SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission File Number 0-23972
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 13-6972380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 317-5700
Securities registered pursuant to Section 12(b) of the Act:
SHARES OF BENEFICIAL INTEREST, PAR VALUE $.10
Name of each exchange on which registered:
AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
----- -----
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes X No
----- -----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer Accelerated filer X Non-accelerated
filer ----- -----
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
----- -----
The approximate aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of June 30, 2005 was
approximately $123,432,000.
As of March 1, 2006 there were 8,303,838 outstanding common shares of the
Registrant's shares of beneficial interest.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Those portions of the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held in June 2006, which are incorporated into
Items 10, 11, 12 and 13.
TABLE OF CONTENTS
AMERICAN MORTGAGE ACCEPTANCE COMPANY
ANNUAL REPORT ON FORM 10-K
PAGE
PART I
Item 1. Business 4
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Shareholders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters and Issuer Purchases of
Equity Securities 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures about
Market Risks 30
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 64
Item 9A. Disclosures Controls and Procedures 64
Item 9B. Other Information 64
PART III
Item 10. Directors and Executive Officers of the Company 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 65
Item 13. Certain Relationships and Related Transactions 65
Item 14. Principal Accounting Fees and Services 65
PART IV
Item 15. Exhibits and Financial Statement Schedules 65
SIGNATURES 68
2
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements include statements regarding the intent, belief
or current expectations of us and our management (which includes our Advisor)
and involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These factors, which are outlined in detail in
Item 1A of this document, include the following:
o Risks of investing in uninsured and non-investment grade mortgage
assets and subordinated Commerical Mortgage Backed Securities;
o Competition in acquiring desirable investments;
o Interest rate fluctuations;
o Risks associated with investments in real estate generally and the
properties that secure many of our investments;
o General economic conditions, particularly as they affect the value of
our assets and the credit status of our borrowers;
o Dependence on our external Advisor for all services necessary for our
operations;
o Conflicts which may arise among us and other entities affiliated with
our Advisor that have similar investment policies to ours; and
o Risks associated with the repurchase agreements we utilize to finance
our investments and the availability of financing generally
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this annual report.
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PART I
ITEM 1. BUSINESS.
General
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American Mortgage Acceptance Company was formed on June 11, 1991 as a
Massachusetts business trust. We elected to be treated as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). We are an externally managed REIT, and all of our operations are
conducted by CharterMac AMI Associates, Inc. (formerly Related AMI Associates,
Inc., the "Advisor") pursuant to an Advisory Services Agreement Throughout this
report, the terms "we", "us", "the Company" and similar terms are meant to refer
to American Mortgage Acceptance Company and its consolidated subsidiaries.
Additional Information
----------------------
Additional information about us beyond what is included in this Form 10-K,
including our code of conduct, is available at WWW.AMERICANMORTGAGECO.COM. As
soon as reasonably practicable after such material is electronically filed with,
or furnished to, the Securities and Exchange Commission ("SEC") we make
available, on or through our website, free of charge:
o our annual report on Form 10-K;
o our quarterly reports on Form 10-Q;
o our current reports on Form 8-K; and
o amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act.
You may also read and copy these materials at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549, or obtain them by calling the SEC at
1-800-SEC-0300. The SEC also maintains an Internet website that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at WWW.SEC.GOV. We will provide a
copy of any of the foregoing documents upon request.
None of the information on our website that is not otherwise expressly set forth
or incorporated by reference in the Form 10-K is a part of this Form 10-K.
Business Strategy
-----------------
Our business plan focuses on originating and acquiring mortgage loans secured by
multifamily and commercial properties throughout the United States.
Historically, many of the mortgages were government insured or agency guaranteed
first mortgages, insured mortgage pass-through certificates or insured mortgage
backed securities. We are increasingly investing in uninsured mezzanine loans,
construction loans, first mortgage loans, subordinated interests in first
mortgage loans and bridge loans. These mortgages may have fixed or variable
interest rates. Additionally, we have indirectly invested in subordinate
commercial mortgage-backed securities and may invest in other real estate
assets. In association with our investing activities, we may also issue
guarantees of construction and permanent financing and make standby loan
commitments.
During 2005, our board of trustees and shareholders approved an amendment to our
declaration of trust that would allow our board of trustees to, among other
things, broaden our investment strategy. This will enable us to increase the
number of investments we will make in first mortgage loans, subordinated
interests in first mortgage loans and bridge loans, in addition to the
traditional mezzanine loans and government insured mortgage loans that we
originated in the past. These changes will enable us to expand our business plan
and grow focus on additional real estate asset classes, including diversifying
outside of multifamily residential lending to include commercial opportunities.
In order to fund the expected growth of our investment portfolio, we are
currently exploring utilizing Collateralized Debt Obligation ("CDO")
securitizations. We intend to securitize our expanding investment portfolio
through a CDO beginning in the second quarter of 2006; however, there are no
assurances that such a transaction will occur. We expect that securities issued
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in any such transaction will not be registered under the Securities Act of 1933
and will not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
Investing
---------
We seek to leverage the expertise of our Advisor, and its affiliates in
originating the loans and other assets in which we invest. In addition, our
Advisor, through its affiliates, provides the expertise to perform both the
initial underwriting of the properties which serve as direct or indirect
collateral for our loans, as well as in the ongoing monitoring of those
properties through construction, lease-up and stabilization.
We invest, or have invested in, the following types of assets:
MEZZANINE LOANS
We originate or acquire mezzanine loans that typically finance newly stabilized
or transitional multifamily and commercial real estate properties. While we
mainly focus on the multifamily sector, we may originate mezzanine loans for
office, retail or industrial properties as well. The interest rates we offer are
either fixed or floating rate. We seek assets secured by properties in real
estate markets with strong fundamentals and transactions with well capitalized
developers or guarantors. Our mezzanine transactions may involve us:
1) issuing mezzanine debt subordinated to an existing first mortgage
loan;
2) jointly bidding with a senior lender and closing simultaneously (the
process can be seamless to the client);
3) acquiring a mezzanine loan from a senior lender; or
4) originating the entire debt structure and selling the first mortgage
to a senior lender.
Mezzanine loans are subordinate to senior mortgages and may include a
participating component, such as a right to a portion of the cash flow and
proceeds generated from the refinancing and sale of the underlying properties.
Typically, they are secured by equity interests in the borrower and have limited
recourse to the borrower.
BRIDGE LOANS
We have two bridge loan programs. In the first, loans are typically funded in
connection with the development of multifamily properties which benefit from the
Low-Income Housing Tax Credit program under Section 42 of the Internal Revenue
Code ("LIHTC program"). Due to the typical equity payment schedule associated
with the LIHTC program, there can be periods in a construction cycle where a
developer needs short-term capital and we offer bridge loans to developers with
typical terms of 12 months, which are collateralized by the equity interests in
the property owner.
In the second program, we provide loans for properties undergoing rehabilitation
when the rehabilitation process will add significant value to the property and
reduce the effective loan-to-value ratio and risk of loss.
These bridge loans may include a participation component and in connection with
our broadened investment focus, we may originate additional types of bridge
loans secured by either multifamily or commercial properties.
FIRST MORTGAGE LOANS
We currently originate or invest in first mortgage loans secured by multifamily
properties. The loans may be in the form of long-term fixed-rate financing
obligations or revenue bonds that are secured by first mortgages on affordable
multifamily housing properties throughout the country. The revenue bonds
generally rank on par with tax-exempt first mortgage revenue bonds that are
owned by CharterMac, the parent of our Advisor. The proceeds from these revenue
bonds are generally used for the new construction or substantial rehabilitation
of affordable multifamily properties.
First mortgage loans are an additional area of expansion for us. We expect that
we will invest in first mortgage loans, secured by multifamily or commercial
properties, that will be originated by CharterMac Mortgage Capital, an affiliate
of our Advisor.
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GOVERNMENT INSURED AND GUARANTEED INVESTMENTS
We invest in government insured or guaranteed investments, primarily through the
acquisition of Government National Mortgage Association ("GNMA" or "Ginnie Mae")
and Federal National Mortgage Association (FNMA or "Fannie Mae") mortgage-backed
securities and pass-through certificates. We believe that government agency
insured lending offers safety, liquidity and moderate yields, while also
providing a strong asset base for collateralized borrowing on favorable terms.
COMMERICAL MORTGAGE - BACKED SECURITIES ("CMBS")
We currently invest indirectly in CMBS through an equity investment in ARCap
Investors, LLC ("ARCap"). ARCap specializes in, and is a recognized industry
leader in managing funds that invest in CMBS. The CMBS under ARCap's management
are collateralized by a diverse range of underlying properties including
multifamily, retail, office and hotel. We own both common and preferred stock in
ARCap.
OTHER INVESTMENTS
From time to time, we may invest in assets outside of our normal investment
strategy if we believe that making such an investment is advantageous in
maximizing our return on equity.
Financing
---------
We finance our investing activity primarily through borrowing from various
facilities at short-term rates. We have four repurchase facilities and a line of
credit with a related party that are used to finance our investments.
For further information about these facilities, see MANAGEMENT'S DISCUSSION AND
ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES and Notes 7, 8 and 9 to the
consolidated financial statements.
In addition, we may also issue common shares to fund investing activity. We have
the capacity to raise approximately $170.0 million of additional funds by
issuing either common or preferred shares pursuant to a shelf registration
statement filed with the SEC.
From time to time, we may also issue other types of securities to raise
additional capital. For example, during 2005, our subsidiary issued $25.0
million of variable rate preferred securities, the proceeds of which were used
to purchase FNMA certificates.
In 2006, we expect to grow our investment portfolio by utilizing CDO
securitizations. In order to finance these investments prior to securitizing
them, we expect to enter into a new warehouse facility with a major financial
institution, although there are no assurances that this facility will close.
Competition
-----------
We compete with various financial institutions in each of our lines of business.
We compete with investment banks, other REITs, mezzanine funds and pension fund
advisors for investment opportunities.
Management and Governance
-------------------------
We have engaged our Advisor, to manage our day-to-day affairs. Our Advisor has
subcontracted with CharterMac Capital LLC (formerly known as Related Capital
Company LLC) ("CharterMac Capital"), a subsidiary of CharterMac, to provide the
services necessary for our operations. Through our Advisor, CharterMac Capital
offers us a core group of experienced staff and executive management personnel
who provide us with services on both a full- and part-time basis. These services
include, among other things, acquisition, underwriting, asset monitoring,
portfolio management, finance, accounting, capital markets and investor
relations.
We have no employees. Our Advisor receives compensation in connection for the
services it provides to us as set forth in Item 8, FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA; Item 11, EXECUTIVE COMPENSATION; and Item 13, CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS. In addition, we reimburse our Advisor
and certain of its
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affiliates for expenses they incur in connection with their performance of
services for us in accordance with our management agreement.
We are governed by a board of trustees comprised of three independent trustees
and two non-independent trustees who are affiliated with our Advisor.
ITEM 1A. RISK FACTORS
An investment in our common shares involves a number of risks. Before making an
investment decision, you should carefully consider all of the risks described in
this document. If any of the risks discussed actually occur, our business,
financial condition and results of operations, and the value of your investment,
could be materially adversely affected.
For convenience, we have grouped these risk factors as follows:
1. Risks related to our investments
2. Risks related to our Advisor
3. Risks related to our debt obligations
4. Risks related to our classification as a REIT and not as an investment
company
5. Risks related to our common shares and our shareholders
1. RISKS RELATED TO OUR INVESTMENTS
MORTGAGE INVESTMENTS THAT ARE NOT UNITED STATES GOVERNMENT INSURED AND
NON-INVESTMENT GRADE MORTGAGE ASSETS INVOLVE RISK OF LOSS
GENERAL. We intend to continue to originate and acquire uninsured and
non-investment grade mortgage loans and mortgage assets as part of our
investment strategy. Such loans and assets may include first mortgage loans,
mezzanine loans, construction loans, bridge loans, subordinated interests in
first mortgage loans and CMBS. While holding such interests, we will be subject
to risks of borrower defaults, bankruptcies, fraud and losses and special hazard
losses that are not covered by standard hazard insurance. In the event of any
default under mortgage loans we hold, we will bear the risk of loss of principal
and non-payment of interest and fees to the extent of any deficiency between the
value of the mortgage collateral and the principal amount of the mortgage loan.
LIMITED RECOURSE LOANS MAY LIMIT OUR RECOVERY TO THE VALUE OF THE MORTGAGED
PROPERTY. Our loans are generally non-recourse, although some may have limited
recourse provisions for a short period. In addition, limited recourse against
the borrower may be further limited by applicable provisions of the laws of the
jurisdictions in which the mortgaged properties are located or by the selection
of remedies and the impact of those laws on that selection. With respect to our
non-recourse mortgage loans, in the event of a borrower default, the value of
the specific mortgaged property and other assets, if any, pledged to secure the
relevant mortgage loan, may be less than the amount owed under the mortgage
loan. As to those mortgage loans that provide for recourse against the borrower
and its assets generally, there can be no assurance that such recourse will
provide a recovery in respect of a defaulted mortgage loan greater than the
liquidation value of the mortgaged property securing that mortgage loan.
In addition, investment in subordinated interests in mortgage loans do not
provide us with foreclosure remedies upon default. Should an investment default,
we may lose our entire investment in such loans.
COMPETITION IN ACQUIRING DESIRABLE INVESTMENTS MAY LIMIT THEIR AVAILABILITY
WHICH COULD, IN TURN, NEGATIVELY AFFECT OUR ABILITY TO GENERATE NET INCOME
We compete for loan investments with numerous public and private real estate
investment vehicles, such as mortgage banks, pension funds, REITs, institutional
investors and individuals. Mortgages, mezzanine loans, subordinated interests in
CMBS and other investments are often obtained through a competitive bidding
process. In addition, competitors may seek to establish relationships with the
financial institutions and other firms from which we intend to purchase such
assets. Many of our competitors are larger than us, may have access to greater
capital resources and other resources, and may have other advantages over us and
our Advisor in conducting certain business and providing certain services.
Competition may result in higher prices for mortgage assets, lower yields and a
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narrower spread of yields over our borrowing costs. There can be no assurance
that we will achieve investment results that will allow any specified level of
cash distribution.
INTEREST RATE FLUCTUATIONS WILL AFFECT THE VALUE OF OUR ASSETS AND OUR ABILITY
TO GENERATE NET INCOME
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 our control. Interest rate fluctuations
can adversely affect our net income in many ways and present a variety of risks,
including the risk of a mismatch between asset yields and borrowing rates.
Interest rate mismatch could occur between asset yields and borrowing rates
resulting in decreased yield. Our operating results will depend in large part on
differences between the income from our assets (net of credit losses) and our
borrowing costs. We fund the origination and acquisition of a significant
portion of our assets with borrowings which have interest rates that reset
relatively rapidly, such as monthly or quarterly. We anticipate that, in most
cases, the income from our fixed-rate assets will respond more slowly to
interest rate fluctuations than the cost of our borrowings, creating a mismatch
between asset yields and borrowing rates. In addition, in periods of declining
market rates, income from our variable rate investments would decline.
Consequently, changes in interest rates, particularly short-term interest rates,
may influence our net income and could result in operating losses.
Our operating results depend to a significant degree on differences between the
income from our assets and our borrowing costs. Due to the fixed returns
generated by most of our assets, interest rate fluctuations may influence our
net income. See also Item 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK.
PREPAYMENT RATES MAY NEGATIVELY AFFECT THE VALUE OF OUR INVESTMENTS.
The value of our investments may be affected by prepayment rates. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic and other factors beyond our control, and consequently,
such prepayment rates cannot be predicted with certainty. To the extent we
originate mortgage loans, we expect that such mortgage loans will have a measure
of protection from prepayment in the form of prepayment lock-out periods or
prepayment penalties. However, such protection may not be available with respect
to investments which we acquire, but do not originate. In periods of declining
mortgage interest rates, prepayments on mortgages generally increase. If general
interest rates decline as well, the proceeds of such prepayments received during
such periods are likely to be reinvested by us in assets yielding less than the
yields on the investments that were prepaid. In addition, the market value of
mortgage investments may, because of the risk of prepayment, benefit less from
declining interest rates than from other fixed-income securities. Conversely, in
periods of rising interest rates, prepayments on mortgages generally decrease,
in which case we would not have the prepayment proceeds available to invest in
assets with higher yields. Under certain interest rate and prepayment scenarios
we may fail to recoup fully our cost of acquisition of certain investments.
WE MAY NOT ACCURATELY ASSESS INVESTMENT YIELDS, WHICH MAY NEGATIVELY AFFECT OUR
EARNINGS
Before making any investment, our Advisor will consider the expected yield of
the investment and the factors that may influence the yield actually obtained on
such investment. These considerations will affect our or our Advisor's decision
whether to purchase such an investment and the price offered for such an
investment. No assurances can be given that we or our Advisor will make an
accurate assessment of the yield to be produced by an investment. Many factors
beyond our and our Advisor's control are likely to influence the yield on the
investments, including, but not limited to, competitive conditions in the local
real estate market, local and general economic conditions and the quality of
management of the underlying property. Our Advisor's inability to accurately
assess investment yields may result in our purchasing assets that do not perform
as well as expected, which may negatively affect our earnings.
THERE ARE RISKS ASSOCIATED WITH INVESTMENTS SECURED BY REAL ESTATE, WHICH MAY
NEGATIVELY AFFECT OUR EARNINGS
We derive most of our income by investing, directly and indirectly, in debt
secured by residential or commercial properties. Such investments subject us to
various types and degrees of risk that could adversely affect the value of our
investments and our ability to generate revenue and net income.
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Multifamily and commercial property values and net operating income derived from
such properties are subject to volatility and may be affected adversely by a
number of factors, including, but not limited to:
o national, regional and local economic conditions (which may be
adversely affected by industry slowdowns and other factors);
o local real estate conditions (such as an oversupply of housing,
retail, industrial, office or other commercial space);
o stability of controlling entity of our borrower and managing agent of
the borrower's property;
o construction quality, age and design;
o demographic factors;
o retroactive changes to building or similar codes; and
o increases in operating expenses (such as energy costs).
Other risks include, but are not limited to, the following:
o If a mortgage loan is called due to construction not being completed
as required in the mortgage loan documents, we may choose to expend
additional capital in order to preserve our investment;
o occupancy and rent levels may be affected by construction of
additional housing units and national, regional and local politics,
including current or future rent stabilization and rent control laws
and agreements;
o the federal LIHTC Program and city, state and federal housing subsidy
or similar programs which apply to some of the properties impose rent
limitations that could adversely affect the ability to increase rents
to generate the funds necessary to maintain the properties securing
our investments in proper condition, which is particularly important
during periods of rapid inflation or declining market value of such
properties;
o if a loan defaults, the value of the property securing the loan (plus,
for properties that are financed through the LIHTC Program, the value
of the credits) may be less than the unamortized principal amount of
the loan;
o an owner or operator of real property may become liable for the costs
of removal of certain hazardous substances released on its property
without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The
presence of hazardous substances may adversely affect an owner's
ability to operate the property;
o certain underlying properties may be required to comply with the
Americans with Disabilities Act, and must comply with fire and safety
regulations, building codes, and other land use regulations.
Compliance with such requirements may require property operators to
make substantial capital expenditures; and
o loans to finance condominium conversions may be adversely impacted if
interest rate increases or market forces diminish investor demand for
condominium units.
These conditions and events may increase the possibility that a property
operator may be unable to meet its obligations to us or otherwise expose us to
losses, thereby affecting our net income. We manage these risks through diligent
and comprehensive underwriting, asset management and ongoing monitoring of loan
and property performance. We may also obtain construction completion guarantees,
personal recourse agreements and/or operating deficit guarantees. In other
cases, we may decide to forego certain types of available security if we
determine that the security is not necessary or is too expensive to obtain in
relation to the risks covered.
From time to time, through the foreclosure process, we may also take title to
properties as a result of loan defaults by borrowers. Excluding properties that
we have legally sold and for which we have recovered a large portion of the
investment we made upon foreclosure, as of December 31, 2005, the aggregate
carrying value was approximately $18.4 million. While our Advisor is acting to
improve the operating performance of these properties and actively marketing
them for sale, the assets are illiquid and there is no assurance that we will
realize the full carrying amounts when the properties are sold.
