 when it merged with three partnerships: America
First Participating/Preferred Equity Mortgage Fund Limited Partnership ("Prep
Fund 1"), America First Prep Fund 2 Limited Partnership ("Prep Fund 2") and
America First Prep Fund 2 Pension Series Limited Partnership ("Pension Fund").
America First Mortgage Advisory Corporation (the "Advisor") provides advisory
services to the Company in connection with the conduct of the Company's
business activities. The Company's principal investment strategy includes
leveraged investing in adjustable rate mortgage securities. The Company's
investment strategy also provides for the acquisition of multifamily housing
properties, REIT securities and high-yield corporate securities. Since
commencing operations and through March 31,June 30, 2001, the Company purchased
adjustable-rate
mortgage securities with a face value at the time of purchase of approximately
$735.3 million$1.053 billion (mortgage securities with a face value of approximately $66.1$384.0
million were purchased during the threesix months ended March
31,June 30, 2001).
The Company has elected to become subject to tax as a real estate investment
trust ("REIT") under the Codefor federal income tax purposes beginning with its 1998 taxable
year and, as such, anticipates distributing annually at least 90% (95% prior
to January 1, 2001) of its taxable income, subject to certain adjustments.
Generally, cash for such distributions is expected to be largely generated
from the Company's operations, although the Company may borrow funds to make
distributions. On
February 12,The Company declared the following dividends during 2001 the Company's board of directors declared a dividend of
$0.165 per share for the quarter ended March 31, 2001, payable on April 30,
2001, to shareholders of record as of April 16, 2001. On April 9, 2001, the
Company's board of directors declared a dividend of $0.175 per share for the
quarter ended June 30, 2001, payable on July 16, 2001, to shareholders of
record as of June 30, 2001.and
2000:
Amount per
Declaration Date Record Date Payment Date Share
- ---------------- ------------ ------------ -----------
During 2001:
February 12, 2001 April 16, 2001 April 30, 2001 $ .165
April 9, 2001 June 30, 2001 July 16, 2001 $ .175
During 2000:
March 17, 2000 April 14, 2000 May 17, 2000 $ .140
June 14, 2000 June 30, 2000 August 17, 2000 $ .140
September 8, 2000 October 16, 2000 November 17, 2000 $ .155
December 14, 2000 January 15, 2001 January 30, 2001 $ .155
The Company's operations for any period may be affected by a number of factors
including the investment assets held, general economic conditions affecting
underlying borrowers and, most significantly, factors which affect the
interest rate market. Interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations, and other factors beyond the control of
the Company.
Liquidity and Capital Resources
The Company's principal sources of capital consist of borrowings under
repurchase agreements, principal payments received on its portfolio of
mortgage securities, and cash provided by operations.operations and public equity offerings.
Principal uses of cash include the acquisition of investment securities, the
- 14 -
payment of operating expenses and the payment of dividends to shareholders.
On June 27, 2001, the Company closed a public offering of 10,335,214 shares of
its common stock. The offering included the full exercise of the
underwriters' option to purchase up to 1,335,214 additional shares to cover
over-allotments. The shares were priced at $7 per share with the Company
receiving net proceeds of approximately $67.1 million net of offering
expenses of $5.2 million, including underwriting discounts. Proceeds of the
offering are primarily being utilized to acquire additional adjustable-rate
mortgage securities.
During the threesix months ended March 31,June 30, 2001, the Company acquired $67.1$390.1 million
of mortgage securities and corporate equity securities. Financing for these
acquisitions was provided primarily through the utilization of repurchase
agreements, supplemented by cash flow from operations and a portion of $2.6 million.the
proceeds of the aforementioned equity offering. Net borrowings under
such
repurchase agreements totaled $33.6$300.3 million during the threesix months ended March 31,June
30, 2001. The Company also received principal payments of $34.9$74.0 million on its
mortgage securities and $5.5proceeds of $10.9 million from the sale of mortgage
securities, corporate debt securities and corporate equity securities during
the threesix months ended March 31,June 30, 2001. Other uses of funds during the threesix months
ended March 31,June 30, 2001, included $3.4$3.3 million primarily for the acquisition of an
interest in a multifamily housing property and a
$1.4$2.9 million for dividend
payment.payments.
The Company's borrowings under repurchase agreements totaled $482.1$748.9 million at
March 31,June 30, 2001, and had a weighted average borrowing rate of 5.38%4.2% as of such
date. At March 31,June 30, 2001, the repurchase agreements had balances of between $0.3$.2
million and $51.7$65.0 million. These arrangements have original terms to
- 13 - maturity
ranging from one month to twelve months and annual interest rates based on
LIBOR. To date, the Company has not had margin calls on its repurchase
agreements that it was not able to satisfy with either cash or additional
pledged collateral.
On April 30, 2001, the Company filed a Registration Statement on Form S-2 with
the Securities and Exchange Commission offering 7,500,000 shares of its
common stock. The Registration Statement also covers an additional 1,125,000
shares that may be issued to cover the underwriter's over allotment option.
Net proceeds from the proposed offering of common stock will be utilized to
acquire additional mortgage-backed securities, interests in multifamily
apartment properties and other investments consistent with the Company's
investment criteria.
The Company believes it has adequate financial resources to meet its
obligations as they come due and fund committed dividends as well as to
actively pursue its investment policy.
Results of Operations
Three Month Period Ended March 31,June 30, 2001 Compared to 2000
During the three months ended March 31,June 30, 2001, total interest and dividend income
for the Company increased $0.1 milliondecreased approximately $131,000 (1.4%) as compared to total
interestthe same period in the
prior year. Such decrease was the result of reductions in income from
mortgage securities and dividend income forwhich were partially offset by
increases in income from corporate debt securities and income recognized on
short-term investments in cash and cash equivalents. The decrease in income
from mortgage securities was the three months ended March 31, 2000. Thisresult of a reduction in outstanding
fixed-rate investments due to sales of such investments and increased
repayments by the underlying borrowers as well as to a reduction in the
annualized yield on adjustable-rate mortgage investments. Such decreases
were partially offset by an increase in the average investment in
adjustable-rate mortgage securities during the period.
The decrease in dividend income is primarily attributable to a reduction in
the average amount invested in such securities as a result of sales of the
underlying investments.
The increase in income from corporate debt securities and income on short-term
investments in cash and cash equivalents was primarily the result of an
increase in the annualized yield onaverage balances of such investments during the Company's interest earning assets to 6.81% for the three months ended March
31, 2001, up from 6.70% for the comparable period in 2000. The Company's
average interest-earning assets for the three months ended March 31, 2001
approximated those of the same period in 2000.period.