CHANGES IN MORTGAGE LOAN PROGRAMS COULD ADVERSELY AFFECT US
We could be hindered in making investments by adverse changes in the FHA
insurance, Ginnie Mae or Fannie Mae guarantee programs or rules or regulations
relating to them. Generally, once a mortgage has been endorsed for insurance or
guaranteed, subsequent amendments to the rules or regulations would not apply
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THERE ARE RISKS ASSOCIATED WITH OUR INVESTMENT IN ARCAP, WHICH MAY NEGATIVELY
AFFECT OUR EARNINGS
We have invested indirectly in subordinated CMBS through our ownership of a
membership interest in ARCap. ARCap manages funds that invest in subordinated
CMBS that include "first loss" and non-investment grade subordinated interests.
A first loss security is the most subordinate class in a structure and
accordingly is the first to bear the loss upon a default, on restructuring or
liquidation of the underlying collateral and the last to receive payment of
interest and principal. Such classes are subject to special risks, including a
greater risk of loss of principal and non-payment of interest than more senior,
rated classes. The market values of subordinated interests in CMBS and other
subordinated securities tend to be more sensitive to changes in economic
conditions than more senior, rated classes. As a result of these and other
factors, subordinated interests generally are not actively traded and may not
provide holders with liquidity of investment. In addition, our ability to
transfer our membership interest in ARCap is limited by the terms of ARCap's
operating agreement.
PARTICIPATING INTERESTS IN MORTGAGES MAY NOT BE REALIZED
In connection with the acquisition and origination of mortgages, we have
obtained and may continue to obtain participating interests that may entitle us
to payments based upon a property's cash flow, profits or any increase in the
value of the property that would be realized upon a refinancing or sale of the
property. As the operation of a particular property is subject to numerous
variables and risks, there can be no assurance that a participating interest
will result in additional payments to us.
GEOGRAPHIC CONCENTRATION AND THE CREDIT QUALITY OF BORROWERS MAY RESULT IN
LOSSES
We have not established any limit upon the geographic concentration of
properties securing our investments or the credit quality of borrowers of
uninsured investments. As a result, properties securing our investments may be
overly concentrated in certain geographic areas and the underlying borrowers of
our uninsured investments may have low credit quality. We may experience losses
due to geographic concentration or low credit quality. As of December 31, 2005,
36.7% of our portfolio was comprised of investments in mortgage loans, notes
receivable, revenue bonds and real estate owned. Of this group of assets, 62.4%
were secured by properties in Texas. We had no borrowers exceeding 10% of our
portfolio of investments in mortgage loans, notes receivable and revenue bonds
other than John Loder and Richard Nathan who are the creditors of 11.4% and
10.5%, respectively, in these categories.
THERE ARE RISKS ASSOCIATED WITH OUR CONTEMPLATED CDO TRANSACTIONS
We would be exposed to additional risks if we finance a portion of our
investment portfolio through a CDO transaction. Risks associated with financing
investments through a CDO include the following:
WE MAY NOT BE ABLE TO ACQUIRE ELIGIBLE INVESTMENTS FOR A CDO ISSUANCE,
OR MAY NOT BE ABLE TO ISSUE CDO SECURITIES ON ATTRACTIVE TERMS, WHICH
MAY REQUIRE US TO UTILIZE MORE COSTLY FINANCING FOR OUR INVESTMENTS,
OR TO LIQUIDATE THE INVESTMENTS.
We intend to capitalize on opportunities to finance certain of our
investments on a non-recourse, long-term basis, such as through the
issuance of CDOs. During the period that we are acquiring these
investments, we intend to finance our purchases through a warehouse
facility. We will use this facility to finance our acquisition of
investments until we have accumulated a sufficient quantity of them,
at which time we may refinance these lines through a securitization,
such as a CDO issuance, or other types of long-term financing. As a
result, we are subject to the risk that we will not be able to acquire
a sufficient amount of eligible investments to maximize the efficiency
of a CDO issuance. In addition, conditions in the capital markets may
make the issuance of CDOs less attractive to us when we do have a
sufficient pool of collateral. If we are unable to issue a CDO to
finance these investments, we may be required to utilize other forms
of potentially less attractive financing, or otherwise to liquidate
the collateral.
10
WE MAY NOT BE ABLE TO FIND SUITABLE REPLACEMENT INVESTMENTS IN
COLLATERALIZED DEBT OBLIGATIONS WITH REINVESTMENT PERIODS.
Some CDOs have periods where principal proceeds received from assets
securing the obligation can be reinvested for a defined period of time,
commonly referred to as a reinvestment period. Our ability to find
suitable investments during any reinvestment period that meet the
criteria set forth in the CDO documentation and by rating agencies may
determine the success of our CDO investments. Our potential inability
to find suitable investments may, among other things:
o cause interest deficiencies;
o cause hyper-amortization of the senior CDO liabilities; and
o cause us to reduce the life of our CDOs and accelerate the
amortization of certain fees and expenses.
THE USE OF CDO FINANCINGS WITH OVER-COLLATERALIZATION AND INTEREST
COVERAGE REQUIREMENTS MAY HAVE A NEGATIVE IMPACT ON OUR CASH FLOW.
The terms of CDOs will generally provide that the principal amount of
investments must exceed the principal balance of the related bonds by a
certain amount and that interest income exceed interest expense by a
certain amount. We anticipate that the CDO terms will provide that, if
certain delinquencies and/or losses or other factors cause a decline in
collateral or cash flow levels, the cash flow otherwise payable on our
investment may be redirected to repay classes of CDOs senior to ours
until the issuer or the collateral is in compliance with the terms of
the governing documents. Other tests (based on delinquency levels or
other criteria) may restrict our ability to receive net income from
assets pledged to secure CDOs. We cannot assure you that the
performance tests will be satisfied. Nor can we assure you, in advance
of completing negotiations with the rating agencies or other key
transaction parties as to the actual terms of the delinquency tests,
over-collateralization and interest coverage terms, cash flow release
mechanisms or other significant factors upon which net income to us
will be calculated. Failure to obtain favorable terms with regard to
these matters may adversely affect the availability of net income to
us. If our investments fail to perform as anticipated, our
over-collateralization, interest coverage or other credit enhancement
expense associated with our CDO financings will increase.
WE MAY BE REQUIRED TO REPURCHASE LOANS THAT WE HAVE SOLD OR TO
INDEMNIFY HOLDERS OF OUR CDOS.
If any of the loans we originate or acquire and sell or securitize
through CDOs do not comply with representations and warranties that we
make about certain characteristics of the loans, the borrowers and the
underlying properties, we may be required to repurchase those loans or
replace them with substitute loans. In addition, in the case of loans
that we have sold instead of retained, we may be required to indemnify
persons for losses or expenses incurred as a result of a breach of a
representation or warranty. Repurchased loans typically require a
significant allocation of working capital to carry on our books, and
our ability to borrow against such assets is limited. Any significant
repurchases or indemnification payments could adversely affect our
financial condition and operating results.
2. RISKS RELATED TO OUR ADVISOR
WE ARE DEPENDENT ON OUR ADVISOR AND IF OUR ADVISOR TERMINATES THE ADVISORY
AGREEMENT, WE MAY NOT BE ABLE TO FIND AN ADEQUATE REPLACEMENT ADVISOR
We have no employees, although we have officers. We have entered into an
advisory agreement with our Advisor under which it provides us with all of the
services necessary for our operations. We are dependent on our Advisor for the
management and administration of our business and investments. The results of
our operations will be dependent upon the availability of, and our Advisor's
ability to identify and capitalize on, investment opportunities. The agreement
may be terminated
(i) without cause by our Advisor or
11
(ii) with or without cause by a majority of our independent trustees.
The Advisor can terminate the agreement without penalty, but we are subject to a
penalty, except in certain instances, for termination or non-renewal.
Termination would be effective upon 60 days prior written notice to the
non-terminating party. If our Advisor terminates our agreement, we may not be
able to find an adequate replacement advisor.
CONFLICTS OF INTEREST COULD ARISE AMONG US AND OR RELATED PARTIES WITH RESPECT
TO INVESTMENT OPPORTUNITIES
Our Advisor has subcontracted its obligation to provide services under the
advisory agreement to CharterMac Capital, and there are risks involved with this
arrangement. Under our advisory agreement, the Advisor and CharterMac Capital
are permitted to act as advisor to other entities having investment policies
similar to ours, including other REITs. Generally, in conflict situations with
non-affiliated entities, our Advisor must present an investment opportunity to
us if the opportunity is within our investment objectives and policies, the
opportunity is of a character that could be taken by us, and we have the
financial resources to take advantage of the opportunity.
Additionally, CharterMac, the parent of the Advisor and CharterMac Capital, has
in the past, and may in the future, invest in first mortgage loans, including
taxable first mortgage revenue bonds or other investments that are similar to
those in which we invest.
To the extent that these existing entities, as well as affiliated entities which
may be formed by affiliates of our Advisor in the future, have funds available
for investment at the same time as we do and a potentially suitable investment
is offered to us or the affiliated entities, our Advisor will review the
affiliated entities' and our investment portfolios and will determine whether or
not the investment should be made by one of the affiliated entities or by us
based upon factors such as the amount of funds available for investment, yield
and portfolio diversification. If the making of a mortgage loan or other
mortgage investment appears equally appropriate for us and these affiliated
entities, the mortgage loan or other mortgage investment will either be made by
a joint venture between two or more of such entities (which may include us), or
will be allocated to one of such entities on a basis of rotation with the
initial order of priority determined by the dates of formation of the entities.
In addition, Stephen M. Ross is the principal owner of The Related Companies, LP
("TRCLP"), as well as the Chairman and an indirect owner of a 15.9% economic
interest in CharterMac. Jeff Blau, our Chief Executive Officer, is also employed
by TRCLP and has an ownership interest in CharterMac. TRCLP may engage in
businesses which compete with our Company. In connection with CharterMac's
acquisition of CharterMac Capital in November 2003, CharterMac and TRCLP entered
into an agreement which prohibited TRCLP and its affiliates from competing with
any business currently engaged in by CharterMac Capital other than in specified
areas, including originating mezzanine loans to multifamily housing properties
similar to those which secure our loans. There can be no assurance that we and
TRCLP and its affiliates would not directly compete for similar products and
opportunities in these areas in the future.
CONFLICTS OF INTEREST COULD ARISE IN TRANSACTIONS WHERE WE LEND TO OR BORROW
FROM AFFILIATES OF OUR ADVISOR
Every transaction entered into between us and an affiliate of our Advisor raises
a potential conflict of interest. In addition to the initial determination to
invest in mortgage investments secured by properties owned by an affiliate of
our Advisor, such conflicts of interest with respect to these mortgage
investments include, among others, decisions regarding:
o whether to waive defaults of such affiliate;
o whether to foreclose on a loan; and
o whether to permit additional financing on the properties securing our
investments other than financing provided by us.
We have invested in, and may in the future invest in, mortgage investments
secured by properties in which either direct or indirect affiliates of our
Advisor own equity interests in the borrower. Our declaration of trust requires
that any transaction between our Advisor or any of its affiliates and us be
approved by a majority of our trustees, including a majority of the independent
trustees, not otherwise interested in the transaction, as being fair and
reasonable and on terms not less favorable to us than those available from
unaffiliated third parties. As of December 31, 2005, we had four notes
12
receivable with a total carrying value of approximately $13.7 million, one first
mortgage with a total carrying value of approximately $771,000, and seven
multifamily housing first mortgage bonds with a total carrying value of
approximately $6.6 million to borrowers that are affiliates of our Advisor,
which represents 1.7% of our total assets.
In June 2004, we entered into a revolving credit facility with CharterMac, which
provides up to $20.0 million in borrowings and bears interest at LIBOR plus 300
basis points. This facility was extended through June 30, 2006 and contains
customary restrictions and covenants that are similar to our warehouse debt
facility with an unaffiliated lender. As of December 31, 2005, there was no
outstanding balance on this facility.
3. RISKS RELATED TO OUR DEBT OBLIGATIONS
SHORT-TERM REPURCHASE AGREEMENTS INVOLVE RISK OF LOSS
We finance, and expect to continue to finance, a portion of our investments
through collateralized borrowing in the form of repurchase agreements, which
involve us selling assets concurrently with our agreement to repurchase them at
a later date and at a fixed price. During the repurchase agreement period, we
continue to receive principal and interest payments on the assets. The use of
borrowing, or "leverage," to finance our assets involves a number of risks,
including the following:
IF WE ARE UNABLE TO RENEW OUR BORROWINGS AT FAVORABLE RATES, WE MAY BE FORCED TO
SELL ASSETS, AND OUR PROFITABILITY MAY BE ADVERSELY AFFECTED. We rely on
short-term repurchase agreements to finance a portion of our assets. Our ability
to achieve our investment objectives depends on our ability to borrow money in
sufficient amounts and on favorable terms and our ability to renew or replace
these short-term borrowings on a continuous basis as they mature. If we are not
able to renew or replace maturing borrowings, we would be forced to sell some of
our assets under possibly adverse market conditions, which may adversely affect
our profitability. As of December 31, 2005, we had borrowings of approximately
$209.1 million outstanding under the repurchase facilities, all of which
typically have 30-day settlement terms.
A DECLINE IN THE MARKET VALUE OF OUR ASSETS MAY RESULT IN MARGIN CALLS THAT MAY
FORCE US TO SELL ASSETS UNDER ADVERSE MARKET CONDITIONS. Repurchase agreements
involve the risk that the market value of the securities sold by us may decline
and that we will be required to post additional collateral, reduce the amount
borrowed or suffer forced sales of the collateral. If forced sales were made at
prices lower than the carrying value of the collateral, we would experience
additional losses. If we are forced to liquidate our assets to repay borrowings,
there can be no assurance that we will be able to maintain compliance with the
REIT asset and source of income requirements.
OUR USE OF REPURCHASE AGREEMENTS TO BORROW MONEY MAY GIVE OUR LENDERS GREATER
RIGHTS IN THE EVENT OF BANKRUPTCY. Our repurchase agreements require us to
pledge certain of our assets to the lender to secure our obligations thereunder.
Borrowings made under repurchase agreements may qualify for special treatment
under the U.S. Bankruptcy Code, which may make it difficult for us to recover
our pledged assets if a lender files for bankruptcy. In addition, if we were to
file for bankruptcy, lenders under our repurchase agreements may be able to
avoid the automatic stay provisions of the U.S. Bankruptcy Code and take
possession of, and liquidate, the assets we pledged under these agreements
without delay.
HEDGING TRANSACTIONS CAN LIMIT GAINS AND INCREASE EXPOSURE TO LOSSES
Hedging involves risk and hedging activities may not have the desired beneficial
impact on our results of operations or financial condition. Moreover, no hedging
activity can completely insulate us from the risks associated with changes in
interest rates and prepayment rates.
We intend generally to hedge as much of the interest rate risk as our Advisor
determines is in our best interests given the cost of such hedging transactions.
REIT provisions of the Code may limit our ability to hedge our assets and
related borrowings. Any limitation on our use of hedging techniques may result
in greater interest rate risk.
13
4. RISKS RELATED TO OUR CLASSIFICATION AS A REIT AND NOT AS AN INVESTMENT
COMPANY
POTENTIAL LOSS OF OUR REIT STATUS SUBJECTS US AND OUR SHAREHOLDERS TO RISKS
Potential loss of our REIT status subjects us and our shareholders to a number
of risks including the following:
FAILURE TO QUALIFY AS A REIT WOULD HAVE ADVERSE TAX CONSEQUENCES FOR US. In
order to maintain our REIT status we must meet a number of requirements. These
requirements are highly technical and complex and often require an analysis of
various factual matters and circumstances that may not be totally within our
control. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS may make changes to the tax laws and
regulations, and the courts may issue new rulings, that make it more difficult
or impossible for us to remain qualified as a REIT. If we fail to qualify as a
REIT, we would be subject to federal and state income taxes at regular corporate
rates. Therefore, we would have less money available for investments and for
distributions to our shareholders. This may also have an adverse effect on the
market value of our common shares. In general, we would not be able to elect
REIT status for four years after a year in which we lose our REIT status.
AS A REIT, OUR INCOME CAN ONLY COME FROM LIMITED TYPES OF SOURCES. To qualify as
a REIT, at least 75% of our gross income must come from qualified real estate
sources and at least 95% of our gross income must come from qualified real
estate sources and certain other sources that are itemized in the REIT tax laws.
Therefore, we may have to forego opportunities to invest in potentially
profitable businesses or assets because they would produce income that could
jeopardize our status as a REIT.
WE HAVE CERTAIN DISTRIBUTION REQUIREMENTS. As a REIT, we must distribute to
shareholders at least 90% of our REIT taxable income (excluding capital gains).
The required distribution limits the amount we have available for other business
purposes, including amounts to fund our growth. Also, it is possible that
because of the differences between the time we actually receive revenue or pay
expenses and the period we report those items for distribution purposes, we may
have to borrow funds on a short-term basis to meet the 90% distribution
requirement.
WE ARE ALSO SUBJECT TO OTHER TAX LIABILITIES. As a REIT, we may be subject to
certain federal, state and local taxes on our income and property. Any of these
taxes would reduce our operating cash flow.
LIQUIDATION OF COLLATERAL MAY JEOPARDIZE OUR REIT STATUS. To continue to qualify
as a REIT, we must comply with requirements regarding our assets and our sources
of income. If we are compelled to liquidate our mortgage investments to satisfy
our obligations to our lenders, we may be unable to comply with these
requirements, ultimately jeopardizing our status as a REIT.
LOSS OF INVESTMENT COMPANY ACT EXEMPTION WOULD ADVERSELY AFFECT US
We intend to conduct our business so as not to become regulated as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). If we fail to qualify for this exemption, we would be regulated
as an investment company and our business would be materially adversely
affected. Investment company regulations would prevent us from conducting our
business as described in this document by, among other restrictions, reducing
our ability to borrow. 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. Under the current
interpretation of SEC staff, in order to qualify for this exemption, we must
maintain at least 55% of our assets directly in these qualifying real estate
interests. Mortgage-backed securities that do not represent all the certificates
issued with respect to an underlying pool of mortgages may be treated as
securities separate from the underlying mortgage loans and, thus, may not
qualify for purposes of the 55% requirement. Therefore, our ownership of these
mortgage-backed securities is limited by the provisions of the Investment
Company Act. In meeting the 55% requirement, we treat as qualifying interests,
mortgage-backed securities issued with respect to an underlying pool as to which
we hold all issued certificates. If the SEC or its staff adopts a contrary
interpretation, we could be required to sell a substantial amount of our
mortgage-backed securities under potentially adverse market conditions. Further,
in order to insure that we at all times qualify for the exemption from the
Investment Company Act, we may be precluded from acquiring mortgage-backed
securities whose yield is somewhat higher than the yield on those that could be
purchased in a manner consistent with the exemption. The net effect of these
factors may be to lower our net income.
14
5. RISKS RELATED TO OUR COMMON SHARES AND OUR SHAREHOLDERS
RESTRICTIONS ON SHARE ACCUMULATION IN REITS COULD DISCOURAGE A CHANGE OF CONTROL
OF OUR COMPANY
In order for us to qualify as a REIT, not more than 50% of the number or value
of our outstanding shares may be owned, directly or indirectly, by five or fewer
individuals during the last half of a taxable year or during a proportionate
part of a shorter taxable year.
In order to prevent five or fewer individuals from acquiring more than 50% of
our outstanding shares and a resulting failure to qualify as a REIT, our
declaration of trust provides that, no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% of the
outstanding shares. The shares most recently acquired by a person that are in
excess of the 9.8% limit will not have any voting rights and will be deemed to
have been offered for sale to us for a period subsequent to the acquisition. Any
person who acquires shares in excess of the 9.8% limit is obliged to immediately
give written notice to us and provide us with any information we may request in
order to determine the effect of the acquisition on our status as a REIT.
While these restrictions are designed to prevent any five individuals from
owning more than 50% of our shares, preserving our status as a REIT, they also
discourage a change in control of our company. These restrictions may also deter
tender offers that may be attractive to shareholders or limit the opportunity
for shareholders to receive a premium for their shares if an investor makes
purchases of shares to acquire a block of shares.
SUPERMAJORITY VOTING REQUIREMENTS FOR ACQUISITIONS AND MERGERS COULD DISCOURAGE
A CHANGE OF CONTROL OF OUR COMPANY
Our declaration of trust requires that 80% of our shareholders and all of our
independent trustees approve exchange offers, mergers, consolidations or similar
transactions involving us in which our shareholders receive securities in a
surviving entity having materially different investment objectives and policies,
or that is anticipated to provide significantly greater compensation to
management, except for transactions affected because of changes in applicable
law, or to preserve tax advantages for a majority in interest of our
shareholders. These restrictions may also deter tender offers that may be
attractive to shareholders or limit the opportunity for shareholders to receive
a premium for their shares if an investor makes purchases of shares to acquire a
block of shares.
ISSUANCES OF LARGE AMOUNTS OF OUR COMMON SHARES COULD CAUSE OUR SHARE PRICE TO
DECLINE
Our declaration of trust permits our trustees to issue an unlimited number of
shares (subject to SEC registration requirements and the consent of shareholders
if required pursuant to the rules of the American Stock Exchange). The issuance
of common shares could cause dilution of our existing common shares and a
decrease in the market price of our common shares.
OUR SHAREHOLDERS MAY HAVE PERSONAL LIABILITY FOR OUR ACTS AND OBLIGATIONS
It is possible that certain states may not recognize the limited liability of
shareholders, although our declaration of trust provides that our shareholders
shall not be subject to any personal liability for our acts or obligations. In
certain states, our shareholders may be held personally liable for contract
claims where the underlying agreement does not specifically exclude shareholder
liability. Our shareholders may also be held personally liable for other claims
against us, such as tort claims, claims for taxes and certain statutory
liability. Upon payment of any such liability, however, the shareholder will, in
the absence of willful misconduct on the shareholder's part, be entitled to
reimbursement from our general assets, to the extent such assets are sufficient
to satisfy the claim.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES.
As a result of foreclosure, we own four properties held and used. See
Note 6 to the consolidated financial statements for further discussion
of these properties.
15
ITEM 3. LEGAL PROCEEDINGS.
On October 27, 2003, prior to taking possession of the real estate
collateral supporting a loan investment, we were named in a lawsuit,
Concord Gulfgate, Ltd. vs. Robert Parker, Sunrise Housing Ltd., and
American Mortgage Acceptance Company, Cause No. 2003-59290 in the 133rd
Judicial District Court of Harris County, Texas. The suit alleges that
the loan transaction was not properly authorized by the partnership and
was not for a legitimate partnership purpose. The suit claims, among
other causes of action against the respective defendants, wrongful
foreclosure of the real estate collateral, tortious interference with
contract and civil conspiracy. The suit seeks, among other relief,
actual, consequential, and exemplary damages, and a declaration that
the loan documents are unenforceable and constitute a cloud on title.
The discovery phase of this suit has been completed. A summary judgment
was filed by us, but was denied on July 25, 2005. It is not known when
the case will be called to trial.
We filed a countersuit on November 25, 2003, against Concord Gulfgate,
Ltd., as guarantor, seeking a deficiency on the loan, and recovery of
unpaid taxes and certain property receipts. We are currently unable to
determine the possible outcome of the litigation.
We are also subject to routine litigation and administrative
proceedings arising in the ordinary course of business. We do not
believe that such matters will have a material adverse impact on our
financial portion, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
None.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of February 27, 2006, there were 235 registered shareholders owning 8,303,838
shares. Our common shares have been listed on the American Stock Exchange since
July 1, 1999, under the symbol "AMC". Prior to July 1, 1999, there was no
established public trading market for our shares.
The high and low common share prices for each quarterly period in the past two
fiscal years in which the shares were traded is as follows:
2005 2004
----------------------- -----------------------
Quarter Ended Low High Low High
------------- --------- --------- --------- ---------
March 31 $ 13.70 $ 17.15 $ 16.15 $ 18.31
June 30 $ 13.44 $ 16.44 $ 12.86 $ 17.86
September 30 $ 13.93 $ 16.45 $ 13.65 $ 17.02
December 31 $ 13.14 $ 14.99 $ 15.70 $ 18.05
The last reported sale price of our common shares on the American Stock Exchange
on February 27, 2006 was $15.25.
The following table provides information related to our Incentive Share Option
Plan as of December 31, 2005:
Equity Compensation Plan Information
(a) (b) (c)
Number of securities
Number of remaining available for
securities to be future issuance under
issued upon exercise Weighted-average equity compensation
of outstanding exercise price of plans (excluding
options, warrants outstanding options, securities reflected
and rights warrants and rights in column (a))
---------------------- --------------------- -----------------------
Equity compensation plans
approved by security holders 187,052 $ 15.78 643,332
Equity compensation plans not
approved by security holders -- -- --
------- --------- -------
Totals 187,052 $ 15.78 643,332
======= ========= =======
17
Distributions
-------------
Cash distributions per share for the years ended December 31, 2004 and 2005 are
as set forth in the following table:
Total Amount
Cash Distribution Distributed
for Quarter Ended Date Paid Per Share (in thousands)
----------------- --------- --------- --------------
March 31, 2004 5/13/04 $ 0.40 $ 3,335
June 30, 2004 8/12/04 0.40 3,334
September 30, 2004 11/11/04 0.40 3,334
December 31, 2004 2/14/05 0.40 3,334
-------- -------
Total for 2004 $ 1.60 $13,337
===== =======
March 31, 2005 5/13/05 $ 0.40 $ 3,335
June 30, 2005 8/12/05 0.40 3,324
September 30, 2005 11/14/05 0.40 3,325
December 31, 2005 2/14/06 0.40 3,322
Special distribution 11/30/05 0.30 2,493
-------- -------
Total for 2005 $ 1.90 $15,799
======== =======
There are no material legal restrictions upon our present or future ability to
make distributions in accordance with the provisions of our declaration of
trust. Future distributions paid by us will be at the discretion of our trustees
and will depend on our actual cash flow, our financial condition, capital
requirements, REIT requirements and such other factors as the trustees deem
relevant.
The following table sets forth information with respect to purchases made by us
of our common shares during the fourth quarter of 2005:
Total number Maximum
of shares number of
purchased as shares that may
Total number part of publicly yet be purchased
of shares Average price announced under the
Period purchased paid per share programs programs
------------------- ------------ -------------- ---------------- ----------------
November 1-30, 2005 9,100 $ 13.75 9,100 960,000
Other information required by this item, as well as additional information
regarding our share repurchase program and share compensation paid to our
independent trustees, is included in Note 11 and 12 to our consolidated
financial statements.
18
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below presents our selected financial data. See Item 7
for factors affecting the comparability of this data. Additional financial
information is set forth in the audited financial statements and footnotes
thereto contained in Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(In thousands except per share amounts)
Year ended December 31,
------------------------------------------------------------
OPERATIONS 2005 2004 2003 2002 2001
---------- -------- -------- -------- -------- --------
Total revenues $ 36,143 $ 22,011 $ 16,966 $ 10,458 $ 5,698
======== ======== ======== ======== ========
Net income $ 15,235 $ 11,273 $ 11,884 $ 9,660 $ 5,187
======== ======== ======== ======== ========
Net income per share,
basic and diluted $ 1.83 $ 1.35 $ 1.52 $ 1.61 $ 1.35
======== ======== ======== ======== ========
Distributions per share $ 1.90 $ 1.60 $ 1.60 $ 1.51 $ 1.45
======== ======== ======== ======== ========
December 31,
------------------------------------------------------------
FINANCIAL POSITION 2005 2004 2003 2002 2001
------------------ -------- -------- -------- -------- --------
Total assets $400,723 $349,033 $327,107 $195,063 $101,982
======== ======== ======== ======== ========
Repurchase facilities payable $209,101 $157,633 $149,529 $ 87,880 $ 43,610
======== ======== ======== ======== ========
Warehouse facility payable $ 4,070 $ 3,827 $ 34,935 $ 8,788 $ --
======== ======== ======== ======== ========
Line of credit - related party $ -- $ 4,600 $ -- $ -- $ --
======== ======== ======== ======== ========
Mortgages payable on real estate owned $ 40,487 $ 56,993 $ 15,993 $ -- $ --
======== ======== ======== ======== ========
Preferred shares of subsidiary (subject to
mandatory repurchase) $ 25,000 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Total liabilities $286,540 $228,501 $206,212 $100,725 $ 46,703
======== ======== ======== ======== ========
Total shareholders' equity $114,183 $120,532 $120,895 $ 94,338 $ 55,279
======== ======== ======== ======== ========
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Factors Affecting Comparability
-------------------------------
During 2005 and 2004, we owned several properties through foreclosure,
classified as Real Estate Owned - Held and Used, - Subject to Sales Contracts
and - Held for Sale. As a result of certain circumstances during 2004, we
reclassified some of these assets from Held for Sale to Held and Used. Although
prior period results have been reclassified as Held and Used, we have recorded
greater depreciation expense and recognized property level mortgage interest in
the current year (see "Real Estate Owned" below).
During March 2005, we issued $25.0 million of Floating Rate Preferred Securities
through a subsidiary. Due to the mandatory redemption feature of these
securities, the payments or accruals of dividends and other amounts to be paid
to the holders of these securities are reported as interest costs. As a result,
these interest costs are classified as Interest - Distributions to Preferred
Shareholders of Subsidiary (Subject to Mandatory Repurchase). There were no such
interest costs in prior periods.
During September 2005, the GNMA certificate and mezzanine loan investments
relating to one property were paid off prior to the maturity date. This pay off
resulted in significantly higher levels of fees earned and gain on redemption.
Investment Activity
-------------------
During the years ended December 31, we made the following investments:
(In thousands)
2005 2004 2003
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Interest Interest Interest
Amount Rate Amount Rate Amount Rate
-------- -------- -------- -------- -------- --------
Debt securities $ 61,691 6.04% $ 34,823 5.60% $ 39,960 5.49%
Mezzanine loans 40,000 15.78% 8,500 11.64% 3,293 16.50%
Bridge loans -- -- 4,517 12.96% 31,046 7.91%
First mortgage loans 7,500 10.82 -- -- 8,683 8.96%
-------- ----- -------- ----- -------- -----
Total $109,191 9.94% $ 47,840 7.37% $ 82,982 7.20%
======== ===== ======== ===== ======== =====
During 2005 and 2004, the composition of our investment portfolio shifted to
include a larger proportion of debt securities and, especially in 2005, a larger
number of variable-rate mezzanine loans (particularly related to condo
conversion properties). The increase in our debt security investments allows us
to increase our ability to obtain leverage on those assets to allow further
investment and the timing of cash flows related to the liquidation of other
assets in our portfolio. The change in our investment strategy to expand into
asset classes beyond traditional multifamily housing has increased our
variable-rate asset base and increased the weighted average yield on our
portfolio.
20
Results of Operations
The following is a summary of our operations:
(In thousands)
% Change % Change
2005 vs 2004 vs
2005 2004 2004 2003 2003
-------- -------- -------- -------- --------
Total revenues $36,143 $22,011 64.2% $16,966 29.7%
Total expenses 23,889 13,138 81.8 7,109 84.8
Total other income 2,981 2,400 24.2 2,027 18.4
------- ------- ---- ------- ----
Net income $15,235 $11,273 35.1% $11,884 (5.1%)
======= ======= ==== ======= ====
The substantial growth in our annual revenues and other income in both 2005 and
2004 resulted primarily from increases in investment activity, as well as fees
received as a result of an early paydown of one GNMA certificate and mezzanine
loan. Expenses also increased for these periods due to the increase in property
operations, interest expenses and depreciation costs for Real Estate Owned,
financing costs (particularly due to higher interest rates), and Advisory fees
due to higher profits and an increased asset base.
REVENUES
Changes in components of our revenues were as follows:
% Change % of Total % of Total % of Total
% Change 2004 vs. 2005 2004 2003
2005 vs 2004 2003 Revenues Revenues Revenues
------------ ---------- ---------- ---------- ----------
Interest income:
Debt securities 31.7% 11.1% 35.5% 44.2% 51.7%
Mortgage loans 200.1 (30.4) 15.0 8.2 15.3
Notes receivable (38.6) (19.6) 4.3 11.6 18.6
Revenue bonds (8.2) 319.2 1.6 2.9 0.9
Temporary investments 454.8 (23.6) 0.7 0.2 0.3
Fees related to the
prepayment of assets 2,983.4 100.0 15.4 0.8 --
Other revenues 523.5 (7.3) 2.6 0.7 1.0
------- ----- ---- ----- -----
Subtotal 79.9 1.3 75.1 68.6 87.8
------- ----- ---- ----- -----
Rental income 29.9 234.5 24.9 31.4 12.2
------- ----- ---- ----- -----
Total revenues 64.2% 29.7% 100.0% 100.0% 100.0%
======= ===== ===== ===== =====
21
At December 31, we had the following investments (exclusive of Real Estate
Owned):
2005 2004 2003
-------------------------------- -------------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Carrying Interest Carrying Interest Carrying Interest
Amount % of Total Rate Amount % of Total Rate Amount % of Total Rate
-------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Debt securities $222,723 75.5% 6.23% $194,587 79.2% 6.48% $167,260 74.4% 6.80%
Mortgage loans 51,981 17.6 14.74 21,376 8.7 11.68 13,864 6.2 11.30
Notes receivable 13,725 4.7 10.00 23,111 9.4 9.43 35,946 16.0 7.96
Revenue bonds 6,626 2.2 8.68 6,672 2.7 8.69 7,586 3.4 8.69
-------- ----- ----- -------- ----- ----- -------- ----- -----
Total $295,055 100.0% 7.96% $245,746 100.0% 7.36% $224,656 100.0% 7.32%
======== ===== ===== ======== ===== ===== ======== ===== =====
Interest income from debt securities increased during both 2005 and 2004,
primarily due to the continued advances on an existing GNMA certificate and the
purchase of eight new FNMA certificates during the fourth quarter of 2004 and
eleven new FNMA certificates during 2005, partially offset by the repayment of
one GNMA certificate in 2004 and two in 2005. The decrease in the weighted
average interest rate on debt securities during these periods was primarily due
to the rising interest rates on mortgage loans; as mortgage interest rates rise,
interest rates on debt securities tend to decrease.
Interest income from mortgage loans decreased in 2004, primarily due to the
reduction of interest received from certain foreclosed properties due to the
reclassification of these assets to Real Estate Owned. The balance increased
significantly in 2005 primarily due to funding of three mezzanine loans during
the second half of 2004 and the funding of seven mezzanine loans during 2005,
many of which related to condominium conversions. The increase in the weighted
average interest rates on mortgage loans during these periods was primarily due
to the increase in market interest rates.
Interest income from notes receivable decreased during both 2005 and 2004,
primarily due to the payoff of several notes during these periods, partially
offset by the funding of one new note receivable. The balance also decreased
during 2004 due to the default of required debt service payments from foreclosed
properties.
Fees related to prepayment of assets increased during 2005 primarily due to the
recognition of fees relating to an early payoff of a GNMA certificate and a
mezzanine loan during the third quarter of 2005.
Other revenues increased for 2005, primarily due to the recognition of a
commitment fee and a non-refundable due diligence fee during 2005. No such fees
were recorded in 2004.
Rental income increased during 2005 primarily due to the purchase of the first
mortgage on one property in the Real Estate Owned portfolio in February 2005.
Subsequent to the purchase, we recorded income from property operations. There
was no income from operations during 2004. Rental income increased during 2004
primarily due to the foreclosure of the Concord properties during the later half
of 2003. During 2004, there was a full year of income recorded for operations of
these properties.
22
EXPENSES
Changes in components of our expenses in 2005, 2004 and 2003 were as follows:
% of Total % of Total % of Total
% Change 2005 2005 % Change 2004 2004 2003
vs 2004 Revenues vs 2003 Revenues Revenues
-------------- ---------- ------------- ---------- ----------
Interest 75.7% 19.5% 57.7% 18.2% 15.0%
Distributions to
preferred shareholders 100.0 4.0 -- -- --
General and administrative 12.4 5.4 89.7 7.9 5.4
Fees to Advisor 122.2 12.0 7.9 8.9 10.7
Amortization and other (28.5) 0.8 9.3 1.9 2.2
-----------------------------------------------------------------------------------
Subtotal 85.9 41.7 43.7 36.9 33.3
-----------------------------------------------------------------------------------
Property operations 38.9 11.0 97.2 13.0 8.6
Depreciation 11.5 6.6 100.0 9.7 --
Mortgage interest for
real estate owned,
held and used 100.0 6.7 -- -- --
-----------------------------------------------------------------------------------
Total expenses 81.8% 66.1% 84.8% 59.7% 41.9%
===================================================================================
At December 31, 2005, excluding mortgages on real estate owned, we had total
debt of approximately $238.2 million with a weighted average interest rate of
4.63% per year, including the effect of our swap agreement. At December 31,
2004, we had a comparable balance of approximately $166.1 million with a
weighted average interest rate of 2.76% per year. The increase in the weighted
average interest rate is due to steady increases in market interest rates during
2004 and 2005.
Interest expense increased for both 2005 and 2004, primarily due to the
increased borrowings on the repurchase facilities stemming from an increased
investment base and the increase in interest rates during 2004 and 2005.
Distributions to preferred shareholders were recorded following the issuance of
the securities in March 2005. There were no such securities outstanding during
2004 or 2003.
General and administrative expenses increased for both 2005 and 2004, primarily
due to an increase in legal fees related to foreclosed properties, an increase
in accounting fees related to Sarbanes-Oxley compliance, and an increase in
excise taxes due to undistributed taxable income.
Fees to Advisor increased for both 2005 and 2004, due to higher overhead costs
and asset management fees because of expansion of our business and an increased
asset base during 2004 and 2005. In addition, during 2005, we incurred incentive
management fees based on the increase in 2005 earnings, which resulted primarily
from fees related to the early payoff of a GNMA certificate and mezzanine loan.
Property operations represent all non-interest costs at the property level on
all of our Real Estate Owned - Held and Used properties. Mortgage interest for
Real Estate Owned - Held and Used increased during 2005, due to debt service
costs associated with a $40.5 million mortgage on the Concord Portfolio (see
"Real Estate Owned" below).
Depreciation expense increased during both 2005 and 2004, due to a higher base
of depreciable real estate owned in both 2005 and 2004. In 2004, we began
depreciating the Concord Portfolio and in 2005, we began depreciating Autumn
Creek. In both years, the initial amount of depreciation included retroactive
amounts to capture depreciation from the respective foreclosure dates.
23
REAL ESTATE OWNED
During 2005, we reclassified some of our investments in foreclosed properties as
Real Estate Owned - Held for Sale on our consolidated balance sheets and
recognized income from the operations of these properties. As a result of these
circumstances, we have reclassified certain prior year amounts relating to the
income recognition of our real estate owned portfolio to conform to current year
presentation.
During 2004, we had three properties classified as Real Estate Owned - Subject
to Sales Contracts, as the sale of these properties did not constitute a sale in
accordance with GAAP. After the properties were refinanced during December 2004,
we reclassified these properties on our consolidated balance sheets as Real
Estate Owned - Held and Used; we recorded depreciation on the properties in
2004, as well as retroactively for the period since foreclosure. We recognize
income associated with a $12.8 million mezzanine loan (our remaining economic
interest in the properties) as rental income, property operations and mortgage
interest on Real Estate Owned - Held and Used on our consolidated statements of
income.
During 2005, we had one property classified as Real Estate Owned - Held for
Sale. As a sale for this property could not be accomplished before December
2005, we also reclassified the property as Held and Used; we recorded
depreciation on the property in 2005, as well as retroactively for the period
since foreclosure. We recognize income from the property as rental income and
property operations on Real Estate Owned - Held and Used on our consolidated
statements of income.
During 2005, we sold the Plaza at San Jacinto property to an unaffiliated third
party for approximately its carrying value.