The Company's interest expense decreased $0.4$1.8 million (6.2%(23.8%) for the three
months ended March 31,June 30, 2001, compared to the comparable period in 2000. Such
decrease is due primarily to a decrease in the Company's average interest cost
from 5.95%6.38% to 5.62%4.66% for the three months ended March 31,June 30, 2000 and 2001,
respectively. The decrease in average interest cost was partially offset by
an increase in the Company's average outstanding borrowings for the three
months ended March 31,June 30, 2001 approximated those of the same period in 2000.
The Company's interest rate margin (calculated by dividing annualized net
interest and divided income by the average interest earning assets) was 1.81%
for the three months ended March 31, 2001,which increased approximately $22.9 million as
compared to 1.38% for the same period in 2000.
As a result of the widening of the Company's interest rate margin, net
- 15 -
interest and dividend income increased $1.6 million (115.3%) from $1.5 million
to $3.1 million for the three months ended June 30, 2000 and 2001,
respectively.
Income from other investments decreased $0.4 million for the three months
ended June 30, 2001, compared to the same period in 2000 as a result of a
reduction in income generated by the Company's investments in unconsolidated
real estate limited partnerships.
The Company recognized a net loss of approximately $171,000 on its investments
during the three months ended June 30, 2001. Such net loss resulted from a
permanent impairment loss recognized on one of its investments in corporate
debt securities of approximately $274,000 (See Note 4) and losses on sales of
certain corporate debt and equity securities of approximately $601,000. Such
losses were partially offset by gains on sales of certain corporate debt and
equity securities of approximately $704,000. This compares to a net gain of
approximately $120,000 recognized during the three months ended June 30, 2000,
resulting from the sale of corporate debt and equity securities for a gain of
$199,000 which was partially offset by a loss of $79,000 on the sale of
numerous small pools of fixed-rate mortgage securities.
General and administrative expenses for the Company for the three months ended
June 30, 2001, increased $0.2 million as compared to the three months ended
June 30, 2000. Such increase is primarily attributable to a higher incentive
compensation fee earned by the Advisor due to an increase in income generated
by the Company.
Six Month Period Ended June 30, 2001 Compared to 2000
During the six months ended June 30, 2001, total interest and dividend income
approximated that of the same period in the prior year. This was the result
of reductions in income from mortgage securities and dividend income which
were substantially offset by increases in income from corporate debt
securities and income recognized on short-term investments in cash and cash
equivalents. The decrease in income from mortgage securities was the result
of a reduction in outstanding fixed-rate investments due to sales of
such investments and increased repayments by the underlying borrowers as
well as a reduction in the annualized yield on adjustable-rate mortgage
investments. Such decreases were partially offset by an increase in the
average investment in adjustable-rate mortgage securities during the period.
The decrease in dividend income is primarily attributable to a reduction in
the average amount invested in such securities as a result of sales of the
underlying investments.
The increase in income from corporate debt securities and income on short-term
investments in cash and cash equivalents was primarily the result of an
increase in the average balances of such investments during the period.
The Company's interest expense decreased $2.2 million (15.4%) for the six
months ended June 30, 2001, compared to the comparable period in 2000. Such
decrease is due primarily to a decrease in the Company's average interest cost
from 6.31% to 5.14% for the six months ended June 30, 2000 and 2001,
respectively. The decrease in average interest cost was partially offset by
an increase in the Company's average outstanding borrowings for the six months
ended June 30, 2001 which increased approximately $18.4 million as compared to
the same period in 2000.
As a result of the widening of the Company's interest rate margin, net
interest and dividend income increased $0.6$2.2 million (31%(68%) from $1.8$3.3 million to
$2.4$5.5 million for the threesix months ended March 31,June 30, 2000 and 2001, respectively.
Income from other investments increased $2.8$2.4 million for the threesix months ended
March 31,June 30, 2001, compared to the same period in 2000. Included in such income
for the threesix months ended March 31,June 30, 2001, is a gain of approximately $2.6
million which resulted from the sale by a non-consolidated subsidiary of its
undivided interest in the net assets of an assisted living center. Excluding
such gain, income from other investments increaseddecreased $0.2 million due
to higheras a result of
a reduction in income generated by the Company's investments in unconsolidated
real estate limited partnerships.
The Company recognized a net loss of $80,172approximately $251,000 on its investments
during the threesix months ended March 31, 2001, resultingJune 30, 2001. Such net loss resulted from
a- 16 -
permanent impairment losslosses recognized on one of each of its investments in
corporate debt and equity securities totaling approximately $398,000. (See
Notes 4 and 5). In addition, the Company recognized losses of approximately
$601,000 on sales of certain corporate debt and equity securities. (See Note
5). Such
losslosses were partially offset by a gains on sales of commercial mortgage-backed
securities and corporate debt and equity securities totaling approximately
$748,000. This compares to a net gain of approximately $120,000 recognized
during the six months ended June 30, 2000, resulting from the sale of certain
corporate debt and equity securities for a gain of $199,000 which was
partially offset by a gainloss of $79,000 on the sale of commercial
mortgage-backednumerous small pools of
fixed-rate mortgage securities. The Company recognized no such gains or losses
during the comparable period in 2000.
General and administrative expenses for the Company for the threesix months ended
March 31,June 30, 2001, increased $0.7$0.9 million as compared to the threesix months ended
March 31,June 30, 2000. Such increase is primarily attributable to a higher incentive
compensation fee earned by the Advisor of which $0.5 million resulted from the
sale described in Note 6 and $0.2$0.4 million resulted from an increase in income
generated by the Company.
New Accounting Pronouncements
In July, 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards (FAS) No. 141, "Business Combinations" and FAS No. 142,
"Goodwill and Other Intangible Assets" which provide guidance on how entities
are to account for business combinations and for the goodwill and other
intangible assets that arise from those combinations or are acquired
otherwise. These standards are effective for the Company on January 1, 2002.
FAS 142 will require that goodwill no longer by amortized, but instead be
tested for impairment at least annually. As of the date of adoption, the
Company expects to have unamortized goodwill in the amount of approximately
$7,189,000. Amortization expense related to such goodwill was approximately
$100,000 for the six month period ended June 30, 2001 and is expected to be
approximately $200,000 for the year ended December 31, 2001. Management
expects to adopt such statement effective January 1, 2002, as required but has
not yet completed its evaluation as to the potential implications to the
financial statements.
Other Matters
The Company at all times intends to conduct its business so as to not become
regulated as an investment company under the Investment Company Act of 1940.
If the Company were to become regulated as an investment company, then, among
other things, the Company's ability to use leverage would be substantially
- 14 -
reduced. The Investment Company Act exempts entities that are "primarily
engaged in the business of purchasing or otherwise acquiring mortgages and
other liens on and interests in real estate" (i.e. "Qualifying Interests").