IMPACT OF HURRICANES DURING THE YEAR ENDED DECEMBER 31, 2005
During 2005, three major hurricanes struck the Southern United States. Six of
our investments, secured by properties in Texas, were affected by Hurricane
Rita. The damage to these properties was minor and therefore it is expected that
we have no financial exposure in this matter. There were no properties affected
by Hurricane Katrina or by Hurricane Wilma.
Funds from Operations
---------------------
Funds from operations ("FFO"), represents net income or loss (computed in
accordance with GAAP), excluding gains or losses from sales of property,
excluding depreciation and amortization related to real property and including
funds from operations for unconsolidated joint ventures calculated on the same
basis. FFO is calculated in accordance with the National Association of Real
Estate Investment Trusts ("NAREIT") definition. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. FFO should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Our management considers FFO a supplemental measure of operating
performance, and, along with cash flows from operating activities, financing
activities, and investing activities, it provides investors with an indication
of our ability to incur and service debt, make capital expenditures, and to fund
other cash needs.
24
The following table reconciles net income to FFO for the years ended December
31, 2005, 2004 and 2003:
(In thousands)
2005 2004 2003
--------- --------- ---------
Net income $ 15,235 $ 11,273 $ 11,884
Add back: depreciation of real property 2,389 2,143 --(1)
--------- --------- ---------
FFO $ 17,624 $ 13,416 $ 11,884
========= ========= =========
Cash flows from:
Operating activities $ 18,036 $ 14,032 $ 11,977
========= ========= =========
Investing activities $ (64,512) $ (22,592) $(123,843)
========= ========= =========
Financing activities $ 55,016 $ 9,206 $ 103,490
========= ========= =========
Weighted average shares outstanding:
Basic 8,316 8,336 7,803
========= ========= =========
Diluted 8,317 8,343 7,815
========= ========= =========
(1) There was no depreciation recorded on Real Estate Owned in 2003.
Since not all companies calculate FFO in a similar fashion, our calculation
presented above may not be comparable to similarly titled measures reported by
other companies.
Liquidity and Capital Resources
-------------------------------
SOURCES OF FUNDS
We expect that cash generated from our investments, as well as our borrowing
capacity, will meet our needs for short-term liquidity and will be sufficient to
pay all expenses and distributions to our shareholders in amounts sufficient to
retain our REIT status in the foreseeable future. In order to qualify as a REIT
under the Internal Revenue Code, as amended, we must, among other things,
distribute at least 90% of our taxable income. We believe that we are in
compliance with the REIT-related provisions of the Code.
We finance our investing activity primarily through borrowing from various
facilities at short-term rates. At December 31, 2005, we had approximately $20.0
million available to borrow, contractually, under our debt facilities without
exceeding limits imposed by debt covenants and our declaration of trust.
From time to time, we may also issue common shares or other equity to fund
investing activity. During 2005, our subsidiary issued $25.0 million of variable
rate Preferred Securities. The proceeds received were used to purchase FNMA
certificates.
We have capacity to raise approximately $170.0 million of additional funds by
issuing either common or preferred shares pursuant to an effective shelf
registration statement filed with the SEC. If market conditions warrant, we may
seek to raise additional funds for investment through further offerings,
although the timing and amount of such offerings cannot be determined at this
time.
We are currently exploring funding the further expansion of our investment
platform through the use of Collateralized Debt Obligations ("CDOs"). A real
estate CDO is a capital markets transaction in which the holder of various forms
of real estate debt instruments finances those assets by selling bonds backed by
the assets. The assets can be floating or fixed rate, and may include first
mortgages, subordinate participations in first mortgages, bridge loans,
mezzanine loans, CMBS, and trust preferred stock. The assets would be aggregated
on our consolidated balance sheets and would later be securitized. The CDO
execution would enable us to lower our cost of capital significantly, which in
turn would make us more competitive in the lending marketplace. It is
anticipated that our origination activity would begin to increase during the
first quarter of 2006 and we would access the securitization market in the
25
second quarter of 2006, although there are no assurances that we will proceed
with such a program or that such a program will be successful.
In order to finance this increased volume in investments before securitization
occurs, we expect to enter into a warehouse facility with a major financial
institution. The proposed terms of this facility contemplate a credit limit of
up to $250 million, priced at a spread to LIBOR. This facility will mature when
the CDO is entered into, after which, new facilities will be negotiated to
finance any investments to be placed in additional CDOs. As with our proposed
investment strategy changes, there is no assurance that this facility will close
in 2006.
SUMMARY OF CASH FLOWS
During the year ended December 31, 2005, as compared to the year ended December
31, 2004, the net change in cash and cash equivalents increased approximately
$7.9 million. Operating cash flows improved by approximately $4.0 million
primarily due to higher earnings. An increase in net cash used in investing
activities (approximately $41.9 million) and an increase in net cash provided by
financing activities (approximately $45.8 million) were due to an increase in
proceeds received from repurchase and warehouse facilities used for purchases of
mortgage loans and debt securities.
During the year ended December 31, 2004, as compared to the year ended December
31, 2003, the net change in cash and cash equivalents increased by approximately
$9.0 million. Operating cash flows improved by $2.1 million primarily due to
higher cash earnings and favorable variances in timing of receivables collected.
A decrease in net cash used in investing activities (approximately $101.3
million) and a corresponding decrease in net cash provided by financing
activities (approximately $94.3 million) were due to a higher level of investing
activity in debt securities, mortgage loans, and mezzanine and bridge loans
during the 2003 period. The lower level of investing in 2004 corresponded to the
decrease in net borrowings.
LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2005
During February 2006, dividends of approximately $3.3 million ($0.40 per share),
which were declared in December 2005, have been paid to common shareholders.
We are not aware of any trends or events, commitments or uncertainties, which
have not otherwise been disclosed that will or are likely to impact liquidity in
a material way.
Dividends
---------
The following table outlines our total dividends and return of capital amounts,
determined in accordance with GAAP, for the year ended December 31,:
(in thousands)
2005 2004 2003
-------- -------- --------
Total dividends 15,799 13,337 12,551
Return of capital:
Amount 564 2,065 667
Per share $.07 $.25 $.08
Percent of total dividends 3.57% 15.48% 5.31%
Application of Critical Accounting Policies
-------------------------------------------
Our consolidated financial statements are based on the selection and application
of GAAP, which requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. These estimates
and assumptions sometimes involve future events which cannot be determined with
absolute certainty. Therefore, our determination of estimates requires that we
exercise our judgment. While we have used our best estimates based on the facts
and circumstances available to us at the time, different results may actually
occur and any such differences could be material to our financial statements.
26
We believe the following policies may involve a higher degree of judgment and
complexity and represent the critical accounting policies used in the
preparation of our financial statement:
o valuation of investments in debt securities;
o assessment of impairment of mortgage loans and notes;
o classification of mezzanine loan investments; and
o classification and valuation of real estate owned.
VALUATION OF INVESTMENTS IN DEBT SECURITIES
SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
provides guidance on determining the valuation of investments owned. The initial
classification of our investments in the "available for sale" category rather
than as "held to maturity" is due to our intent to sell these securities if the
terms of a particular offer are deemed favorable to us. We have sold these
securities in the past and from time to time, we may look to sell these
securities in the future if it is opportunistic for us to do so. Because of this
classification, we must carry our investments at estimated fair value. GNMA and
FNMA DUS Certificates are relatively liquid investments. We use third-party
quoted market prices as our primary source of valuation information.
ASSESSMENT OF IMPAIRMENT OF MORTGAGE LOANS AND NOTES
SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, establishes
standards regarding impairment issues related to our mortgage loans and notes
receivable. Our portfolio of mortgage loans and notes is periodically evaluated
for impairment to establish appropriate loan loss reserves, if necessary. Our
Advisor has a credit review committee which meets monthly and reviews the status
of each loan and note and maintains a "watch list" of loans (including loans for
which we have issued guarantees) for which the underlying property may be
experiencing construction cost overruns, delays in construction completion,
occupancy shortfalls, lower than expected debt service coverage ratios, or other
matters which might cause the borrower to be unable to make scheduled interest
and principal payments. If a loan is experiencing difficulties, members of this
credit committee work with the borrower to try to resolve the issues, which
could include extending the loan term, making additional advances, or reducing
required payments. If, in the judgment of our management, it is determined that
it is probable that we will not receive all contractually required payments when
they are due, the loan or note would be deemed impaired, and a loan loss reserve
established. As of December 31, 2005, our management had determined that no loan
required a loss reserve.
CLASSIFICATION OF MEZZANINE LOAN INVESTMENTS
Our mezzanine loan investments bear interest at fixed or variable rates, and
some also include provisions that allow us to participate in a percentage of the
underlying property's cash flows from operations and proceeds from a sale or
refinancing. At the inception of each such investment, our management must
determine whether such investment should be accounted for as a loan, joint
venture or as real estate, using the guidance contained in the Third Notice to
Practitioners issued by the AICPA. Although the accounting methodology does not
affect our cash flows from these investments, this determination affects the
balance sheet classification of the investments as well as the classification,
timing and amounts of reported earnings.
Accounting for the investment as real estate is required if we expect that the
amount of profit, regardless of its nature, is over 50 percent of the property's
total expected residual profit. If a mezzanine investment were accounted for as
an investment in real estate, our consolidated balance sheets would show the
underlying property and its related senior debt (if such debt were not also held
by us), and our consolidated statements of income would include the property's
rental revenues, operating expenses and depreciation.
If we expect to receive less than 50 percent of the property's residual profit,
then loan or joint venture accounting is applied. Loan accounting is
appropriate:
o if the borrower has a substantial equity investment in the property;
o if we have recourse to substantial assets of the borrower;
o if the property is generating sufficient cash flow to service normal
loan amortization; or
o if certain other conditions are met.
27
Under loan accounting, we recognize interest income as earned and additional
interest from participations as received. Joint venture accounting would require
that we only record our share of the net income from the underlying property.
Our management must exercise judgment in making the required accounting
determinations. For each mezzanine arrangement, we project total cash flows over
the loan's term and our share in those cash flows, and consider the borrower's
equity, the contractual cap, if any, on total yield to us over the term of the
loan, market yields on comparable loans, borrower guarantees, and other factors
in making an assessment of the proper accounting. To date, we have determined
that all mezzanine investments should be accounted for as loans.
CLASSIFICATION AND VALUATION OF REAL ESTATE OWNED
The accounting for the foreclosure, ownership and subsequent sale of real estate
is governed by:
o SFAS No. 15, ACCOUNTING BY DEBTORS AND CREDITORS FOR TROUBLED DEBT
RESTRUCTURINGS;
o SFAS No. 144, ACCOUNTING FOR THE SALE OR DISPOSAL OF LONG-LIVED
ASSETS; and
o SFAS No. 66, ACCOUNTING FOR SALES OF REAL ESTATE.
During 2003, we exercised our rights under subordinated promissory notes and
other documents to take possession of certain real estate collateral. We have
also purchased the first mortgage loans on all of the respective properties,
except for Autumn Creek, and acquired the real estate at foreclosure auctions.
Three of the properties were subsequently sold, although the transaction did not
meet the sale criteria of SFAS No. 66, despite the fact that the purchaser later
secured permanent first-mortgage financing.
When a loan is in the process of foreclosure, it is our policy to initially
reclassify the balance of the loan into Real Estate Owned-Held for Sale at the
lower of fair value of the real estate, less estimated disposal costs or the
carrying amount of the loan, and to cease accrual of interest. We obtain
independent appraisals of all foreclosed real estate to assist management in
evaluating property values. To date, no losses have been recorded upon
foreclosure.
It is our intent to sell foreclosed properties within a short time period. Due
to the Held for Sale classification, we do not initially depreciate the
properties. If we do not sell a property or do not meet sale criteria within the
permissible timeframe for Held for Sale classification, we reclassify the
property into Real Estate Owned-Held and Used or Subject to Sales Contract
categories and account for it as an operating asset. Depreciation is recorded
for the asset including a retroactive adjustment for the full period that the
property was classified as Real Estate Owned-Held for Sale. Income from property
operations is recorded provided realization and collectibility of the amounts
are considered likely. Likewise, interest income on notes receivable for
properties sold that do not meet the criteria for sale recognition is recorded
to the extent that collectibility is considered likely.
This accounting for real estate owned requires substantial judgment as to the
fair value of the assets, the likelihood of collecting income and our ability to
sell the properties. As of December 31, 2005, we believe that the amounts
reported are fairly stated and realizable.
Commitments, Contingencies and Off Balance Sheet Arrangements
-------------------------------------------------------------
We have no unconsolidated subsidiaries, special purpose off-balance sheet
financing entities, or other off-balance sheet arrangements.
28
The following table reflects our maximum exposure and carrying amount as of
December 31, 2005, for guarantees we have entered into:
Maximum
Exposure Carrying
(In thousands) Amount
-------------- --------
FNMA loan program (1) $3,187 $ --
------ ------
$3,187 $ --
====== ======
(1) These indemnification agreements relate to a program we initiated and have
since discontinued. We believe the risk of any cost associated with the
indemnity agreement is minimal.
The maximum exposure amount is not indicative of any expected losses under the
guarantees. For full description of these guarantees, see Note 16 to the
consolidated financial statements.
Contractual Obligations
-----------------------
In conducting business, we enter into various contractual obligations. Details
of these obligations, including expected settlement periods, are contained
below.
Payments Due by Period
(In thousands)
---------------------------------------------------------------
Less than More than
Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
-------- --------- ----------- ----------- ---------
Debt:
Lines of credit:
Repurchase facilities $209,101 $209,101 $ -- $ -- $ --
Warehouse facility 4,070 4,070 -- -- --
Mortgage loan on real estate owned (1) 40,487 497 1,182 1,330 37,478
Preferred shares of subsidiary
(subject to mandatory repurchase) 25,000 -- -- -- 25,000
Mortgage loan commitment with related
party (see Note 14) 26,000 26,000 -- -- --
Standby and forward loan commitments 6,061 5,445 616 -- --
-------- -------- -------- -------- --------
Total $310,719 $245,113 $ 1,798 $ 1,330 $ 62,478
======== ======== ======== ======== ========
(1) Represents a first mortgage on properties we report as Real Estate Owned -
Held and Used (Concord Portfolio) as a sale of the properties did not meet
the criteria for sale recognition in accordance with GAAP. The first
mortgage loan is non-recourse with respect to us, the debt service is paid
from the cash flows of the properties and we will not be required to satisfy
the obligation. (See Note 6 to the consolidated financial statements).
Recently Issued Accounting Standards
------------------------------------
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123(R), SHARE-BASED PAYMENT. As we already follow the fair value provisions set
forth in SFAS No. 123, this statement is expected to have an immaterial impact
on our financial statements.
There are no other new pending accounting pronouncements which we are required
to adopt that would have a significant impact on our consolidated financial
statements.
Inflation
---------
Inflation did not have a material effect on our results for the periods
presented.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and
equity prices. The primary market risk to which we are exposed is interest rate
risk, which is 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 our company.
INTEREST RATE RISK
Interest rate fluctuations can adversely affect our income in many ways and
present a variety of risks, including the risk of mismatch between asset yields
and borrowing rates.
Our operating results depend in large part on differences between the income
from our assets (net of credit losses) and our borrowing costs. Although we are
increasing our origination of variable rate loans, most of our assets generate
fixed returns and have terms in excess of five years. We fund the origination
and acquisition of a significant portion of these assets with borrowings which
have variable interest rates that reset relatively rapidly, such as weekly,
monthly or quarterly. In most cases, the income from assets will respond more
slowly to interest rate fluctuations than the cost of borrowings, creating a
mismatch between asset yields and borrowing rates. Consequently, changes in
interest rates, particularly short-term interest rates, may influence our net
income. Our borrowings under repurchase and warehouse agreements bear interest
at rates that fluctuate with LIBOR.
Various financial vehicles exist which would allow our management to mitigate
the impact of interest rate fluctuations on our cash flows and earnings. During
March 2003, upon our analysis of the interest rate environment and the costs and
risks of such strategies, we entered into an interest rate swap in order to
hedge against increases in the floating interest rate on our repurchase
facilities. The swap is a five-year agreement with Bank of America ("BOA")
whereby we pay BOA a fixed 3.48% on a notional amount of $30.0 million. In
return, BOA pays us a floating rate equivalent to the 30-day LIBOR rate on the
same notional amount. A possible risk of such swap agreements is the possible
inability of BOA to meet the terms of the contracts with us; however, there is
no current indication of such an inability.
Based on the $208.2 million unhedged portion of $238.2 million of borrowings
outstanding at December 31, 2005, a 1% change in LIBOR would impact our annual
net income and cash flows by approximately $2.1 million. However, as some of the
interest income from our loans outstanding at December 31, 2005 is also based on
LIBOR, a 1% increase in LIBOR would increase our annual net income and cash
flows from such loans by approximately $379,000. The net effect of a 1% increase
in LIBOR would therefore result in a reduction of our annual net income by
approximately $1.7 million. In addition, an increase in LIBOR could also impede
the collections of interest on our variable rate loans, as there might not be
sufficient cash flow at the properties to pay the increased debt service.
Because the value of our debt securities fluctuates with changes in interest
rates, rate fluctuations will also affect the market value of our net assets.
30
MANAGEMENT'S REPORT ON THE EFFECTIVENESS OF
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of American Mortgage Acceptance Company and its subsidiaries (the
"Company") is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was designed to
provide reasonable assurance to our management and Board of Trustees regarding
the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
American Mortgage Acceptance Company management assessed the effectiveness of
the Company's internal control over financial reporting as of December 31, 2005.
In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in
INTERNAL CONTROL - INTEGRATED FRAMEWORK. Based upon our assessment we believe
that, as of December 31, 2005, our internal control over financial reporting is
effective in accordance with those criteria.
Deloitte & Touche, LLP, our independent auditors, have issued an audit report on
our assessment of the Company's internal control over financial reporting, which
appears on page 32.
/s/ Jeff T. Blau /s/ Alan P. Hirmes
---------------- ------------------
Jeff T. Blau Alan P. Hirmes
Chief Executive Officer Chief Financial Officer
March 9, 2006 March 9, 2006
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
And Shareholders of
American Mortgage Acceptance Company
New York, New York
We have audited management's assessment, included in the accompanying
"Management's Report on the Effectiveness Internal Controls over Financial
Reporting", that American Mortgage Acceptance Company and subsidiaries (the
"Company") maintained effective internal control over financial reporting as of
December 31, 2005, based on the criteria established in "INTERNAL
CONTROL--INTEGRATED FRAMEWORK" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of trustees, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on the criteria established in "INTERNAL
CONTROL--INTEGRATED FRAMEWORK" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the criteria established in
"INTERNAL CONTROL--INTEGRATED FRAMEWORK" issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
32
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets as
of December 31, 2005 and 2004 and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 2005 and
2004 of the Company and our report dated March 9, 2006 expressed an unqualified
opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 9, 2006
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
(a) 1. Financial Statements --------
--------------------
Report of Independent Registered Public Accounting Firm 35
Consolidated Balance Sheets as of December 31, 2005 and 2004 36
Consolidated Statements of Income for the years ended December 31,
2005, 2004 and 2003 37
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2005, 2004 and 2003 38
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004 and 2003 39
Notes to Consolidated Financial Statements 41
(a) 2. Financial Statement Schedules
-----------------------------
All schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes thereto.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
And Shareholders of
American Mortgage Acceptance Company
New York, New York
We have audited the accompanying consolidated balance sheets of American
Mortgage Acceptance Company and subsidiaries (the "Company") as of December 31,
2005 and 2004, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of American Mortgage Acceptance
Company and subsidiaries as of December 31, 2005 and 2004, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2005, based on the
criteria established in INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 9, 2006 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
DELOITTE & TOUCHE LLP
New York, New York
March 9, 2006
35
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
December 31,
-------------------------
2005 2004
---------- ----------
Cash and cash equivalents $ 11,214 $ 2,674
Investments
Debt securities 222,723 194,587
Mortgage loans, net 51,981 21,376
Notes receivable, net 13,725 23,111
Revenue bonds 6,626 6,672
ARCap 20,678 20,240
Real estate owned - held and used, net 68,793 78,135
Accounts receivable 3,079 1,925
Other assets 1,904 313
--------- ---------
Total assets $ 400,723 $ 349,033
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase facilities payable $ 209,101 $ 157,633
Warehouse facility payable 4,070 3,827
Mortgages payable on real estate owned 40,487 56,993
Preferred shares of subsidiary (subject to mandatory
repurchase) 25,000 --
Line of credit - related party -- 4,600
Accounts payable and accrued expenses 1,599 1,344
Due to Advisor and affiliates 2,961 770
Distributions payable 3,322 3,334
--------- ---------
Total liabilities 286,540 228,501
--------- ---------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest; $.10 par value; 25,000
shares authorized; 8,719 issued and 8,304 outstanding in
2005 and 8,716 issued and 8,337 outstanding in 2004 871 871
Treasury shares of beneficial interest at par; 415 shares
in 2005 and 379 shares in 2004 (42) (38)
Additional paid-in capital 126,357 126,800
Share - based compensation (20) (16)
Distributions in excess of net income (17,766) (17,202)
Accumulated other comprehensive income 4,783 10,117
--------- ---------
Total shareholders' equity 114,183 120,532
--------- ---------
Total liabilities and shareholders' equity $ 400,723 $ 349,033
========= =========
See accompanying notes to consolidated financial statements.