Under the current interpretation of the staff of the SEC, in order to qualify
for this exemption, the Company must maintain at least 55% of its assets
directly in Qualifying Interests. In addition, unless certain mortgage
securities represent an undivided interest in the entire pool backing such
mortgage securities (i.e. "whole pool" mortgage securities), such mortgage
securities may be treated as securities separate from the underlying mortgage
loan, thus, may not be considered Qualifying Interests for purposes of the 55%
exemption requirement. Accordingly, the Company monitors its compliance with
this requirement in order to maintain its exempt status. As of March 31,
2000,June 30,
2001, the Company determined that it is in and has maintained compliance with
this requirement.
- 17 -
Forward Looking Statements
When used in this Form 10-Q, in future SEC filings or in press releases or
other written or oral communications, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The Company cautions that such forward looking statements
speak only as of the date made and that various factors including regional
and national economic conditions, changes in levels of market interest
rates, credit and other risks of lending and investment activities, and
competitive and regulatory factors could affect the Company's financial
performance and could cause actual results for future periods to differ
materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the Company's market risk since
December 31, 2000.
- 1518 -
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On March 30, 2001 and May 31, 2001, the Company issued 1,339 and 5,472
shares of its common stock, respectively, to its non-employee directors
in partial payment of the annual retainer paid by the Company to such
directors. Each such director was entitled to payment of a number of
shares determined by dividing $10,000 by the closing sale price of the
common stock on the dates of issuance which were $7.47 on March 30, 2001
and $7.31 on May 31, 2001. The issuance of these shares is exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act") under Section 4(2) thereof in that the transaction did not involve
a public offering.
The Company filed a registration statement (Commission File No. 333-59800)
with respect to a public offering and sale of 9,000,000 shares of its
common stock that became effective June 21, 2001. In addition, the
Company granted Friedman, Billings, Ramsey & Co., Inc. and Tucker Anthony
Sutro Capital Markets, the managing underwriters, an option to purchase up
to 1,335,214 additional shares to cover over-allotments which they
exercised in full. The public offering closed on June 27, 2001. The
shares were priced at $7 per share. Gross proceeds from the offering were
approximately $72.3 million. Net proceeds were approximately $67.1
million after deducting underwriting discounts and expenses of
approximately $4.7 million and other offering costs of approximately $.5
million. Allotments paid from offering proceeds were paid to persons
unaffiliated with the Company. As of June 30, 2001 approximately $16
million of proceeds from the offering were utilized to acquire additional
adjustable-rate mortgage securities. The remaining $51.1 million of
proceeds was invested in interest-bearing cash accounts and will be
utilized primarily to acquire additional adjustable-rate mortgage
securities.
Item 4. Submission of Matters to Vote of Securities Holders.
The Company held its Annual Meeting of Stockholders on May 24, 2001 for
the purpose of: (i) electing three directors (ii) ratifying the
appointment of its auditors (iii) voting on a proposal to amend the
Company's 1997 Amended and Restated Stock Option Plan (the "Stock Option
Plan") to increase the number of shares and (iv) to approve the issuance
of up to 20,000,000 additional shares of the Company's common stock or
securities convertible into or exercisable for such number of shares of
common stock in one or more private placements. The following sets forth
the results of the election of officers:
NAME OF NOMINEE FOR WITHHELD
---------------- --------------- -----------
Stewart Zimmerman 7,674,876 (99%) 67,894 (1%)
Alan Gosule 7,666,177 (99%) 76,593 (1%)
W. David Scott 7,679,556 (99%) 63,214 (1%)
There was no solicitation in opposition to the nominees by the
Stockholders.
The ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending December
31, 2001 was approved by the Stockholders with 7,607,130 votes FOR (98%),
46,796 votes AGAINST (1%), and 88,844 votes ABSTAINED OR BROKER
NON-VOTES (1%).
The proposal to amend the Company's Stock Option Plan was approved by the
Stockholders with 6,985,974 votes FOR (90%), 526,325 votes AGAINST
(7%), and 230,471 votes ABSTAINED OR BROKER NON-VOTES (3%).
Further information regarding these matters is contained in the Company's
Proxy Statement dated April 13, 2001.
- 19 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger by and among the Registrant,
America First Participating/Preferred Equity Mortgage Fund
Limited Partnership, America First Prep Fund 2 Limited
Partnership, America First Prep Fund 2 Pension Series
Limited Partnership and certain other parties, dated as of
July 29, 1997 (incorporated herein by reference to Exhibit
2.1 of the Registration Statement on Form S-4 dated
February 12, 1998, filed by the Registrant pursuant to the
Securities Act of 1933 (Commission File No. 333-46179)).
3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated herein by reference fromto Form 8-K
dated April 10, 1998, filed by the Registrant pursuant to
the Securities Exchange Act of 1934 (Commission File No.
1-13991)).
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference fromto Form 8-K dated April 10, 1998,
filed by the Registrant pursuant to the Securities Exchange
Act of 1934 (Commission File No. 1-13991)).
4.1 Specimen of Common Stock Certificate of the Company.
(incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form S-4 dated February 12, 1998,
filed by the Registrant pursuant to the Securities Act of
1933 (Commission File No. 333-46179)).
10.1 Advisory Agreement, dated April 9, 1998, by and between
the Company and the Advisor (incorporated herein by
reference fromto Form 8-K dated April 10, 1998 filed by
the Company pursuant to the Securities Exchange Act of
1934 (Commission File No. 1-13991)).
10.2 Employment Agreement of Stewart Zimmerman (incorporated
herein by reference to Exhibit 10.2 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.3 Employment Agreement of William S. Gorin (incorporated
herein by reference to Exhibit 10.3 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.4 Employment Agreement of Ronald A. Freydberg (incorporated
herein by reference to Exhibit 10.4 of the Registration
Statement on Form S-4 dated February 12, 1998, filed by
the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).
10.5 Addendum to Employment Agreement of Stewart Zimmerman
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.6 Addendum to Employment Agreement of William S. Gorin
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
10.7 Addendum to Employment Agreement of Ronald A. Freydberg
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).
- 16 -
10.8 Second Amended and Restated 1997 Stock Option Plan of the
Company
(incorporated herein by reference to Form 10-K dated
December 31, 1999, filed with the Securities and Exchange
Commission (Commission File No. 1-13991)).
10.9 Form of Dividend Reinvestment Plan (incorporated herein by
reference to Appendix C of the Registration Statement on
Form S-4 dated February 12, 1998, filed by the Registrant
pursuant to the Securities Act of 1933 (Commission File No.
333-46179)).- 20 -
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the quarter for which this report is filed.