36
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Years Ended December 31,
-----------------------------------
2005 2004 2003
-------- -------- --------
Revenues:
Interest income:
Debt securities $ 12,823 $ 9,734 $ 8,765
Mortgage loans 5,425 1,808 2,597
Notes receivable 1,563 2,546 3,166
Revenue bonds 581 633 151
Temporary investments 233 42 55
Rental income of real estate owned - held and used 8,983 6,914 2,067
Fees related to prepayment of investments 5,581 181 --
Other revenues 954 153 165
-------- -------- --------
Total revenues 36,143 22,011 16,966
-------- -------- --------
Expenses:
Interest 7,057 4,017 2,548
Interest - distributions to preferred shareholders of subsidiary (subject
to mandatory repurchase) 1,452 -- --
Mortgage interest for real estate owed - held and used 2,407 -- --
Property operations of real estate owned - held and used 3,987 2,871 1,456
General and administrative 1,956 1,740 917
Fees to Advisor 4,347 1,956 1,812
Depreciation 2,389 2,143 --
Amortization and other 294 411 376
-------- -------- --------
Total expenses 23,889 13,138 7,109
-------- -------- --------
Other income:
Equity in earnings of ARCap 2,837 2,400 2,400
Net gain (loss) on sale or repayment of assets 183 -- (373)
Other non-operating income (expense) (39) -- --
-------- -------- --------
Total other income 2,981 2,400 2,027
-------- -------- --------
Net income $ 15,235 $ 11,273 $ 11,884
======== ======== ========
Net income per share (basic and diluted) $ 1.83 $ 1.35 $ 1.52
======== ======== ========
Dividends per share $ 1.90 $ 1.60 $ 1.60
======== ======== ========
Weighted average shares outstanding
Basic 8,316 8,336 7,803
======== ======== ========
Diluted 8,317 8,343 7,815
======== ======== ========
See accompanying notes to consolidated financial statements.
37
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Treasury Shares of
Shares of Beneficial Interest Beneficial Interest
----------------------------- ------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Balance at January 1, 2003 6,739 $ 674 (375) $ (38)
Net income
Other comprehensive income:
Net unrealized loss on interest rate derivatives
Unrealized holding loss on investments
Plus: reclassification adjustment
Total other comprehensive loss
Comprehensive income
Issuance of share based compensation
Amortization of share option costs
Common shares issued 1,974 197
Distributions
----------------------------------------------------------
Balance at December 31, 2003 8,713 871 (375) (38)
Net income
Other comprehensive income:
Net unrealized gain on interest rate derivatives
Unrealized holding gain on investments
Plus: reclassification adjustment
Total other comprehensive income
Comprehensive income
Issuance of share based compensation 3
Amortization of share option costs
Purchase of treasury shares (4)
Distributions
----------------------------------------------------------
Balance at December 31, 2004 8,716 871 (379) (38)
Net income
Other comprehensive income:
Net unrealized gain on interest rate derivatives
Unrealized holding loss on investments
Less: reclassification adjustment
Total other comprehensive income
Comprehensive income
Issuance of share based compensation 3
Amortization of share option costs
Purchase of treasury shares (36) (4)
Distributions
----------------------------------------------------------
Balance at December 31, 2005 8,719 $ 871 (415) $ (42)
==========================================================
Additional Distributions
Paid-in Share Based in Excess
Capital Compensation of Net Income
----------- ------------ -------------
Balance at January 1, 2003 $ 99,470 $ -- $ (14,471)
Net income 11,884
Other comprehensive income:
Net unrealized loss on interest rate derivatives
Unrealized holding loss on investments
Plus: reclassification adjustment
Total other comprehensive loss
Comprehensive income
Issuance of share based compensation 51 (51)
Amortization of share option costs 22
Common shares issued 27,258
Distributions (12,551)
---------------------------------------------
Balance at December 31, 2003 126,779 (29) (15,138)
Net income 11,273
Other comprehensive income:
Net unrealized gain on interest rate derivatives
Unrealized holding gain on investments
Plus: reclassification adjustment
Total other comprehensive income
Comprehensive income
Issuance of share based compensation 74 (34)
Amortization of share option costs 47
Purchase of treasury shares (53)
Distributions (13,337)
---------------------------------------------
Balance at December 31, 2004 126,800 (16) (17,202)
Net income 15,235
Other comprehensive income:
Net unrealized gain on interest rate derivatives
Unrealized holding loss on investments
Less: reclassification adjustment
Total other comprehensive income
Comprehensive income
Issuance of share based compensation 47 (2)
Amortization of share option costs (2)
Purchase of treasury shares (490)
Distributions (15,799)
---------------------------------------------
Balance at December 31, 2005 $126,357 $ (20) $ (17,766)
=============================================
Accumulated Other
Comprehensive Comprehensive
Income Income Total
------------- ----------------- ---------
Balance at January 1, 2003 $ 8,703 $ 94,338
Net income $ 11,884 11,884
Other comprehensive income:
Net unrealized loss on interest rate derivatives (278)
Unrealized holding loss on investments (348)
Plus: reclassification adjustment 373
---------
Total other comprehensive loss (253) (253) (253)
---------
Comprehensive income $ 11,631
=========
Issuance of share based compensation
Amortization of share option costs 22
Common shares issued 27,455
Distributions (12,551)
-------------------------------------------------
Balance at December 31, 2003 8,450 120,895
Net income $ 11,273 11,273
Other comprehensive income:
Net unrealized gain on interest rate derivatives 407
Unrealized holding gain on investments 1,219
Plus: reclassification adjustment 41
---------
Total other comprehensive income 1,667 1,667 1,667
---------
Comprehensive income $ 12,940
=========
Issuance of share based compensation 40
Amortization of share option costs 47
Purchase of treasury shares (53)
Distributions (13,337)
-------------------------------------------------
Balance at December 31, 2004 10,117 120,532
Net income $ 15,235 15,235
Other comprehensive income:
Net unrealized gain on interest rate derivatives 679
Unrealized holding loss on investments (2,916)
Less: reclassification adjustment (3,097)
---------
Total other comprehensive income (5,334) (5,334) (5,334)
---------
Comprehensive income $ 9,901
=========
Issuance of share based compensation 45
Amortization of share option costs (2)
Purchase of treasury shares (494)
Distributions (15,799)
-------------------------------
Balance at December 31, 2005 $ 4,783 $ 114,183
===============================
See accompanying notes to consolidated financial statements.
38
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
---------------------------------------
2005 2004 2003
--------- --------- ---------
Cash flows from operating activities:
Net income $ 15,235 $ 11,273 $ 11,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,389 2,143 --
Equity in income of unconsolidated entities (2,837) (2,400) (2,400)
Net (gain) loss on sale or repayment of assets (183) -- 373
Amortization and accretion 135 220 (169)
Other non-cash expense 45 40 --
Distributions received from equity investees 2,400 2,400 2,400
Changes in operating assets and liabilities:
Accounts receivable (1,154) 273 (936)
Other assets (705) 64 8
Due to Advisor and affiliates 2,191 179 (100)
Accounts payable and accrued expenses 403 271 278
Accrued interest payable 117 (431) 639
--------- --------- ---------
Net cash provided by operating activities 18,036 14,032 11,977
--------- --------- ---------
Cash flows from investing activities:
Investment in debt securities (64,173) (43,943) (62,290)
Principal repayments of debt securities 29,627 17,787 8,539
Funding and purchase of mortgage loans (42,246) (8,802) (4,053)
Repayment of mortgage loans 11,853 1,306 9,463
Purchase of mortgage loans on real estate owned (17,150) -- (46,627)
Proceeds from sale of real estate owned 7,474 -- --
Principal repayment on real estate owned 480 -- --
Funding of notes receivable (472) (8,308) (23,906)
Repayment of notes receivable 9,883 21,286 5,746
Principal repayment of revenue bonds 212 891 --
Purchase of revenue bonds -- -- (7,586)
Additions to real estate owned -- (2,809) (3,166)
Net proceeds from sale of land -- -- 37
--------- --------- ---------
Net cash used in investing activities (64,512) (22,592) (123,843)
--------- --------- ---------
(continued)
39
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(continued)
Years Ended December 31,
---------------------------------------
2005 2004 2003
--------- --------- ---------
Cash flows from financing activities:
Proceeds from repurchase facilities 104,418 27,613 115,818
Repayments of repurchase facilities (52,950) (19,509) (54,169)
Proceeds from warehouse facility 243 1,245 26,147
Repayments of warehouse facility -- (32,353) --
Proceeds from line of credit - related party 32,561 15,361 --
Repayments of line of credit - related party (37,161) (10,761) --
Proceeds from refinancing of real estate owned -- 41,000 --
Deferred financing costs (802) -- --
Distributions paid to shareholders (15,799) (13,337) (11,761)
Treasury stock purchases (494) (53) --
Issuance of common shares -- -- 27,455
Issuance of preferred shares of subsidiary 25,000 -- --
--------- --------- ---------
Net cash provided by financing activities 55,016 9,206 103,490
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 8,540 646 (8,376)
Cash and cash equivalents at the beginning of the year 2,674 2,028 10,404
--------- --------- ---------
Cash and cash equivalents at the end of the year $ 11,214 $ 2,674 $ 2,028
========= ========= =========
Supplemental information:
Interest paid (including distributions to preferred shareholders
of subsidiary (subject to mandatory repurchase)) $ 8,383 $ 3,822 $ 2,546
========= ========= =========
Non-cash investing and financing activities:
Conversion of mortgage loans, notes receivable, and assumption
of debt on real estate owned $ -- $ -- $ 72,748
========= ========= =========
See accompanying notes to consolidated financial statements.
40
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of American
Mortgage Acceptance Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation. Unless
otherwise indicated, we herein refer to American Mortgage Acceptance Company and
its subsidiaries as "AMAC," "we", "us", "our", and "our Company". We are
externally managed by Related AMI Associates, Inc., which acts as our Advisor.
We operate in one business segment.
Effective October 2003, we dissolved one subsidiary due to the assignment of
certain obligations under the Fannie Mae loan program to CharterMac Mortgage
Capital Corp. ("CMC") (see Note 16). We had formed the subsidiary to manage this
program.
Our consolidated financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of financial statements in
conformity with GAAP requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Certain amounts from prior years have been reclassified to conform to the 2005
presentation, in particular, the reclassification of results of operations of
our Real Estate Owned - Held and Used portfolio.
b) Revenue Recognition
We derive our revenues from a variety of sources as follows:
o INTEREST INCOME ON DEBT SECURITIES - We recognize interest on GNMA and
FNMA certificates on the accrual basis as it becomes due. Interest
income also includes the amortization or accretion of premiums and
discounts arising at the purchase date, using the effective yield
method.
o INTEREST INCOME FROM MORTGAGE LOANS AND NOTES RECEIVABLE - We
recognize interest on mortgage loans and notes receivable on the
accrual basis as it becomes due. We amortize deferred loan origination
costs and fees on a straight line basis, which approximates the
interest method, over the life of the applicable loan as an adjustment
to interest income. Certain mortgage loans contain provisions that
allow us to participate in a percentage of the underlying property's
excess cash flows from operations and excess proceeds from a sale or
refinancing. This income is recognized on the accrual basis as it
becomes due.
o INTEREST INCOME ON REVENUE BONDS - Interest income from revenue bonds
is recognized on the accrual basis as it becomes due.
o INTEREST INCOME ON TEMPORARY INVESTMENTS - Interest income from
temporary investments, such as cash in banks and short-term
instruments, is recognized on the accrual basis as it becomes due.
o INCOME FROM REAL ESTATE OWNED - We recognize rental income on
properties classified as Held and Used as earned.
o OTHER REVENUES
o STANDBY LOAN COMMITMENT FEES - We receive fees for issuing
standby loan commitments. If we do not expect to fund the
commitment, we recognize the fee ratably over the commitment
period. If we determine that it is probable that a commitment
will be exercised, we defer the fee and, if the commitment is
41
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exercised, amortize it over the life of the loan as an adjustment
to interest income; if the commitment expires unexercised, we
recognize it upon expiration.
o STABILIZATION GUARANTEE AND LOAN ADMINISTRATION FEES - We receive
fees from borrowers for guaranteeing construction loans made by
third-party lenders for the period between construction
completion and funding of the permanent loan. We receive these
fees in advance and amortize them over the guarantee periods. We
also receive loan administration fees on these guaranteed loans,
on a monthly basis during the guarantee period. We recognize
these fees when due.
o FNMA LOAN GUARANTEE FEES - We receive monthly loss
sharing/guarantee fees related to the FNMA loan program (see Note
16) and recognize them when due.
o PREPAYMENT FEES - We may receive fees from borrowers that repay
loans earlier than their maturity dates. We recognize these fees
as earned.
c) Investments in Debt and Debt Securities
We account for our investments in debt securities pursuant to SFAS No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("SFAS No.
115"). For investments classified as available for sale, we record changes in
fair value in other comprehensive income unless we consider an investment
impaired, or a decline in fair value to be other than temporary (see IMPAIRMENT
below).
1. Debt Securities
We classify our investments in GNMA and FNMA certificates as
available for sale debt securities and use third-party quoted
market prices as our primary source of valuation.
2. Mortgage Loans and Notes Receivable
We classify these investments as held to maturity and,
accordingly, carry them at cost, including unamortized loan
origination costs and fees.
3. Revenue Bonds
We classify our investments in revenue bonds as available for
sale debt securities. Because revenue bonds have a limited
market, we estimate fair value for each bond as the present value
of its expected cash flows using a discount rate for comparable
investments.
4. Impairment
For investments in mortgage loans and notes receivable, we follow
the provisions of Statement of Financial Accounting Standards No.
114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN ("SFAS No.
114"). Under SFAS No. 114, a loan is impaired when, based on
current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS No. 114 requires
lenders to measure impaired loans based on:
(i) the present value of expected future cash flows discounted
at the loans' effective interest rate;
(ii) the loan's observable market price; or
(iii)the fair value of the collateral if the loan is
collateral-dependent.
We periodically evaluate our portfolio of mortgage loans and
notes receivable for possible impairment to establish appropriate
loan loss reserves, if necessary. If, in the judgment of our
Advisor, we determine that it is probable that we will not
receive all contractually required payments when they are due, we
deem the loan or note impaired and establish a loan loss reserve.
42
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For any investments classified as available for sale, a decline
in market value below cost that we deem other than temporary is
charged to earnings. If, in the judgment of our Advisor, it is
determined probable that we will not receive all contractual
payments required when due, the bond is deemed impaired and is
written down to its then estimated fair value, with the amount of
the write-down accounted for as a realized loss.
5. Gain or Loss on Sale
Realized gains and losses on securities are included in earnings
and are recorded on the trade date and calculated as the
difference between the amount of cash received and the carrying
cost of the specific investment, including any unamortized
discounts, premiums, origination costs and fees.
6. Concentration
As of December 31, 2005, 36.7% of our portfolio was comprised of
investments in mortgage loans, notes receivable, revenue bonds
and real estate owned. Of this group of assets, 62.4% were
secured by properties in Texas. We had no borrowers exceeding 10%
of our portfolio of investments in mortgage loans, notes
receivable and revenue bonds other than John Loder and Richard
Nathan who are the creditors of 11.4% and 10.5%, respectively, in
these categories.
d) Investment in ARCap
We account for our investment in ARCap Investors, LLC ("ARCap") using the equity
method pursuant to Accounting Principles Board Opinion No. 18, THE EQUITY METHOD
OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK ("APB No. 18") as interpreted by
AICPA Statement of Position 78-9, ACCOUNTING FOR INVESTMENTS IN REAL ESTATE
VENTURES, EITF Issue D-46, ACCOUNTING FOR LIMITED PARTNERSHIP INVESTMENTS and
EITF 03-16, ACCOUNTING FOR INVESTMENTS IN LIMITED LIABILITY COMPANIES.
With respect to our preferred shares, our equity in the earnings of ARCap is
accrued at the dividend rate earned for the applicable period, which equals the
income allocated to us under ARCap's operating agreement, unless ARCap does not
have earnings and cash flows adequate to meet this dividend requirement.
e) Real Estate Owned
Real estate owned consists of properties of which we took possession by
exercising our rights under subordinated promissory notes and other documents.
In some cases, we also purchased the first mortgage loans on the properties
before foreclosing on the real estate collateral. We recorded these properties
at the lower of fair value of the real estate, less estimated disposal costs, or
the carrying amount of the foreclosed loan. The determination of fair value of
the real estate is based on independent appraisals. These properties fall into
three classifications:
o Held for Sale - properties for which we are actively seeking a buyer
o Held and Used - properties for which we are actively seeking a buyer,
but have held for longer than one year.
o Subject to Sales Contracts - properties for which the buyer has not
contributed sufficient equity to qualify for sale treatment pursuant
to Statement of Financial Accounting Standards No. 66, ACCOUNTING FOR
SALES OF REAL ESTATE ("SFAS No. 66").
When the foreclosure process is complete and we own the property, it is
classified as Held for Sale. As it is our intent to sell those properties in the
near term, we do not initially depreciate the assets. We apply the same
accounting for properties classified as Subject to Sales Contracts. For
properties later reclassified as Held and Used, if full sale recognition is not
achieved within one year, we record depreciation on the asset, including an
initial retroactive adjustment for the entire period we owned the property.
43
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our portfolio of real estate owned is periodically evaluated for possible
impairment. If, in the judgment of our Advisor, we determine that the property's
fair value is below its carrying value, we will deem the property impaired and
it will be written down to its then estimated fair value, with the amount of the
write-down accounted for as a realized loss.
See Note 6 for information regarding our real estate owned.
f) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and temporary investments in
short-term instruments with original maturity dates equal to or less than three
months.
g) Loan Origination Costs and Fees
Acquisition fees and other direct expenses incurred for activities performed to
originate mortgage loans are capitalized and are included in Investment in
Mortgage Loans, net of any fees received from borrowers for loan originations.
They are amortized on a straight-line basis over the period of the loans.
h) Repurchase Facilities
We finance our investments in debt securities using repurchase facilities, under
which we sell the certificates to four counterparties under an agreement
requiring us to repurchase them for a fixed price on a fixed date, generally 30
days from the sale date. We account for these transactions as collateralized
borrowings; accordingly, the securities remain on our consolidated balance
sheets with the proceeds from the sales recorded as debt. The difference between
the sale proceeds and the fixed repurchase price is recorded as interest expense
ratably over the period between the sale and repurchase dates.
i) Subsidiary Equity
We account for our preferred securities under SFAS No. 150, ACCOUNTING FOR
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY, which requires that mandatorily redeemable financial instruments be
classified as liabilities in the consolidated financial statements and the
payments or accruals of dividends and other amounts to be paid to the holders of
these securities be reported as interest costs. The fair value of the securities
approximates the liquidation amount due to the variable rate nature of their
dividends.
j) Stock Options
We account for stock options we issue under the fair value based method pursuant
to Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS No. 123"). We estimate the fair value of each
option grant using the Black-Scholes option-pricing model.
k) Interest Rate Derivative
We account for our interest rate swap agreements under SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133"). We entered
into one interest rate swap in 2003. At inception, we designated this swap as a
cash flow hedge on the variable interest payments of our floating rate
financing. Accordingly, we record the swap at fair market value, and record
changes in market value in other comprehensive income to the extent the hedge is
effective. This hedge has been effective through December 31, 2005. We record
the net amounts receivable or payable under the swap agreement as a component of
interest expense.