- 1721 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: MayAugust 10, 2001 AMERICA FIRST MORTGAGE INVESTMENTS, INC.
By /s/ Stewart Zimmerman
Stewart Zimmerman
President and Chief Executive Officer
By /s/ Gary Thompson
Gary Thompson
Authorized Officer and Chief Financial Officer
- 1822 -
EXHIBIT 10.8
SECOND AMENDED AND RESTATED
1997 STOCK OPTION PLAN
- 23 -
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
SECOND AMENDED AND RESTATED
1997 STOCK OPTION PLAN
1. PURPOSE. The Plan is intended to provide incentive to key employees,
officers, directors and others expected to provide significant services to the
Company, including the employees, officers and directors of the Participating
Companies, to encourage proprietary interest in the Company, to encourage such
key employees to remain in the employ of the Company and the other
Participating Companies, to attract new employees with outstanding
qualifications, and to afford additional incentive to others to increase their
efforts in providing significant services to the Company and the other
Participating Companies. In furtherance thereof, the Plan permits awards of
equity-based incentives to key employees, officers and directors of, and
certain other providers of services to, the Participating Companies.
2. DEFINITIONS.
a. "Act" shall mean the Securities Act of 1933, as amended.
b. "Advisor" shall mean American First Mortgage Advisor Corporation, a
Maryland Corporation.
c. "Agreement" shall mean a written agreement entered into between the
Company and the recipient of a Grant pursuant to section 7(b)(i) hereof.
d. "Board" shall mean the Board of Directors of the Company.
e. "Cause" shall mean, unless otherwise provided in the Optionee's
Agreement, (i) engaging in (A) willful or gross misconduct or (B) willful or
gross neglect, (ii) repeatedly failing to adhere to the directions of
superiors or the Board or the written policies and practices of the Company,
(iii) the commission of a felony or a crime of moral turpitude, or any crime
involving the Company, (iv) fraud, misappropriation, embezzlement or material
or repeated insubordination, (v) a material breach of the Optionee's
employment agreement(if any) with the Company (other than a termination of
employment by the Optionee), or (vi) any illegal act detrimental to the
Company; all as determined by the Committee.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Committee" shall mean the Compensation Committee of the Company as
appointed by the Board in accordance with Section 4 of the Plan; provided that
the Committee shall at all times consist solely of persons who, at the time of
their appointment, each qualified as a "Non-Employee Director" under Rule
16b-3(b)(3)(i) promulgated under the Exchange Act and, to the extent that
relief from the limitation of Section 162(m) of the Code is sought, as an
"Outside Director" under Section 1.162-27(e)(3)(i) of the Treasury Regulations.
h. "Common Stock" shall mean the Company's Common Stock, par value $0.01,
either currently existing or authorized hereafter.
i. "Company" shall mean America First Mortgage Investments, Inc., a
Maryland corporation.
j. "DER" shall mean a dividend equivalent right consisting of the right
to receive, as specified by the Committee or the Board at the time of Grant,
cash in an amount equal to the dividend distributions paid on a share of
Common Stock subject to an option.
k. "Disability" shall mean the occurrence of an event which would entitle
an employee of the Company to the payment of disability income under one of
the Company's approved long-term disability income plans or a long-term
disability as determined by the Committee in its absolute discretion pursuant
to any other standard as may be adopted by the Committee.
l. "Eligible Persons" shall mean officers, directors and employees of the
Participating Companies and other persons expected to provide significant
services (of a type expressly approved by the Committee as covered services
for these purposes) to the Company. For purposes of the Plan, a director, in
his or her capacity as such, or a consultant, vendor, customer, or other
provider of significant services to the Company shall be deemed to be an
- 24 -
Eligible Person, but will be eligible to receive Non-qualified Stock Options,
or DERs, only after a finding by the Committee or Board in its discretion that
the value of the services rendered or to be rendered to the Participating
Company is at least equal to the value of the Grants being awarded.
m. "Employee" shall mean an individual, including an officer of a
Participating Company, who is employed (within the meaning of Code Section
3401and the regulations thereunder) by the Participating Company.
n. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
o. "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or the Committee, at which an Option may be exercised.
p. "Fair Market Value" shall mean the value of one share of Common
Stock, determined as follows:
i. If the Shares are then listed on a national stock exchange, the
closing sales price per Share on the exchange for the last preceding date on
which there was a sale of Shares on such exchange, as determined by the
Committee.
ii. If the Shares are not then listed on a national stock exchange but
are then traded on an over-the-counter market, the average of the closing bid
and asked prices for the Shares in such over-the-counter market for the last
preceding date on which there was a sale of such Shares in such market, as
determined by the Committee.
iii. If neither (i) nor (ii) applies, such value as the Committee in its
discretion may in good faith determine. Notwithstanding the foregoing, where
the Shares are listed or traded, the Committee may make discretionary
determinations in good faith where the Shares have not been traded for 10
trading days.
q. "Grant" shall mean the issuance of an Incentive Stock Option,
Non-qualified Stock Option, DER or any combination thereof to an Eligible
Person. The Committee will determine the eligibility of employees, officers,
directors and others expected to provide significant services to the
Participating Companies based on, among other factors, the position and
responsibilities of such individuals, the nature and value to the
Participating Company of such individuals accomplishments and potential
contribution to the success of the Participating Company whether directly or
through its subsidiaries.
r. "Incentive Stock Option" shall mean an Option of the type described
in Section 422(b) of the Code issued to an Employee.
s. "Non-qualified Stock Option" shall mean an Option not described in
Section 422(b) of the Code.
t. "Option" shall mean any option, whether an Incentive Stock Option or a
Non-qualified Stock Option, to purchase, at a price and for the term fixed by
the Committee in accordance with the Plan, and subject to such other
limitations and restrictions in the Plan and the applicable Agreement, a
number of Shares determined by the Committee.
u. "Optionee" shall mean any Eligible Person to whom an Option is granted,
or the Successors of the Optionee, as the context so requires.
v. "Participating Companies" shall mean the Company, Advisor and any
subsidiary of any of them which with the consent of the Board participates in
the Plan.
w. "Plan" shall mean the Company's 1997 Stock Option Plan, as set forth
herein, and as the same may from time to time be amended.
x. "Purchase Price" shall mean the Exercise Price times the number of
Shares with respect to which an Option is exercised.
y. "Retirement" shall mean, unless otherwise provided by the Committee
in the Optionee's Agreement,
(i) the Termination (other than for Cause) of Service of an Optionee
- 25 -
on or after the Optionee's attainment of age 65;
(ii) on or after the Optionee's attainment of age 55 with five
consecutive years of service with the Participating Companies or
(iii) as determined by the Committee in its absolute discretion
pursuant to such other standard as may be adopted by the Committee.
z. "Shares" shall mean shares of Common Stock of the Company, adjusted in
accordance with Section 10 of the Plan (if applicable).
aa. "Subsidiary" shall mean any corporation, partnership, or other entity
at least 50% of the economic interest in the equity of which is owned by the
Company or by another Subsidiary.
bb. "Successors of the Optionee" shall mean the legal representative of
the estate of a deceased Optionee or the person or persons who shall acquire
the right to exercise an Option by bequest or inheritance or by reason of the
death of the Optionee.
cc. "Termination of Service" shall mean the time when the
employee-employer relationship or directorship, or other service relationship
(sufficient to constitute service as an Eligible Person) between the Optionee
and the Participating Companies is terminated for any reason, with or without
Cause, including but not limited to any termination by resignation, discharge,
death or Retirement; provided, however, Termination of Service shall not
include a termination where there is a simultaneous reemployment of the
Optionee by a Participating Company or other continuation of service
(sufficient to constitute service as an Eligible Person) for a Participating
Company. The Committee, in its absolute discretion, shall determine the
effects of all matters and questions relating to Termination of Service,
including but not limited to the question of whether any Termination of
Service was for Cause and all questions of whether particular leaves of
absence constitute Terminations of Employment.
3. EFFECTIVE DATE. Unless already approved by shareholders, the Plan
will be submitted to shareholders for their approval within twelve months
after receipt of Board approval. Any Grants awarded before approval of the
Plan by the Company's shareholders shall be accrued for the benefit of the
participant until the Plan has been approved by the shareholders.
4. ADMINISTRATION.
a. Membership on Committee. The Plan shall be administered by the
Committee appointed by the Board. If no Committee is designated by the Board
to act for those purposes, the full Board shall have the rights and
responsibilities of the Committee hereunder.
b. Committee Meetings. The acts of a majority of the members present
at any meeting of the Committee at which a quorum is present, or acts approved
in writing by a majority of the entire Committee, shall be the acts of the
Committee for purposes of the Plan. If and to the extent applicable, no member
of the Committee may act as to matters under the Plan specifically relating to
such member.
c. Grant Awards.
(i) The Committee shall from time to time at its discretion
select the Eligible Persons who are to be issued Grants, determine the number
of Shares to be optioned or with respect to which the Grant is to be issued to
each Eligible Person and designate any Options granted as Incentive Stock
Options or Non-qualified Stock Options, or both, except that no Incentive
Stock Options may be granted to an Eligible Person who is not an Employee of
the Company. The Committee shall (A) determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Grants awarded hereunder,
(including, but not limited to the performance goals and periods applicable to
the award of Grants); (B) determine the time or times when and the manner and
condition in which each Option shall be exercisable and the duration of the
exercise period; and (C) determine or impose other conditions to the Grant or
exercise of Options under the Plan as it may deem appropriate. The Committee
shall cause each Option to be designated as an Incentive Stock Option or a
Non-qualified Stock Option. The Optionee shall take whatever additional
actions and execute whatever additional documents the Committee may in its
reasonable judgment deem necessary or advisable in order to carry or effect
one or more of the obligations or restrictions imposed on the Optionee
- 26 -
pursuant to the express provisions of the Plan and the Agreement. DERs will
be exercisable separately or together with Options, and paid in cash or other
consideration at such times and in accordance with such rules, as the
Committee shall determine in its discretion. Unless expressly provided
hereunder, the Committee, with respect to any Grant, may exercise its
discretion hereunder at the time of the award or thereafter. The
interpretation and construction by the Committee of any provision of the Plan
or of any Option granted thereunder shall be final. Without limiting the
generality of Section18, no member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Grant hereunder.
(ii) Notwithstanding paragraph (i) of this Section 4(c), any award
under the Plan to an Eligible Person who is a member of the Committee, shall
be made by a majority of the directors of the Corporation who are not on the
Committee.
5. PARTICIPATION.
a. Eligibility. Only Eligible Persons shall be eligible to receive
Grants under the Plan.
b. Limitation of Ownership. No Options shall be granted under the Plan
to any person who after such Grant would beneficially own more than 9.8% of
the outstanding shares of Common Stock of the Company, unless expressly and
specifically waived by action of the independent Directors of the Board.
c. Stock Ownership. For purposes of (b) above, in determining
stockownership an Optionee shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers, sisters, spouses, ancestors
and lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which any person holds an Option shall be considered to be
owned by such person.
d. Outstanding Stock. For purposes of (b) above, "outstanding shares"
shall include all stock actually issued and outstanding immediately after the
grant of the Option to the Optionee. With respect to the Stock Ownership of
any Optionee, "outstanding shares" shall include shares authorized for issue
under outstanding Options held by such Optionee, but not options held by any
other person.
6. STOCK. Subject to adjustments pursuant to Section 10, Options with
respect to an aggregate of no more than 1,400,000 Shares may be granted under
the Plan. Notwithstanding the foregoing provisions of this Section 6, Shares
as to which an Option is granted under the Plan that remains unexercised at
the expiration, forfeiture or other termination of such Option may be the
subject of the grant of further Options. Shares of Common Stock issued
hereunder may consist, in whole or in part, of authorized and unissued shares
or treasury shares. The certificates for Shares issued hereunder may include
any legend which the Committee deems appropriate to reflect any restrictions
on transfer hereunder or under the Agreement, or as the Committee may
otherwise deem appropriate.
7. TERMS AND CONDITIONS OF OPTIONS.
a. Initial Awards to Compensation Committee Members. Each member of the
Committee shall automatically be granted a Non-qualified Stock Option to
purchase 5,000 shares of Common Stock and 1,250 DERs upon the date such person
is initially appointed to the Committee. Each Option granted to a Committee
member under this Section 7(a) shall become exercisable commencing one year
after the date of Grant (unless otherwise provided in the applicable
Agreement) and shall expire 10 years thereafter. Such Options shall be
subject to adjustment as provided in Section 10 provided that such adjustment
and any action by the Board or the Committee with respect to the Plan and such
Options satisfies the requirements for exemption under Rule 16b-3 and does not
cause any member of the Committee to be disqualified as a Non-Employee
Director under such Rule. Notwithstanding the foregoing, the Board may
prospectively, from time to time, discontinue, reduce or increase the amount
of any or all of the Grants otherwise to be made under this Section 7(a).
- 27 -
b. Awards.
(i) Agreements. Grants to Eligible Persons shall be evidenced by
written Agreements in such form as the Committee shall from time to time
determine. Such Agreements shall comply with and be subject to the terms and
conditions set forth below.