In November 2005, we entered into a second swap intended to hedge the fair value
of a mortgage loan to hedge our risk that interest rates do not affect the fair
value of one of our investments as we hold it before securitization. We do not
apply hedge accounting to this swap. Accordingly, we record any changes in the
fair value of this swap on our consolidated statements of income.
44
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
l) Fair Value of Financial Instruments
As described above, our debt securities, revenue bonds, and interest rate
derivatives are carried at estimated fair values. We have determined that the
fair value of our remaining financial instruments, including mortgage loans and
cash and cash equivalents, notes receivable, and secured borrowings approximate
their carrying values at December 31, 2005 and 2004. The fair value of
investments in mortgage loans, revenue bonds, notes receivable, and debt
securities are based on actual market price quotes or by determining the present
value of the projected future cash flows using appropriate discount rates,
credit losses and prepayment assumptions. Other financial instruments carry
interest rates which are deemed to approximate market rates.
m) Income Taxes
We have qualified as a REIT under the Internal Revenue Code (the "Code"). A REIT
is generally not subject to federal income tax on that portion of its REIT
taxable income ("Taxable Income") which is distributed to its shareholders
provided that at least 90% of Taxable Income is distributed and provided that
such income meets certain other conditions. Accordingly, no provision for
federal income taxes is required. We may be subject to state taxes in certain
jurisdictions.
n) New Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123(R), SHARE-BASED PAYMENT, which replaces SFAS No. 123 and which we are
required to adopt by the first quarter of 2006. As we have been accounting for
share-based payments following the fair value provisions of SFAS No. 123, we
expect our adoption of this standard will not be significant.
In March 2005, the FASB issued Financial Interpretation No. 47, ACCOUNTING FOR
CONDITIONAL ASSET RETIREMENT OBLIGATIONS--AN INTERPRETATION OF FASB STATEMENT
NO. 143, which specifies the accounting treatment for obligations associated
with the sale or disposal of an asset when there are legal requirements
attendant to such a disposition.
We adopted this pronouncement in 2005, as required, but there was no impact as
there are no legal obligations associated with the planned sale of any
properties in our Real Estate Owned portfolio.
45
NOTE 2 - INVESTMENTS IN DEBT SECURITIES - AVAILABLE FOR SALE
Information relating to our debt securities owned as of December 31, 2005 is as
follows:
(In thousands)
Dates Purchased/ Amortized
Certificate Final Stated Cost at
Name Number Payment Date Interest Rate December 31, 2005
------------------- ----------- ---------------- ------------- -----------------
GNMA CERTIFICATES
SunCoast Capital
Group, Ltd. G002412 6/23/97 7.000% $ 75
4/20/27
Elmhurst Village 549391 6/28/01 7.745% --
1/15/42
Village at Marshfield 519281 3/11/02 7.475% 21,106
1/15/42
Cantera Crossing 532663 3/28/02 6.500% 6,276
6/1/29
Filmore Park 536740 3/28/02 6.700% 1,416
10/15/42
Northbrooke 548972 5/24/02 7.080% 13,882
8/1/43
Ellington Plaza 585494 7/26/02 6.835% 37,517
6/1/44
Burlington 595515 11/1/02 5.900% 6,606
4/15/31
FNMA DUS CERTIFICATES
Cambridge 385971 4/11/03 5.560% 3,564
3/1/33
Bayforest 381974 4/21/03 7.430% 4,171
10/1/28
Coventry Place 384920 5/9/03 6.480% 771
3/1/32
Rancho de Cieto 385229 5/13/03 6.330% 2,522
9/1/17
Elmwood Gardens 386113 5/15/03 5.350% 5,399
5/1/33
30 West 380751 5/27/03 6.080% 1,303
10/1/16
Jackson Park 386139 5/30/03 5.150% 2,702
6/1/18
Unrealized
Gain (Loss) at Balance at Interest income
Name December 31, 2005 December 31, 2005 in 2005
------------------- ----------------- ----------------- ---------------
GNMA CERTIFICATES
SunCoast Capital
Group, Ltd. $ 2 $ 77 $ 6
Elmhurst Village -- -- 1,247
Village at Marshfield 392 21,498 1,426
Cantera Crossing 471 6,747 418
Filmore Park 77 1,493 94
Northbrooke 1,110 14,992 971
Ellington Plaza 3,186 40,703 2,532
Burlington (18) 6,588 385
FNMA DUS CERTIFICATES
Cambridge (50) 3,514 191
Bayforest (81) 4,090 251
Coventry Place (17) 754 43
Rancho de Cieto (55) 2,467 123
Elmwood Gardens (111) 5,288 283
30 West (70) 1,233 61
Jackson Park (36) 2,666 137
(continued)
46
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Continued
Dates Purchased/ Amortized
Certificate Final Stated Cost at
Name Number Payment Date Interest Rate December 31, 2005
------------------- ----------- ---------------- ------------- -----------------
Courtwood 386274 6/26/03 4.690% 1,713
6/1/33
Sultana 386259 6/30/03 4.650% 3,984
6/1/23
Buena 386273 6/30/03 4.825% 2,959
6/1/33
Allegro 386324 6/30/03 5.380% 2,509
7/1/33
Westwood/Monterey 386421 9/15/03 5.090% 2,652
8/1/33
Euclid 386446 9/15/03 5.310% 2,316
8/1/33
Edgewood 386458 9/15/03 5.370% 2,299
9/1/33
Bayou Pointe 387066 9/21/04 5.650% 1,686
8/1/22
Pomono 386995 9/21/04 6.220% 5,816
7/1/34
Maple Street 387093 10/4/04 5.750% 1,475
10/1/22
Seabreeze Co-op 387139 11/12/04 5.360% 1,932
11/1/34
Orchard Street) 387158 11/22/04 5.480% --
11/1/22
Indiana Seniors 387171 12/15/04 5.380% 7,716
12/1/29
Beach Grove 387114 12/21/04 5.620% 1,266
9/1/34
York 386631 12/29/04 5.490% 12,574
8/1/33
Mountain Shadow 386756 1/12/05 5.480% 3,725
12/1/28
Inn at Summit Ridge 385258 1/10/05 6.650% 1,541
5/1/27
Sunset Pointe 386379 1/10/05 4.900% 4,883
7/1/33
Tamarack 387193 1/18/05 5.450% 600
1/1/30
Unrealized
Gain (Loss) at Balance at Interest income
Name December 31, 2005 December 31, 2005 in 2005
------------------- ----------------- ----------------- ---------------
Courtwood (156) 1,557 79
Sultana (240) 3,744 186
Buena (250) 2,709 138
Allegro (132) 2,377 134
Westwood/Monterey 72 2,724 151
Euclid 65 2,381 132
Edgewood 63 2,362 132
Bayou Pointe (9) 1,677 91
Pomono (99) 5,717 333
Maple Street (4) 1,471 79
Seabreeze Co-op (29) 1,903 106
Orchard Street) -- -- 30
Indiana Seniors (168) 7,548 406
Beach Grove (22) 1,244 68
York (258) 12,316 665
Mountain Shadow 13 3,738 200
Inn at Summit Ridge 47 1,588 92
Sunset Pointe (8) 4,875 259
Tamarack (3) 597 31
(continued)
47
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Continued
Dates Purchased/ Amortized
Certificate Final Stated Cost at
Name Number Payment Date Interest Rate December 31, 2005
------------------- ----------- ---------------- ------------- -----------------
Wyndhurst 386641 2/28/05 5.800% 3,055
12/1/33
Seward Park 386572 3/21/05 5.630% 20,168
11/1/33
Plum Court 387374 4/25/05 5.600% 3,896
5/1/23
FNMA 830083 830083 11/9/05 7.218% 2,054
7/1/35
FNMA 254568 254568 11/10/05 6.799% 9,911
11/1/32
FNMA 255366 255366 11/10/05 6.470% 2,801
7/1/34
FNMA 254611 254611 11/10/05 6.823% 8,050
12/1/32
-----------------
2005 Total $218,891
=================
2004 Total $184,576
=================
Unrealized
Gain (Loss) at Balance at Interest income
Name December 31, 2005 December 31, 2005 in 2005
------------------- ----------------- ----------------- ---------------
Wyndhurst (54) 3,001 140
Seward Park 89 20,257 864
Plum Court 106 4,002 148
FNMA 830083 (2) 2,052 19
FNMA 254568 8 9,919 82
FNMA 255366 (3) 2,798 23
FNMA 254611 6 8,056 67
----------------------------------------------------------
2005 Total $ 3,832 $222,723 $12,823
==========================================================
2004 Total $ 10,011 $194,587 $ 9,734
==========================================================
All of our GNMA and FNMA DUS certificates are partially or wholly pledged as
collateral for borrowings under the repurchase facilities (see Note 7).
48
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding our investments in debt securities is as follows:
(In thousands)
December 31,
------------------------------
2005 2004
--------- ---------
Amortized cost $ 218,891 $ 184,576
Unrealized gains 5,707 11,370
Unrealized losses (1,875) (1,359)
--------- ---------
Net unrealized gain 3,832 10,011
--------- ---------
Fair value $ 222,723 $ 194,587
========= =========
The fair value and gross unrealized losses of our debt securities aggregated by
length of time that these individual debt securities have been in a continuous
unrealized loss position, at December 31, 2005 and 2004, is summarized in the
table below:
(Dollars in thousands)
December 31, 2005 December 31, 2004
--------------------------------------- -----------------------------------------
Less than 12 Months Less than 12 Months
12 Months or More Total 12 Months or More Total
--------- --------- ------- --------- --------- -------
Number of securities 8 16 24 11 7 18
Fair value $25,905 $56,281 $82,186 $46,055 $16,832 $62,887
Gross unrealized
loss $ 197 $ 1,678 $ 1,875 $ 515 $ 844 $ 1,359
These unrealized losses are as a result of increases in interest rates
subsequent to the acquisition of the securities. All of the debt securities are
performing according to their terms. Furthermore, we have the intent and ability
to hold these securities to maturity, or at least until interest rates change
such that the fair value is no longer less than book value. Accordingly, we have
concluded that these impairments are temporary.
At December 31, 2005, all of our debt securities, were partially or wholly
pledged as collateral under our repurchase facilities (see Note 7). At December
31, 2005, we had no availability to borrow against partially or unpledged debt
securities.
49
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENTS IN MORTGAGE LOANS
Information relating to our investments in mortgage loans as December 31, 2005
is as follows:
(Dollars in thousands)
Final
Maturity Lifetime
Property Description Date Call Date (B) Interest Rate Interest Cap (D)
--------------------------- --------------- --------- ------------- ------------- ----------------
FIRST MORTGAGE LOANS:
Sunset Gardens (A)
Eagle Pass, TX Multifamily 10/04 N/A 11.50% N/A
Colorado Creekside (H)
Colorado Springs, CO Multifamily N/A N/A 10.82% N/A
Desert View
Coolidge, AZ Multifamily 5/06 N/A 10.00% N/A
Subtotal First Mortgage
Loans
MEZZANINE LOANS:
The Hollows (I)(J)
Greenville, NC Multifamily 1/42 1/12 10.00% (C) 16% (D)
Northbrooke (I)(K)(M)(N)
Harris County, TX Multifamily 8/43 7/13 11.50% (C) 14% (D)
Elmhurst Village (I)(K)(L)
Oveido, FL Multifamily 1/42 3/19 10.00% (C) 16% (D)
Club at Brazos (I)(J)(O)
Rosenberg, TX Multifamily 5/43 4/13 10.00% (C) 14% (D)
Del Mar Villas (K)
Dallas, TX Multifamily 5/06 N/A LIBOR + 4.625% (P)
Villas at Highpoint (J)
Lewisville, TX Multifamily 4/33 TBD 14.57% N/A
Villas at Highpoint (J)
Lewisville, TX Multifamily 4/33 TBD 23.76% N/A
The Pines (J)
Las Vegas, NV Multifamily 9/07 N/A LIBOR + 8.75% N/A
Sawmill Plaza (J)
Columbus, OH Shopping Center 10/14 N/A 13.50% N/A
Champaign Offices (J)
Champaign, IL Office Center 10/11 N/A 10.67% N/A
Atlantic - Hearthstone (J)
Hillsborough, NJ Multifamily 4/07 N/A 20% N/A
South Burnswick (J)
South Brunswick, NJ Shopping Center 6/15 N/A 10.25% N/A
Pasadena (J)
Pasadena, FL Multifamily 12/07 N/A LIBOR + 12.75% N/A
Share of
Share of Excess Sale or
Excess Operating Refinancing Periodic
Property Cash Flows Proceeds Payment Terms Prior Liens
--------------------------- ---------------- -------------- ------------- -----------
FIRST MORTGAGE LOANS:
Sunset Gardens (A)
Eagle Pass, TX N/A N/A (G) --
Colorado Creekside (H)
Colorado Springs, CO N/A N/A (G) --
Desert View
Coolidge, AZ N/A N/A (G) --
Subtotal First Mortgage
Loans
MEZZANINE LOANS:
The Hollows (I)(J)
Greenville, NC 50% 25% (G) $ 8,797
Northbrooke (I)(K)(M)(N)
Harris County, TX 50% 50% (G) 13,775
Elmhurst Village (I)(K)(L)
Oveido, FL 50% 25% (G) --
Club at Brazos (I)(J)(O)
Rosenberg, TX 50% 25% (G) 14,210
Del Mar Villas (K)
Dallas, TX N/A N/A (G) 5,554
Villas at Highpoint (J)
Lewisville, TX N/A N/A (G) 18,800
Villas at Highpoint (J)
Lewisville, TX N/A N/A (G) 18,800
The Pines (J)
Las Vegas, NV N/A N/A (G) 9,605
Sawmill Plaza (J)
Columbus, OH N/A N/A (G) 16,000
Champaign Offices (J)
Champaign, IL N/A N/A (G) 26,000
Atlantic - Hearthstone (J)
Hillsborough, NJ N/A N/A (G) 10,681
South Burnswick (J)
South Brunswick, NJ N/A N/A (G) 36,750
Pasadena (J)
Pasadena, FL N/A N/A (G) 23,997
Outstanding Carrying
Face Amount of Unamortized Amount of Interest Income
Property Mortgages (E) Costs and Fees Mortgages (F) in 2005
--------------------------- -------------- -------------- ------------- ---------------
FIRST MORTGAGE LOANS:
Sunset Gardens (A)
Eagle Pass, TX $ -- $ -- $ -- $ 129
Colorado Creekside (H)
Colorado Springs, CO -- -- -- 294
Desert View
Coolidge, AZ 771 -- 771 79
-----------------------------------------------------------------
Subtotal First Mortgage
Loans 771 -- 771 502
-----------------------------------------------------------------
MEZZANINE LOANS:
The Hollows (I)(J)
Greenville, NC 1,549 (98) 1,451 172
Northbrooke (I)(K)(M)(N)
Harris County, TX 1,500 (131) 1,369 201
Elmhurst Village (I)(K)(L)
Oveido, FL -- -- -- 238
Club at Brazos (I)(J)(O)
Rosenberg, TX 1,962 (72) 1,890 199
Del Mar Villas (K)
Dallas, TX 765 -- 765 64
Villas at Highpoint (J)
Lewisville, TX 693 (37) 656 131
Villas at Highpoint (J)
Lewisville, TX 2,599 (135) 2,464 388
The Pines (J)
Las Vegas, NV 4,600 (26) 4,574 579
Sawmill Plaza (J)
Columbus, OH 2,000 -- 2,000 275
Champaign Offices (J)
Champaign, IL 1,900 (32) 1,868 212
Atlantic - Hearthstone (J)
Hillsborough, NJ 4,220 (97) 4,123 531
South Burnswick (J)
South Brunswick, NJ 3,250 -- 3,250 193
Pasadena (J)
Pasadena, FL 7,574 -- 7,574 724
(continued)
50
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Final
Maturity Lifetime
Property Description Date Call Date (B) Interest Rate Interest Cap (D)
--------------------------- --------------- --------- ------------- ------------- ----------------
222 Pearson (J)
Chicago, IL Multifamily 8/07 N/A LIBOR + 11.50% N/A
Bayfront Villas (J)
Gulfport, FL Multifamily 8/07 N/A LIBOR + 12.75% N/A
Marbella (J)
Clearwater, FL Multifamily 9/06 N/A LIBOR + 12.50% N/A
The Victor (I) (J)
Camden, NJ Mixed Use 12/14 N/A 9.91% N/A
Subtotal Mezzanine Loans
2005 Total Mortgage Loans
2004 Total Mortgage Loans
Share of
Share of Excess Sale or
Excess Operating Refinancing Periodic
Property Cash Flows Proceeds Payment Terms Prior Liens
--------------------------- ---------------- -------------- ------------- -----------
222 Pearson (J)
Chicago, IL N/A N/A (G) 35,862
Bayfront Villas (J)
Gulfport, FL N/A N/A (G) 10,553
Marbella (J)
Clearwater, FL N/A N/A (G) 17,946
The Victor (I) (J)
Camden, NJ N/A N/A (Q) 26,000
Subtotal Mezzanine Loans
2005 Total Mortgage Loans
2004 Total Mortgage Loans
Outstanding Carrying
Face Amount of Unamortized Amount of Interest Income
Property Mortgages (E) Costs and Fees Mortgages (F) in 2005
--------------------------- -------------- -------------- ------------- ---------------
222 Pearson (J)
Chicago, IL 6,714 (56) 6,658 521
Bayfront Villas (J)
Gulfport, FL 2,436 -- 2,436 171
Marbella (J)
Clearwater, FL 5,174 (42) 5,132 263
The Victor (I) (J)
Camden, NJ 5,000 -- 5,000 61
-----------------------------------------------------------------
Subtotal Mezzanine Loans 51,936 (726) 51,210 4,923
-----------------------------------------------------------------
2005 Total Mortgage Loans $ 52,707 $(726) $ 51,981 $5,425
=================================================================
2004 Total Mortgage Loans $ 22,313 $(937) $ 21,376 $1,808
=================================================================
51
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) The matured loan was sold at par to an affiliate of our Advisor.
(B) Loans are subject to mandatory prepayment at our option ten years after
construction completion, with one year's notice, unless otherwise
indicated. Loans with a call date of "TBD" are still under construction.
(C) Interest on the mezzanine loan is based on a fixed percentage of the unpaid
principal balance of the related first mortgage loan. The amount shown is
the approximate effective rate earned on the balance of the mezzanine loan.
The mezzanine loan also provides for payments of additional interest based
on a percentage of cash flow remaining after debt service and participation
in sale or refinancing proceeds and certain provisions that cap our total
yield, including additional interest and participations, over the term of
the loan.
(D) Lifetime interest cap represents the maximum annual return, including
interest, fees and participations, that we can earn over the life of the
mezzanine loan, computed as a percentage of the balance of the first
mortgage loan plus the mezzanine loan.
(E) As of December 31, 2005, all interest payments on the mortgage loans are
current, except as noted.
(F) Carrying amounts of the loans are net of unamortized origination costs and
fees and loan discounts.
(G) Interest only payments are due monthly, with loan balance due at maturity.
(H) Loan was purchased in connection with the performance under a guarantee we
made.
(I) The principal balance of the mezzanine loan is secured by the partnership
interests of the entity that owns the underlying property and a third
mortgage deed of trust. Interest payments on the mezzanine loan are secured
by a second mortgage deed of trust and are guaranteed for the first 36
months after construction completion by an entity related to the general
partner of the entity that owns the underlying property.
(J) We do not have an interest in the first lien position relating to this
mezzanine loan.
(K) We have an interest in the first lien position relating to this mezzanine
loan.
(L) The loan and the related 1st mortgage position paid in full in September
2005.
(M) The first mortgage loans related to these properties were converted from
participations in FHA loans to ownership of the GNMA certificates and are
held by us - see Note 2.