(ii) Number of Shares. Each Option or other Grant granted to an
Eligible Person shall state the number of Shares to which it pertains and
shall provide for the adjustment thereof in accordance with the provisions of
Section 10 hereof.
(iii) Grants. Subject to the terms and conditions of the Plan and
consistent with the Company's intention for the Committee to exercise the
greatest permissible flexibility under Rule 16b-3 in awarding Grants, the
Committee shall have the power:
(1) to determine from time to time the Grants to be granted to
Eligible Persons under the Plan and to prescribe the terms and
provisions (which need not be identical) of Grants granted under
the Plan to such persons;
(2) to construe and interpret the Plan and Grants thereunder and to
establish, amend, and revoke rules and regulations for administration
of the Plan. In this connection, the Committee may correct any
defect or supply any omission, or reconcile any inconsistency in the
Plan, in any Agreement, or in any related agreements, in the manner
and to the extent it shall deem necessary or expedient to make the
Plan fully effective. All decisions and determinations by the
Committee in the exercise of this power shall be final and binding
upon the Participating Companies and the Optionees and Grantees;
(3) to amend any outstanding Grant, subject to Section 12, and to
accelerate or extend the vesting or exercisability of any Grant and
to waive conditions or restrictions on any Grants, to the extent it
shall deem appropriate; and (4) generally to exercise such powers and
to perform such acts as are deemed necessary or expedient to promote
the best interests of the Company with respect to the Plan.
c. Each Agreement with an Eligible Person shall state the Exercise Price.
The Exercise Price for any Option shall not be less than the Fair Market Value
on the date of Grant.
d. Medium and Time of Payment. Except as may otherwise be provided below,
the Purchase Price for each Option granted to an Eligible Person shall be
payable in full in United States dollars upon the exercise of the Option. In
the event the Company determines that it is required to withhold taxes as a
result of the exercise of an Option, as a condition to the exercise thereof,
an Employee may be required to make arrangements satisfactory to the Company
to enable it to satisfy such withholding requirements in accordance with
Section 15. If the applicable Agreement so provides, and the Committee
otherwise so permits, the Purchase Price may be paid in one or a combination
of the following:
(i) by a certified or bank cashier's check;
(ii) by the surrender of Shares in good form for transfer, owned by the
person exercising the Option and having a Fair Market Value on the date of
exercise equal to the Purchase Price, or in any combination of cash and
Shares, as long as the sum of the cash so paid and the Fair Market Value of
the Shares so surrendered equals the Purchase Price;
(iii) by cancellation of indebtedness owed by the Company to the
Optionee;
(iv) by a loan or extension of credit from the Company evidenced by
a full recourse promissory note executed by the Optionee. The interest rate
and other terms and conditions of such note shall be determined by the
Committee (in which case the Committee may require that the Optionee pledge
his or her Shares to the Company for the purpose of securing the payment of
such note, and in no event shall the stock certificate(s) representing such
Shares be released to the Optionee until such note shall have been paid in
full); or
- 28 -
(v) by any combination of such methods of payment or any other method
acceptable to the Committee in its discretion.
Except in the case of Options exercised by certified or bank cashier's check,
the Committee may impose limitations and prohibitions on the exercise of
Options as it deems appropriate, including, without limitation, any limitation
or prohibition designed to avoid accounting consequences which may result from
the use of Common Stock as payment upon exercise of an Option. Any fractional
Shares resulting from an Optionee's election that are accepted by the Company
shall in the discretion of the Committee be paid in cash.
e. Term and Nontransferability of Grants and Options.
(i) Each Grant shall state the time or times which all or part thereof
becomes exercisable, subject to the following restrictions.
(ii) No Grant shall be exercisable except by the Optionee or a
transferee permitted hereunder.
(iii) No Option shall be assignable or transferable, except by will or
the laws of descent and distribution of the state wherein the Optionee is
domiciled at the time of his death; provided, however, that the Committee may
(but need not) permit other transfers, where the Committee concludes that such
transferability (i) does not result in accelerated taxation, (ii) does not
cause any Option intended to be an Incentive Stock Option to fail to be
described in Section 422(b) of the Code and (iii) is otherwise appropriate and
desirable.
(iv) No Option shall be exercisable until such time as set forth in the
applicable Agreement (but in no event after the expiration of such Grant).
(v) Unless otherwise provided in the Agreement, no DERs shall be
exercisable (i) until such time as set forth in the applicable agreement or
(ii) the expiration of such Grant.
(vi) The Committee may not modify, extend or renew any Option granted to
any Eligible Person unless such modification, extension or renewal shall
satisfy any and all applicable requirements of Rule 16b-3. The foregoing
notwithstanding, no modification of an Option shall, without the consent of
the Optionee, alter or impair any rights or obligations under any Option
previously granted.
f. Termination of Service, Except by Death, Retirement or Disability.
Unless otherwise provided in the applicable Agreement, upon any Termination of
Service for any reason other than his or her death, Retirement or Disability,
an Optionee shall have the right, subject to the restrictions of subsection
(c) above, to exercise his or her Grant at any time within three months after
Termination of Service, but only to the extent that, at the date of
Termination of Service, the Optionee's right to exercise such Grant had
accrued pursuant to the terms of the Agreement and had not previously been
exercised; provided, however, that, unless otherwise provided in the
Agreement, if there occurs a Termination of Service by a Participating Company
for Cause or a termination of Service by the Optionee (other than on account
of death, Retirement or Disability), any Grant not exercised in full prior to
such termination shall be canceled. For this purpose, the service
relationship shall be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of absence (to be
determined in the discretion of the Committee).
g. Death of Optionee. Unless otherwise provided in the applicable
Agreement, if the Optionee dies while an Eligible Person or within three
months after any Termination of Service other than for Cause or a termination
of Service by the Optionee (other than on account of death, Retirement or
Disability), and has not fully exercised the Grant, then the Grant may be
exercised in full, subject to the restrictions of subsection (c) above, at
anytime within 12 months after the Optionee's death, by the Successor of the
Optionee, but only to the extent that, at the date of death, the Optionee's
right to exercise such Grant had accrued and had not been forfeited pursuant
to the terms of the Agreement and had not previously been exercised.
h. Disability or Retirement of Grant Recipient. Unless otherwise provided
in the Agreement, upon Termination of Service for reason of Disability or
Retirement, such Grant recipient shall have the right, subject to the
- 29 -
restrictions of subsection (c) above, to exercise the Grant at any time
within24 months after Termination of Service, but only to the extent that, at
the date of Termination of Service, the Grant recipient's right to exercise
such Grant had accrued pursuant to the terms of the applicable Agreement and
had not previously been exercised.
i. Rights as a Shareholder. An Optionee, a Successor of the Optionee,
or the holder of a DER shall have no rights as a shareholder with respect to
any Shares covered by his or her Grant until, in the case of an Optionee, the
date of the issuance of a stock certificate for such Shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 10.
j. Modification, Extension and Renewal of Option. Within the limitations
of the Plan, and only with respect to Options granted to Eligible Persons, the
Committee may modify, extend or renew outstanding Options or accept the
cancellation of outstanding Options (to the extent not previously exercised)
for the granting of new Options in substitution therefor. The Committee may
modify, extend or renew any Option granted to any Eligible Person, unless such
modification, extension or renewal would not satisfy any applicable
requirements of Rule 16b-3. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option previously granted.
k. Other Provisions. The Agreement authorized under the Plan may contain
such other provisions not inconsistent with the terms of the Plan (including,
without limitation, restrictions upon the exercise of the Option) as the
Committee shall deem advisable.
8. SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.
a. In the case of Incentive Stock Options granted hereunder, the aggregate
Fair Market Value (determined as of the date of the Grant thereof) of the
Shares with respect to which Incentive Stock Options become exercisable by any
Optionee for the first time during any calendar year (under the Plan and all
other plans maintained by the Participating Companies, their parent or
Subsidiaries) shall not exceed $100,000.
b. In the case of an individual described in Section 422(b)(6) of the Code
(relating to certain 10% owners), the Exercise Price with respect to an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
a Share on the day the Option is granted and the term of an Incentive Stock
Option shall be no more than five years from the date of grant.
c. If Shares acquired upon exercise of an Incentive Stock Option are
disposed of in a disqualifying disposition within the meaning of Section 422
of the Code by an Optionee prior to the expiration of either two years from
the date of grant of such Option or one year from the transfer of Shares to
the Optionee pursuant to the exercise of such Option, or in any other
disqualifying disposition within the meaning of Section 422 of the Code, such
Optionee shall notify the Company in writing as soon as practicable thereafter
of the date and terms of such disposition and, if the Company thereupon has a
tax-withholding obligation, shall pay to the Company an amount equal to any
withholding tax the Company is required to pay as a result of the
disqualifying disposition.
9. TERM OF PLAN. Options may be granted pursuant to the Plan until the
expiration of 10 years from the effective date of the Plan.
10. RECAPITALIZATION AND CHANGES OF CONTROL.
a. Subject to any required action by shareholders, if (i) the Company
shall at any time be involved in a merger, consolidation, dissolution,
liquidation, reorganization, exchange of shares, sale of all or substantially
all of the assets or stock of the Company or a transaction similar thereto,
(ii) any stock dividend, stock split, reverse stock split, stock combination,
reclassification, recapitalization or other similar change in the capital
structure of the Company, or any distribution to holders of Common Stock other
than cash dividends, shall occur or (iii) any other event shall occur which in
the judgment of the Committee necessitates action by way of adjusting the
terms of the outstanding Options or rights under the Grant of a DER, then the
Committee shall forthwith take any such action as in its judgment shall be
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necessary to preserve to the Optionees rights substantially proportionate to
the rights existing prior to such event, and to maintain the continuing
availability of Shares under Section 6 (if Shares are otherwise then
available) in a manner consistent with the intent hereof, including, without
limitation, adjustments in (x) the number and kind of shares subject to
Options, (y) the Option Price, and (z) the number and kind of shares available
under Section 6; provided that this provision shall not be effective to the
extent that the Company or the Committee determines that the accelerated
vesting of the Options upon the occurrence of a Change of Control as
contemplated hereby would adversely affect the ability of the Company or
acquiror (in the case of a Change of Control in connection with which the
Company is not the surviving corporation) to use the pooling method of
accounting in connection with a Change of Control transaction, if such method
of accounting would otherwise be available and desired by the Company or
acquiror. To the extent that such action shall include an increase or
decrease in the number of shares subject to outstanding Options, the number of
shares available under Section 6 above shall be increased or decreased, as the
case may be, proportionately.
b. Subject to any required action by shareholders, if the Company is the
surviving corporation in any merger or consolidation, each outstanding Option
and the rights under the Grant of a DER shall pertain and apply to the
securities to which a holder of the number of Shares subject to the Option
would have been entitled. In the event of a merger or consolidation in which
the Company is not the surviving corporation, the date of exercisability of
each outstanding Grant shall be accelerated to a date prior to such merger or
consolidation, unless the agreement of merger or consolidation provides for
the assumption of the Grant by the successor to the Company.
c. To the extent that the foregoing adjustment related to securities of
the Company, such adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all persons.
d. Except as expressly provided in this Section 10, the recipient of the
Grant shall have no rights by reason of subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or Exercise Price of Shares subject to an Option.
e. Grants made pursuant to the Plan shall not affect in any way the right
or power to the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business assets.
f. Upon the occurrence of a Change of Control:
(i) The Committee as constituted immediately before the Change of
Control may make such adjustments as it, in its discretion, determines are
necessary or appropriate in light of the Change of Control (including, without
limitation, the substitution of stock other than stock of the Company as the
stock optioned hereunder, and the acceleration of the exercisability of the
Options), provided that the Committee determines that such adjustments do not
have a substantial adverse economic impact on the Optionee as determined at
the time of the adjustments.
(ii) All restrictions and conditions on each DER shall automatically
lapse and all Grants under the Plan shall be deemed fully vested.
g. "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Affiliates or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Affiliates) together with
all "affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Act) of such person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 30% or more of either (A) the combined
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voting power of the Company's then outstanding securities having the right to
vote in an election of the Board of Directors ("voting securities") or (B) the
then outstanding Shares (in either such case other than as a result of an
acquisition of securities directly from the Company); or
(ii) persons who, as of the effective date of the Plan, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy contest,
merger or similar transaction, to constitute at least a majority of the Board,
provided that any person becoming a Director of the Company subsequent to the
effective date whose election or nomination for election was approved by a
vote of at least a majority of the Incumbent Directors shall, for purposes of
the Plan, be considered an Incumbent Director; or
(iii) there shall occur (A) any consolidation or merger of the Company
or any Subsidiary where the shareholders of the Company, immediately prior to
the consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, shares representing in the aggregate 50% or more
of the voting securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any), (B)
any sale, lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company or (C) any plan or proposal for
the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
Shares or other voting securities outstanding, increases (x) the proportionate
number of Shares beneficially owned by any person to 30% or more of the Shares
then outstanding or (y) the proportionate voting power represented by the
voting securities beneficially owned by any person to 30% or more of the
combined voting power of all then outstanding voting securities; provided,
however, that, if any person referred to in clause(x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
voting securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of this subsection (g).