(N) This mezzanine loan stopped making interest payments in May 2004. We are
currently in the process of determining the necessary steps we need to take
to protect our investment. We have done an internal analysis for the
property underlying the mortgage and the analysis indicates that the value
of the property exceeds the carrying amount of our investment. Accordingly,
we have not recorded an allowance for probable losses on this investment.
(O) The funding of this mezzanine loan is based on property level operational
achievements.
(P) Interest cap on this loan is the maximum rate permitted by law.
(Q) Interest only payments are due monthly until 1/1/08, followed by principal
and interest payments until maturity.
52
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Further information relating to investments in mortgage loans is as follows:
(In thousands)
2005 2004
-------- --------
Balance at beginning of year $ 21,376 $ 13,864
Advances made 42,247 8,802
Loan origination fees (net of acquisition expenses) (279) (46)
Repayments (11,853) (1,306)
Amortization and accretion -- net 236 62
Gain on sale or repayment of assets 254 --
-------- --------
Balance at end of year $ 51,981 $ 21,376
======== ========
NOTE 4 - INVESTMENT IN ARCAP
We own 485,000 units Series A Convertible Preferred Membership Interests in
ARCap as well as 315,000 common units, which we acquired upon converting an
equal number of preferred units in December 2005. The initial cost of all the
units was $25 each. The remaining preferred units are convertible, at our
option, into common units. The preferred units carry a preferred return of 12%
and the common units receive a specified annual distribution, currently set at
$4.00 per unit for 2006. In December 2005, we received a common distribution of
$2.14 per share following this conversion.
ARCap has met its distribution requirements to us to date. Yields on CMBS
depend, among other things, on the rate and timing of principal payments, the
pass-through rate, interest rate fluctuations and defaults on the underlying
mortgages. Our interest in ARCap is illiquid and we would need to obtain the
consent of the board of managers of ARCap before we could transfer our interest
in ARCap to any party other than a current member. The carrying amount of the
investment in ARCap is not necessarily representative of the amount we would
receive upon a sale of the interest.
ARCap is focused on commercial mortgage backed securities ("CMBS") fund
management, whereby it manages CMBS investment funds raised from third-party
investors. ARCap is generally a minority investor in these funds and thereby
diversifies its revenue base by increasing its proportion of revenue derived
from fees as opposed to interest income.
Summarized information for ARCap as of December 31, 2005 and 2004, and the years
then ended is as follows:
(in millions) 2005 2004
-------- --------
Investment securities - available for sale $ 979 $ 771
Investment securities - trading 92 108
Other assets 166 89
------ ------
Total assets $1,237 $ 968
====== ======
Repurchase agreements and long-term debt $ 538 $ 426
Other liabilities 497 339
Members' equity 202 203
------ ------
Total liabilities and equity $1,237 $ 968
====== ======
Total revenues $ 156 $ 205
Total expenses 97 140
------ ------
Net income $ 59 $ 65
====== ======
53
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES RECEIVABLE
Our notes receivable are collateralized by equity interests in the owner of the
underlying property and consist of the following as of December 31, 2005:
(In thousands)
Outstanding
Principal Unamortized
Property Location Balance Fees
----------------------------------------------------------------------
Del Mar Villas Dallas, TX $ 5,554 $ --
Oaks of Baytown (1) Baytown, TX 3,826 --
Quay Point (1) Houston, TX 1,223 --
Woods of Mandarin Jacksonville, FL 3,122 --
=======================
2005 Total $13,725 --
=======================
2004 Total $23,135 $ (24)
=======================
(In thousands)
Remaining
Committed
Carrying Balance to Interest
Property Amount Fund Rate Maturity
-------------------------------------------------------------------------------------------
Del Mar Villas $ 5,554 $ -- LIBOR + 4.625% (2) May 2006
Oaks of Baytown (1) 3,826 -- LIBOR + 4.500% (2) February 2006
Quay Point (1) 1,223 -- LIBOR + 3.600% (2) February 2006
Woods of Mandarin 3,122 -- 13.50% July 2007
======================
2005 Total $ 13,725 --
======================
2004 Total $ 23,111 $ 1,137
======================
(1) At December 31, 2005, these notes were pledged as collateral in connection
with warehouse facility (see Note 8). During 2006, these notes stopped
making required interest payments, causing them to be in default (see Note
17).
(2) 30-day LIBOR at December 31, 2005 was 4.39%.
54
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - REAL ESTATE OWNED
Our real estate owned at December 31, 2005 and 2004 consisted of the following:
(dollars in thousands)
Carrying Value Carrying Value
as of as of
December 31, December 31,
Number of Units Location 2005 2004
-----------------------------------------------------------------------------
Real Estate Owned - Held and Used
---------------------------------
Concord Portfolio (1) 852 Houston, TX $53,407 $54,425
Less: accumulated depreciation (3,062) (1,718)
------- -------
Subtotal 50,345 52,707
Reserve at Autumn Creek (2) 212 Friendswood, TX 19,462 17,924
Less: accumulated depreciation (1,014) --
------- -------
Subtotal 18,448 17,924
Plaza at San Jacinto (3) 132 La Porte, TX -- 7,929
------
Less: accumulated depreciation -- (425)
------- -------
Subtotal 7,504
Total Real Estate Owned - Held and Used, net 1,196 $68,793 $78,135
====== ======= =======
Mortgages Payable on Real Estate Owned
--------------------------------------
Concord Portfolio $40,487 $41,000
Reserve at Autumn Creek -- 15,993
------- -------
Total Mortgages Payable on Real Estate Owned $40,487 $56,993
======= =======
(1) The three properties underlying these notes receivable stopped paying
interest in May 2003. We subsequently exercised our rights under the
subordinated promissory notes and other documents and took possession of all
three properties. We purchased the first mortgages and acquired the real estate
at foreclosure auctions and sold all three properties to a qualified 501(c)(3)
entity during 2003. Because we provided 100% financing to the purchaser, the
transaction did not meet the criteria for sale recognition pursuant to SFAS No.
66, and we classified the properties as Real Estate Owned - Subject to Sales
Contracts. Following the provisions of SFAS No. 66, we account for the
properties under the deposit method.
During 2004, the properties were refinanced with UBS Real Estate Investments
Inc., who provided first mortgages of $41.0 million for these properties, and we
reclassified the properties as Real Estate Owned - Held and Used. We recorded
the $41.0 million amortizing mortgage as a liability and began to record
depreciation on the properties in 2004, as well as retroactively for the period
since foreclosure. We recognize income associated with a 10-year $12.8 million
mezzanine loan, with a stated interest rate of 8.00% (our remaining economic
interest in the properties), as rental income, property operations and mortgage
interest on Real Estate Owned - Held and Used on our consolidated statements of
income.
(2) Certain required debt service payments were not paid, causing the mezzanine
loan to be in default. In October 2003, we exercised our rights under the
subordinated promissory note and other documents and took possession of the real
estate collateral of the property, and purchased the first mortgage loan on the
property in February 2005 for approximately $17.2 million.
The property has been marketed for sale since the date of foreclosure, however,
due to unsuccessful efforts, we reclassified the property as Real Estate Owned -
Held and Used in December 2005. We recorded depreciation on the property in
2005, as well as retroactively for the period since foreclosure. We recognize
55
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income from the property as rental income and property operations on Real Estate
Owned - Held and Used on our consolidated statements of income.
(3) In March 2003, we exercised our rights under the subordinated promissory
note and other documents to take possession of the real estate collateral of the
Plaza at San Jacinto and, in May 2003, acquired the real estate at a foreclosure
auction. We classified our investment in this property as Real Estate Owned -
Held for Sale. We have focused on increasing the occupancy and the operating
income generated from the property. We reclassified the property as Real Estate
Owned - Held and Used in March 2004 and began to depreciate the property,
including depreciation for the period the property had been classified as Held
for Sale. During February 2005, this property was sold to an unaffiliated third
party for approximately its carrying value.
NOTE 7 - REPURCHASE FACILITIES
During 2004 and 2005, we executed repurchase agreements with four
counterparties, Greenwich Capital, Bear Stearns, RBC Capital Markets and UBS
Financial Services, which provided us the capacity to repay a previous facility.
Terms of the four newly executed agreements offer advance rates between 94% and
97% and borrowing rates between the LIBOR minus 3 basis points and LIBOR plus 10
basis points. The borrowings are subject to 30-day settlement terms. As of
December 31, 2005 and 2004, the amounts outstanding under repurchase facilities
were $209.1 and $157.6 million and weighted average interest rates were 4.30%
and 2.64%, respectively.
Certain of our debt securities are pledged as collateral in connection with
these repurchase facilities (see Note 2).
NOTE 8 - WAREHOUSE FACILITY
In August 2005, our mortgage warehouse line of credit with Bank of America (the
"Warehouse Facility") matured. Although we could no longer originate new loans
on this facility, the two existing loans that served as collateral under this
program (see Notes 5 and 17) were extended and subsequently paid off in February
2006. As of December 31, 2005 and 2004, we had approximately $4.1 and $3.8
million, respectively, in borrowings outstanding under this program at a
weighted average interest rate of 6.06% and 4.42%, respectively.
NOTE 9 - LINE OF CREDIT - RELATED PARTY
In June 2004, we entered into a revolving credit facility (the "Revolving
Facility") with CharterMac. The Revolving Facility, which is unsecured, will
provide up to $20.0 million in borrowings to be used to purchase new
investments, and bears interest at 30-day LIBOR plus 300 basis points. The
Revolving Facility expires in June 2006 with a one-year optional extension and
contains customary restrictions/covenants that are similar to our Warehouse
Facility. In the opinion of our management, the terms of this facility are
consistent with those of transactions with independent third parties. As of
December 31, 2004, we had approximately $4.6 million, in borrowings outstanding
on the Revolving Facility at a weighted average interest rate of 5.42%. At
December 31, 2005, there were no outstanding borrowings under this facility.
NOTE 10 - SUBSIDIARY EQUITY
During March 2005, ACFI issued 25,000 Floating Rate Preferred Securities, having
a stated liquidation amount of $1,000 per security. We received approximately
$24.2 million in proceeds, net of closing costs, which are deferred and will be
amortized ratably over a 30-year period to the redemption date. The securities
are callable in March 2010 and bear interest, re-set quarterly, equal to 30-day
LIBOR plus 3.75%. At December 31, 2005, the rate was 7.77%.
56
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SHAREHOLDERS' EQUITY
Common Shares
-------------
On April 23, 2003, we completed a public offering of approximately 2.0 million
common shares at a price of $15.00 per share, resulting in proceeds, net of
underwriters' discount and expenses, of approximately $27.5 million. The common
shares were offered through JMP Securities and RBC Capital Markets. The net
proceeds from this offering were used to fund investments.
During 2005 and 2004, we issued approximately 3,035 and 2,600 common shares,
respectively, to our trustees as compensation. No such shares were issued in
2003.
Share Repurchase Program
------------------------
In August 2003, our Board of Trustees approved a share repurchase plan. The plan
enables us to repurchase, from time to time, up to 1,000,000 common shares. The
repurchases will be made in the open market, and the timing will be dependent on
the availability of shares and other market conditions. This program has no
expiration date. During 2005 and 2004, we repurchased 36,000 and 4,000 shares,
respectively, at a cost of approximately $494,000 and $53,000, respectively.
Accumulated Other Comprehensive Income
--------------------------------------
Changes in accumulated other comprehensive income
(in thousands) Net unrealized
Net unrealized (loss) gain on
gain on interest rate
investments derivatives Total
-------------- -------------- ----------
Balance at January 1, 2003 $ 8,703 $ -- $ 8,703
Period change 25 (278) (253)
-------- -------- --------
Balance at December 31, 2003 8,728 (278) 8,450
Period change 1,260 407 1,667
-------- -------- --------
Balance at December 31, 2004 9,988 129 10,117
Period change (6,013) 679 (5,334)
-------- -------- --------
Balance at December 31, 2005 $ 3,975 $ 808 $ 4,783
======== ======== ========
NOTE 12 - INCENTIVE SHARE OPTION PLAN
In accordance with our Amended and Restated Incentive Share Option Plan (the
"Plan"), our board of trustees can award share options to trustees, officers and
employees of AMAC and our Advisor and its affiliates. A maximum of 830,384
options can be granted, with annual limits based upon formulas specified in the
Plan. Option terms and vesting requirements are determined at the time of grant,
provided that the term is no longer than ten years.
In April 2003, our Compensation Committee granted 190,000 options to employees
of an affiliate of our Advisor at an exercise price of $15.03, the market price
of our common shares on the grant date. These options vest equally, in thirds,
in April 2004, 2005 and 2006 and expire in April 2013.
In January 2005, our Compensation Committee granted 65,052 options to one
employee of an affiliate of our Advisor at an exercise price of $17.20, the
market price of our common shares on the grant date. These options vest equally,
in thirds, in January 2006, 2007, and 2008 and expire in January 2015.
57
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with SFAS No. 123, we accrue compensation cost based on the
estimated fair value of the options issued and amortize those costs over the
vesting period. Because the grant recipients are not our employees and vesting
of the options is contingent upon the recipient continuing to provide services
to us, we estimate the fair value of the options at each period-end up to the
vesting date, and adjust recorded amounts accordingly.
The assumptions used for valuing these options and the results of the valuations
were as follows:
Weighted Average Assumptions: 2005 2004 2003
-------- -------- --------
Dividend Yield 10.95% 9.30% 9.63%
Estimated Volatility 26.00% 16.00% 16.00%
Risk Free Interest Rate 4.36% 3.93% 4.27%
Expected Lives (years) 8.0 8.3 9.4
There were 643,332 shares available for issuance as of December 31, 2005.
The following table summarizes share option activity in our share option plans
for the years ended December 31:
2005 2004 2003
--------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
Outstanding Shares
at Beginning of Period 130,000 $15.03 190,000 $15.03 -- $ --
Granted 65,052 17.20 -- -- 190,000 15.03
Forfeited (8,000) 15.03 (60,000) 15.03 -- --
Exercised -- -- -- -- -- --
-------- ------ -------- ------ -------- ------
Outstanding Shares
at End of Period 187,052 $15.78 130,000 $15.03 190,000 $15.03
======== ====== ======== ====== ======== ======
Exercisable at end of year 81,333 $15.78 43,334 $15.03 -- $ --
======== ====== ======== ====== ======== ======
Fair Value of options granted
during the year (at grant date) $ 64,000 $17.20 $ -- $ -- $131,100 $15.03
======== ====== ======== ====== ======== ======
Compensation costs $ -- $ -- $ 45,500 $ -- $ 22,700 $ --
======== ====== ======== ====== ======== ======
58
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EARNINGS PER SHARE
Diluted net income per share is calculated using the weighted average number of
shares outstanding during the period plus the additional dilutive effect of
common share equivalents. The dilutive effect of outstanding share options is
calculated using the treasury stock method.
(In thousands, except per share amounts)
Year Ended December 31, 2005 Income Shares Per Share
------- ------- ---------
Basic EPS $15,235 8,316 $ 1.83
Effect of dilutive securities -- 1 --
------- ------- ------
Diluted EPS $15,235 8,317 $ 1.83
======= ======= ======
Year Ended December 31, 2004
Basic EPS $11,273 8,336 $ 1.35
Effect of dilutive securities -- 7 --
------- ------- ------
Diluted EPS $11,273 8,343 $ 1.35
======= ======= ======
Year Ended December 31, 2003
Basic EPS $11,884 7,803 $ 1.52
Effect of dilutive securities -- 12 --
------- ------- ------
Diluted EPS $11,884 7,815 $ 1.52
======= ======= ======
59
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - RELATED PARTY TRANSACTIONS
Pursuant to the amended Advisory Agreement with our Advisor dated April 6, 1999
(the "Amended Advisory Agreement"), we pay certain fees, in addition to
reimbursements of certain administrative and other costs our Advisor incurs on
our behalf, for its ongoing management and operations of our Company:
Fees/Compensation Annual Amount
----------------- -------------
I. Asset management 0.355% for investments in mortgage loans
management 0.355% for certain investment grade investments
fees 0.750% for certain non-investment grade investments
1.000% for unrated investments
0.625% for investments held prior to the adoption
of the Amended Advisory Agreement.
II. Loan With respect to new mortgage loans we acquire, any
origination fees origination points paid by borrowers will first be
paid to the Advisor for amounts up to 1.0% of the
principal amount of each mortgage loan and we
will receive any excess origination points paid
by borrowers, if any, above the 1.0%.
III. Annual Subject to (1) a minimum annual distributions being
incentive made to shareholders from management fees cash
management available for distribution ("CAD") of $1.45 per
fees share and (2) the Company achieving at least annual
Adjusted Funds from Operations (defined below) per
share of $1.60 (net of this incentive fee), the
Advisor shall be entitled to receive incentive
compensation for each fiscal year in an amount equal
to the product of:
(A) 25% of the dollar amount by which
(1) Adjusted Funds From Operations before this
incentive management fee per share
exceed
(2) the greater of:
(a) (i) the weighted average of (x) $20
and (y) the prices per share of
any secondary offerings by the
Company multiplied by
(ii) the Ten Year U.S. Treasury Rate
plus 2% per annum; and;
(b) $1.45
multiplied by
(B) the weighted average number of shares
outstanding during such year.
"Adjusted Funds From Operations" means net income (computed in accordance with
GAAP) including realized gains (or losses) from debt restructuring and sales of
assets, plus depreciation and amortization on real property, and after
adjustments for unconsolidated partnerships and joint ventures.
60
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"CAD" means cash available for distributions, which shall consist of our net
income (as determined pursuant to GAAP) adjusted for certain non-cash charges
(as determined pursuant to GAAP).
Prior to 2004, the incentive management fee was calculated pursuant to the
Company achieving at least annual GAAP net income of $1.60 per share, net of the
incentive management fee without the additional requirement that net income had
to exceed CAD of $1.45 per share.
The costs paid or payable to our Advisor were as follows:
(in thousands) Years Ended December 31,
----------------------------------
2005 2004 2003
------ ------ ------
Shared service expenses $ 947 $ 682 $ 725
Asset management fees 1,545 1,274 1,087
Incentive management fee 1,855 -- --
------ ------ ------
$4,347 $1,956 $1,812
====== ====== ======
During 2003, our Advisor waived approximately $67,000 in asset management fees
relating to additional services it performed with regard to real estate we now
own (see Note 6), as we paid a fee at the time the loans were originated.
During December 2005, in connection with our new investment initiative, our
Board of Trustees approved various amendments to our bylaws and Advisory
agreement. The changes, which will be effective upon renewal of the existing
agreement at its expiration in March 2006, include, but are not limited to, the
following:
o ASSET MANAGEMENT FEE - The current asset by asset based fees will be
replaced with an asset management fee which is equal to 1.75% of
shareholders equity.
o LOAN ORIGINATION FEES - The revised agreement will provide that the
Advisor receive all origination fees.
o SHARE ISSUANCE - The current agreement provides that the Advisor will
receive 1% of all common shares issued by us. This provision has been
eliminated.
o TERMINATION - The Advisory agreement will be subject to early
termination for "cause", without payment of a termination fee.
However, if the termination occurs without cause or is not renewed
after its one year term, the Advisor will be entitled to receive a
termination fee.
In September 2003, we transferred certain of our obligations under the Fannie
Mae loan program to CMC, a subsidiary of CharterMac. See Note 16 for more
details on the transaction.
In October 2003, we purchased nine taxable revenue bonds from CharterMac. The
carrying value of these bonds at December 31, 2005 and 2004 are $6.6 million and
$6.7 million, respectively.
In December 2003, we borrowed approximately $11.3 million from CharterMac in
order to aid in the purchase of the Concord at Gulfgate first mortgage in the
total amount of $14.1 million (see Note 6). CharterMac charged us interest at an
annual rate of 3.17% on the borrowings, which was based on LIBOR plus 2%, the
same rate we paid on our Warehouse Facility. Shortly thereafter, we received a
$14.0 million loan through the Warehouse Facility, and used the proceeds to
repay the loan to CharterMac.
See Note 9 for information regarding our Revolving Facility with CharterMac.
In September 2005, we sold a mortgage loan, at par, to CharterMac (see Note 3).