11. EFFECT OF CERTAIN TRANSACTIONS.
In the case of (i) the dissolution or liquidation of the Company, (ii) a
merger, consolidation, reorganization or other business combination in which
the Company is acquired by another entity or in which the Company is not the
surviving entity, or (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any party
as a single plan) of all or substantially all of the assets of the Company,
the Plan and the Grants issued hereunder shall terminate upon the
effectiveness of any such transaction or event, unless provision is made in
connection with such transaction for the assumption of Grants theretofore
granted, or the substitution for such Grants of new Grants, by the successor
entity or parent thereof, with appropriate adjustment as to the number and
kind of shares and the per share exercise prices, as provided in Section 10.
In the event of such termination, all outstanding Options and Grants shall be
exercisable in full for at least fifteen days prior to the date of such
termination whether or not otherwise exercisable during such period.
12. SECURITIES LAW REQUIREMENTS.
a. Legality of Issuance. The issuance of any Shares upon the exercise
of any Option and the grant of any Option shall be contingent upon the
following:
(i) the obligation of the Company to sell Shares with respect to Options
granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee;
(ii) the Committee may make such changes to the Plan as may be necessary
or appropriate to comply with the rules and regulations of any government
authority or to obtain tax benefits applicable to stock options; and
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(iii) each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval
has been effected or obtained free of any conditions in a manner acceptable to
the Committee.
b. Restrictions on Transfer. Regardless of whether the offering and sale
of Shares under the Plan has been registered under the Act or has been
registered or qualified under the securities laws of any state, the Company
may impose restrictions on the sale, pledge or other transfer of such
Shares(including the placement of appropriate legends on stock certificates)
if, in the judgment of the Company and its counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of
the Act, the securities laws of any state or any other law. In the event that
the sale of Shares under the Plan is not registered under the Act but an
exemption is available which requires an investment representation or other
representation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Company and its counsel. Any determination by
the Company and its counsel in connection with any of the matters set forth in
this Section 11 shall be conclusive and binding on all persons. Without
limiting the generality of the last sentence of Section 6, stock certificates
evidencing Shares acquired under the Plan pursuant to an unregistered
transaction shall bear the following restrictive legend and such other
restrictive legends as are required or deemed advisable under the provisions
of any applicable law. "THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT
BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF
SUCH SECURITIESWILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TOSUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER
SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT."
c. Registration or Qualification of Securities. The Company may, but
shall not be obligated to, register or qualify the issuance of Options and/or
the sale of Shares under the Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the
issuance of Options or the sale of Shares under the Plan to comply with any
law.
d. Exchange of Certificates. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold
under the Plan is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
13. AMENDMENT OF THE PLAN.
The Board may from time to time, with respect to
any Shares at the time not subject to Options, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever. The Board may amend the Plan
as it shall deem advisable, except that no amendment may adversely affect an
Optionee with respect to Options previously granted unless such amendments are
in connection with compliance with applicable laws; provided that the Board
may not make any amendment in the Plan that would, if such amendment were not
approved by the holders of the Common Stock, cause the Plan to fail to comply
with any requirement or applicable law or regulation, unless and until the
approval of the holders of such Common Stock is obtained.
14. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock pursuant to
the exercise of an Option will be used for general corporate purposes.
15. TAX WITHHOLDING.
Each recipient of a Grant shall, no later than the date as of which the value
of any Grant first becomes includable in the gross income of the recipient for
federal income tax purposes, pay to the Company, or make arrangements
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satisfactory to the Company regarding payment of any federal, state or local
taxes of any kind that are required by law to be withheld with respect to such
income. An Optionee may elect to have such tax withholding satisfied, in
whole or in part, by (i) authorizing the Company to withhold a number of
Shares to be issued pursuant to a Grant equal to the Fair Market Value as of
the date withholding is effected that would satisfy the withholding amount
due, (ii) transferring to the Company Shares owned by the Optionee with a Fair
Market Value equal to the amount of the required withholding tax, or (iii) in
the case of an Optionee who is an Employee of the Company at the time such
withholding is effected, by withholding from the Optionee's cash
compensation. Notwithstanding anything contained in the Plan to the contrary,
the Optionee's satisfaction of any tax-withholding requirements imposed by the
Committee shall be a condition precedent to the Company's obligation as may
otherwise by provided hereunder to provide Shares to the Optionee, and the
failure of the Optionee to satisfy such requirements with respect to the
exercise of an Option shall cause such Option to be forfeited.
16. NOTICES.
All notices under the Plan shall be in writing, and if to the
Company, shall be delivered to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the Optionee or recipient
of a Grant, shall be delivered personally or mailed to the Optionee or
recipient of a Grant at the address appearing in the records of the
Participating Company. Such addresses may be changed at any time by written
notice to the other party given in accordance with this Section 16.
17. RIGHTS TO EMPLOYMENT OR OTHER SERVICE.
Nothing in the Plan or in any Option or Grant granted pursuant to the Plan
shall confer on any individual any right to continue in the employ or other
service of the Company (if applicable)or interfere in any way with the right
of the Company and its shareholders to terminate the individual's employment
or other service at any time.
18. EXCULPATION AND INDEMNIFICATION.
To the maximum extent permitted bylaw, the Company shall indemnify and hold
harmless the members of the Board and the members of the Committee from and
against any and all liabilities, costs and expenses incurred by such persons
as a result of any act or omission to act in connection with the performance
of such person's duties, responsibilities and obligations under the Plan,
other than such liabilities, costs and expenses as may result from the gross
negligence, bad faith, willful misconduct or criminal acts of such persons.
19. NO FUND CREATED.
Any and all payments hereunder to recipients of Grants hereunder shall be made
from the general funds of the Company (or, if applicable, a Participating
Company), and no special or separate fund shall be established or other
segregation of assets made to assure such payments; provided that bookkeeping
reserves may be established in connection with the satisfaction of payment
obligations hereunder. The obligations of the Company under the Plan are
unsecured and constitute a mere promise by the Company to make benefit
payments in the future, and, to the extent that any person acquires a right to
receive payments under the Plan from the Company (or, if applicable, a
Participating Company), such right shall be no greater than the right of a
general unsecured creditor of the Company (or, if applicable, a Participating
Company).
20. CAPTIONS.
The use of captions in the Plan is for convenience. The captions are not
intended to provide substantive rights.
21. GOVERNING LAW.
THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS.
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22. EXECUTION.
The Company has caused the Plan to be executed in the name and on behalf of
the Company by an officer of the Company thereunto duly authorized as of this
8th day of March, 2001.
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
a Maryland corporation
By: /s/ Stewart Zimmerman
Name: Stewart Zimmerman
Title: President and Chief Executive Officer
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