During November 2005, we and CharterMac entered into a Subordinated
Participation Agreement, under which we have acquired a subordinated
participation equal to $5.0 million in a loan receivable that CharterMac holds.
Upon the inception of our new warehouse facility (which we anticipate to occur
in the first half of 2006), we will purchase the remaining loan receivable
balance from CharterMac at its $26.0 million par value.
61
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
2005 Quarter Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Total revenues $6,703 $7,860 $13,343 $8,237
====== ====== ======= ======
Net income $2,827 $3,069 $ 7,312 $2,027
====== ====== ======= ======
Net income per share (basic and diluted) $ 0.34 $ 0.37 $ 0.88 $ 0.24
====== ====== ======= ======
2004 Quarter Ended
---------------------------------------------
(In thousands except per share amounts)
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Total revenues $5,522 $5,396 $ 5,765 $5,328
====== ====== ======= ======
Net income $3,325 $3,351 $ 3,249 $1,348
====== ====== ======= ======
Net income per share (basic and diluted) $ 0.40 $ 0.40 $ 0.39 $ 0.16
====== ====== ======= ======
NOTE 16 - COMMITMENTS AND CONTINGENCIES
a) Legal
On October 27, 2003, prior to taking possession of the real estate collateral
supporting a loan investment, we were named in a lawsuit, Concord Gulfgate, Ltd.
vs. Robert Parker, Sunrise Housing Ltd., and American Mortgage Acceptance
Company, Cause No. 2003-59290 in the 133rd Judicial District Court of Harris
County, Texas. The suit alleges that the loan transaction was not properly
authorized by the partnership and was not for a legitimate partnership purpose.
The suit claims, among other causes of action against the respective defendants,
wrongful foreclosure of the real estate collateral, tortious interference with
contract and civil conspiracy. The suit seeks, among other relief, actual,
consequential, and exemplary damages, and a declaration that the loan documents
are unenforceable and constitute a cloud on title. The discovery phase of this
suit has been completed. A summary judgment was filed by us, but was denied on
July 25, 2005. It is not known when the case will be called to trial.
We filed a countersuit on November 25, 2003, against Concord Gulfgate, Ltd., as
guarantor, seeking a deficiency on the loan, and recovery of unpaid taxes and
certain property receipts. We are currently unable to determine the possible
outcome of the litigation.
b) Guarantees
In June and October of 2000, we originated two loans totaling $3.3 million under
an agreement with Fannie Mae. That agreement provided for our guaranteeing a
first-loss position on the loans, which could potentially result in exposure of
$7.5 million. In September 2003, we transferred and assigned all of our
obligations to the two loans we originated under this program to CharterMac
Mortgage Capital ("CMC"), a subsidiary of CharterMac, both of which are
affiliates of the Advisor. Pursuant to the agreement with CMC, CharterMac
guaranteed CMC's obligations, and we agreed to indemnify both CMC and CharterMac
for any losses incurred in exchange for retaining all fees which we were
otherwise entitled to receive under the program. The maximum exposure at
December 31, 2005, was $3.2 million, although we expect that we will not be
called upon to fund these guarantees.
In the first quarter of 2003, we discontinued our loan program with Fannie Mae
and will issue no further guarantees pursuant to such program.
62
AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standby and Forward Loan Commitments
We issued the following standby and forward bridge and permanent loan
commitments for the purpose of construction/rehabilitation of certain
multifamily apartment complexes in various locations.
STANDBY AND FORWARD LOAN COMMITMENTS
-------------------------------------------------------
(In thousands)
MAXIMUM AMOUNT OF COMMITMENT
-----------------------------------------
ISSUE DATE PROJECT LOCATION NO.OF APT.UNITS TOTAL LESS THAN 1 YEAR 1-3 YEARS
---------------------------------------------------------------------------------------------------------------------------
Jun-04 Woods of Mandarin Jacksonville, FL 401 $ 428 $ 428 $ --
Apr-05 Atlantic Hearthstone Hillsborough, NJ 198 3,080 2,464 616
May-05 Pasadena Pasadena, FL 198 777 777 --
July-05 222 Pearson Chicago, IL 219 786 786 --
July-05 Bayfront Villas Gulfport, FL 120 364 364 --
Sept-05 Marbella Clearwater, FL -- 626 626 --
-----------------------------------------------------------
TOTAL STANDBY AND FORWARD LOAN COMMITMENTS 1,136 $ 6,061 $ 5,445 $ 616
===========================================================
Mezzanine Loan/Preferred Stock Commitment
-----------------------------------------
During November 2004, we provided a commitment to fund up to $74.5 million in
connection with the borrower's financing of an acquisition. The commitment
expired unused in April 2005, and we recognized a commitment fee of
approximately $412,000, net of related legal expenses, upon the expiration.
NOTE 17 - SUBSEQUENT EVENTS
We did not receive the January 2006 payments for two notes receivable (both of
which have the same borrower), causing the notes to be in default. While we are
exploring possible solutions involving repayment of these notes or recovery of
the assets, we are unable to determine at this time if a loss exists with
respect to the investments.
These notes were pledged as part of our warehouse facility (see Note 8). On
February 28, 2006, we paid off the remaining outstanding balance of
approximately $4.1 million on the facility, but we believe we have sufficient
liquidity to do so if required.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule
13a-15(e) or Rule 15a-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) as of the end of the period covered
by this annual report. Based on such evaluation, such officers have
concluded that our disclosure controls and procedures as of the end of
the period covered by this annual report were effective to ensure that
information required to be disclosed by the Company in the reports
that the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified
in the SEC rules and forms, and to ensure that such information is
accumulated and communicated to the Company's management, including
the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
significant changes in our internal control over financial reporting
during the fiscal year to which this report relates that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER ITEMS
None.
64
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Exchange Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Exchange Act.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Exchange Act.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Exchange Act.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Sequential
Page
(a) 1. Financial Statements ----------
--------------------
American Mortgage Acceptance Company
------------------------------------
Report of Independent Registered Public Accounting Firm 35
Consolidated Balance Sheets as of December 31, 2005 and 2004 36
Consolidated Statements of Income for the years ended December 31,
2005, 2004 and 2003 37
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2005, 2004 and 2003 38
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004 and 2003 39
Notes to Consolidated Financial Statements 41
65
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
Sequential
Page
----------
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes thereto.
(a) 3. Exhibits
--------
3.1 Third Amended and Restated Declaration of Trust, dated as of June 8,
2005 (incorporated by reference to Appendix A to Proxy Statement
filed with the Commission on April 28, 2005).
3.2 Amended and Restated By-laws (incorporated by reference to Appendix B
to Proxy Statement filed with the Commission on April 28, 2005).
3.3 Amendment to Amended and Restated By-laws*.
10(a) Second Amended and Restated Advisory Services Agreement between the
Company and CharterMac AMI Associates, Inc*.
10(b) First Amendment to the Amended and Restated Incentive Share Option
Plan of the Company dated June 9, 2004 (incorporated herein by
reference to Exhibit 10(e) to the Company's June 30, 2004 Amended
Quarterly Report on Form 10-Q/A).
10(c) Form of Non-Qualified Share Option Award Agreement (incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form
10-K).
10(d) Loan agreement between CharterMac and American Mortgage Acceptance
Company as of June 30, 2004*.
21 Subsidiaries of our Company*
23 Consent of Independent Registered Public Accounting Firm*
23(a) Consent of Ernst & Young LLP with respect to incorporation by
reference of its report relating to the financial statements of ARCap
Investors, LLC in the Company's Registration Statement on form S-3 and
Form S-8 (incorporated by reference to Exhibit 23(a) to the Company's
December 31, 2004, Annual Report on Form 10-K/A).
24.1 Power of Attorney (Included on signature page hereto)
31.1 Chief Executive Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
31.2 Chief Financial Officer certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
66
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
Sequential
Page
----------
99. Additional Exhibits
-------------------
99(a) The 2004 Financial Statements of ARCap Investors, LLC which invests
primarily in subordinated commercial mortgage-backed securities, as
required by Regulation S-X, Rule 3-09 (incorporated by reference to
Exhibit 99(a) to the Company's December 31, 2004, Annual Report on
Form 10-K/A).
99(b) The 2003 Financial Statements of ARCap Investors, LLC which invests
primarily in subordinated commercial mortgage-backed securities, as
required by Regulation S-X, Rule 3-09 (incorporated by reference to
Exhibit 99(b) to the Company's December 31, 2004, Annual Report on
Form 10-K/A).
* Filed herewith
67
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: March 9, 2006 By: /s/ Jeff T. Blau
----------------
Jeff T. Blau
Chairman of the Board of Trustees,
President and Chief Executive Officer
Date: March 9, 2006 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Managing Trustee and Chief Financial Officer
68
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Jeff
T. Blau and Alan P. Hirmes, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report, and to cause the same to be filed, with all
exhibits thereto and other documents in connection therewith, with the
Securities Exchange Commission, hereby granting to said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing whatsoever requisite or desirable to be done in and about
the premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all acts and things that
said attorneys-in-fact and agents, or either of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
Signature Title Date
------------------ ------------------------------------- -------------
/s/ Jeff T. Blau
----------------
Jeff T. Blau Chairman of the Board of Trustees
and Chief Executive Officer March 1, 2006
/s/ Alan P. Hirmes
------------------
Alan P. Hirmes Managing Trustee
and Chief Financial Officer March 1, 2006
/s/ Stanley R. Perla
--------------------
Stanley R. Perla Trustee March 1, 2006
/s/ Richard M. Rosan
--------------------
Richard M. Rosan Trustee March 1, 2006
/s/ Scott M. Mannes
-------------------
Scott M. Mannes Trustee March 1, 2006
69
Exhibit 3.3
AMENDMENT TO THE
AMENDED AND RESTATED BYLAWS OF
AMERICAN MORTGAGE ACCEPTANCE COMPANY
This Amendment (the "Amendment") to the Amended and Restated Bylaws (the
"Bylaws") of American Mortgage Acceptance Company, a real estate investment
trust (the "Company"), was approved by the Company's Board of Trustees effective
as of December 14, 2005. Capitalized terms used and not otherwise defined herein
shall for all purposes of this Amendment have the respective meanings as
specified in the Bylaws.
RECITALS
WHEREAS, pursuant to the resolutions adopted on December _, 2005, the Board
of Trustees of the Company resolved to amend the Bylaws to (i) increase the
maximum permissible leverage; (ii) eliminate the requirement that Additional
Mortgage Investments comprise no more than 60% of the Company's invested assets;
and (iii) eliminate the prohibition on the Company investing in mortgages that
are subordinate to that of an Affiliate.
NOW THEREFORE, the Bylaws shall be amended as follows:
1. Amendments.
----------
A. SECTION 1.1(s). Section 1.1(s) is hereby amended and restated in its
entirety as follows:
(s) Debt Limitation. "Debt Limitation" shall mean 90% of
Total Market Value (calculated at the time debt is incurred)
with respect to Trust Indebtedness.
B. SECTION 1.1(rr). Section 1.1(rr) is hereby deleted in its entirety and
the balance of the numbering in Section 1.1 is hereby renumbered
accordingly.
C. SECTION 1.1(ggg). Section 1.1(ggg) is hereby (x) renumbered as Section
(fff) and (y) amended and restated in its entirety as follows:
(ggg) Total Market Value. "Total Market Value" shall mean
the greater of (i) the sum of (x) the aggregate market value
of the Trust's outstanding Shares and (y) the Trust
Indebtedness excluding unconsolidated subsidiaries and (ii)
the aggregate value of the Trust's assets as determined by
the Advisor based upon third-party or management appraisals
and other criteria as the Board of Trustees shall determine
in its sole discretion.
D. SECTION 1.1(iii). Section 1.1(iii) is hereby amended and restated in
its entirety as follows:
(iii) Trust Indebtedness. "Trust Indebtedness" shall mean
all GAAP liabilities of the Trust other than trade payables
and subordinated advisor fees and preferred equity share
interests subject to mandatory redemption.
E. SECTION 1.1 (lll). Section 1.1 (lll) is hereby deleted in its
entirety.
F. SECTION 5.1. The first paragraph of Section 5.1 is hereby amended and
restated in its entirety as follows:
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GENERAL STATEMENT OF POLICY. The Trust intends to invest in
Mortgage Investments including: (i) Original Mortgage
Investments and (ii) Additional Mortgage Investments. The
Trust shall have the right to acquire or originate Mortgages
without first obtaining a real property appraisal, unless a
majority of the Independent Trustees determine that such an
appraisal is necessary; if obtained, any real property
appraisals will be maintained in the Trust's books and
records for at least five years. The foregoing investments
are intended to be structured to comply with the Real Estate
Investment Trust Provisions of the Code. In addition to the
investments referred to above, the Trust may, in the
discretion of the Board of Trustees or the Advisor, make the
investments described in Section 5.2 below or such other
investments that the Board of Trustees or the Advisor deem
in good faith to be consistent with the investment
objectives and policies of the Trust as set forth in the
Consent Statement.
G. SECTION 5.7(l). Section 5.7(l) is hereby deleted in its entirety.
H. SECTION 7.4. The last sentence of Section 7.4 is hereby amended and
restated in its entirety as follows:
The Trustees, including the Independent Trustees, shall take
reasonable steps to insure that the requirements of this
Section 7.4 are satisfied on a timely basis.
2. No Further Amendments.
---------------------
Except to the extent expressly amended by the terms of this Amendment,
all terms and condition of the Bylaws shall remain in full force and effect
in accordance with their terms.
71
Exhibit 10(a)
SECOND AMENDED AND RESTATED
ADVISORY SERVICES AGREEMENT
BETWEEN
AMERICAN MORTGAGE ACCEPTANCE COMPANY
AND
CHARTERMAC AMI ASSOCIATES, INC.
SECOND AMENDED AND RESTATED ADVISORY SERVICES AGREEMENT dated March 28,
2006 between American Mortgage Acceptance Company, a Massachusetts real estate
investment trust (the "Company"), and CharterMac AMI Associates, Inc., a
Delaware corporation (the "Advisor"). All capitalized terms used herein, and not
otherwise defined, shall have the meanings ascribed to them in Section 10
hereof.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is a business trust organized under the laws of the
Commonwealth of Massachusetts, which has qualified as a real estate investment
trust as defined in the Internal Revenue Code of 1986, as the same may be
amended or modified from time to time (which, together with any regulations and
rulings thereunder, is hereafter called the "Code");
WHEREAS, the Company and the Advisor originally entered into an Advisory
Services Agreement dated as of March 29, 1993, which agreement was amended and
restated pursuant to an Amended and Restated Advisory Services Agreement
effective as of April 6, 1999, as amended on November 29, 2001, February 8,
2002, November 12, 2003 and June 9, 2004 (as amended, the "Advisory Services
Agreement"), pursuant to which the Advisor has been providing services to the
Company since such date;
WHEREAS, the Independent Trustees of the Company have approved certain
changes to the existing Advisory Services Agreement which will be effective upon
the expiration of the current term of the Advisory Services Agreement on March
28, 2006;
WHEREAS, the Company desires to continue to avail itself of the experience,
sources of information, advice, assistance and certain facilities available to
the Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of and subject to the supervision of the
Trustees of the Company, all as provided herein;
WHEREAS, the Advisor is willing to render such services, subject to the
supervision of the Trustees, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
IT IS AGREED that the Advisory Services Agreement is amended and restated as
follows:
1. DUTIES OF ADVISOR. The Company hereby continues to retain the Advisor as
the advisor of the Company to perform the services hereinafter set forth, and
the Advisor hereby accepts such appointment, subject to the terms and conditions
hereinafter set forth. In performance of this undertaking, subject to the
supervision of the Trustees and consistent with the provisions of the Company's
Declaration of Trust, the Advisor shall:
72
(i) obtain for the Company, furnish and/or supervise the services
necessary to perform any ministerial functions in connection with the management
of the day-to-day operations of the Company subject to the supervision of the
Trustees;
(ii) seek out and present to the Company, whether through its own
efforts or those of third parties retained by it, suitable and a sufficient
number of investment opportunities which are consistent with the investment
objectives and policies of the Company ("Company Investment Policy")as adopted
by the Trustees from time to time; the currently effective Company Investment
Policy is set forth on Exhibit A;
(iii) exercise absolute discretion, subject to the Trustees' review,
in decisions to originate, acquire, retain, sell or negotiate for the prepayment
or restructuring of mortgages and other investments of the Company;
(iv) recommend investment opportunities consistent with the Company
Investment Policy and negotiate on behalf of the Company with respect to
potential investments or the disposition thereof;
(v) establish and manage the Company's securitization and capital
markets programs;
(vi) upon request, cause an Affiliate to serve as the owner of record
for the Company's investments if such Affiliate is qualified to do so and in
that capacity to hold escrows, if applicable, on behalf of mortgagors in
connection with the servicing of mortgages, which it may deposit with various
banks including banks with which it may be affiliated;
(vii) obtain for the Company such other services as may be required in
acquiring or disposing of investments, disbursing and collecting the funds of
the Company, paying the debts and fulfilling the obligations of the Company, and
handling, prosecuting and settling any claims of the Company, including
foreclosing and otherwise enforcing mortgages and other liens securing
investments;
(viii) obtain for the Company such services as may be required for
property management, mortgage brokerage and servicing, and other activities
relating to the investment portfolio of the Company;
(ix) evaluate, structure and negotiate potential prepayments or sales
of mortgages and other investments and, if applicable, coordinate with
government agencies and government sponsored entities in connection therewith;
(x) from time to time, or as requested by the Trustees, make reports
to the Company as to its performance of the foregoing services; and
(xi) do all things necessary to assure its ability to render the
services contemplated herein.
2. FIDUCIARY RELATIONSHIP. The Advisor, as a result of its relationship
with the Company pursuant to this Agreement, stands in a fiduciary relationship
with the Shareholders of the Company.
3. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor are not
partners or joint venturers with each other and nothing herein shall be
construed to make them partners or joint venturers or impose any liability as
such on either of them.
4. RECORDS. At all times, the Advisor shall keep books of account and
records relating to services performed hereunder, which books of account and
records shall be accessible for inspection by the Company at any time during the
ordinary business hours of the Advisor.
73
5. REIT QUALIFICATION. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall refrain from any action (including, without
limitation, furnishing or rendering services to tenants of property or managing
or operating real property) which, in its sole judgment made in good faith, or,
in the judgment of the Trustees, provided that the Trustees give the Advisor
written notice to such effect, would (a) adversely affect the status of the
Company as a real estate investment trust pursuant to Section 856 of the Code;
(b) violate any law, rule, regulation or statement of policy of any governmental
body or agency having jurisdiction over the Company or over its securities, or
(c) be prohibited by the Company's Declaration of Trust.
6. BANK ACCOUNTS. The Advisor may establish and maintain one or more bank
accounts in the name of the Company or in its own name as agent for the Company
and may collect and deposit in and disburse from any such account, any money on
behalf of the Company, under such terms and conditions as the Trustees may
approve, provided that no funds in such account shall be commingled with funds
of the Advisor. From time to time and upon appropriate request, the Advisor
shall render appropriate accounting of such collections and payments to the
Trustee and the auditors of the Company.
7. BOND. If required by the Trustees, the Advisor will maintain a fidelity
bond with a responsible surety company in such amounts as may be required by the
Trustees, covering all partners thereof together with employees and agents of
the Advisor handling funds of the Company and investment documents or records
pertaining to investments of the Company. Such bonds shall inure to the benefit
of the Company in respect of losses from acts of such partners, employees and
agents through theft, embezzlement, fraud, negligence, error or omission or
otherwise. The premiums on such bonds shall be paid by the Company.
8. INFORMATION FURNISHED ADVISOR. (a) The Trustees shall, at all times,
keep the Advisor fully informed with regard to the then current Company
Investment Policy including any specific types of investments desired, the
desired geographical areas of investments, and any criteria or conditions
established by the Trustees as to whether the Company will make a particular
investment, the capitalization policy of the Company (including the policy with
regard to the incurrence of indebtedness by the Company) and their intentions as
to the future operations of the Company. In particular, the Trustees shall
notify the Advisor promptly of their intention to either sell or otherwise
dispose of any of the Company's investments, to make any new investment, to
incur any indebtedness or to issue any additional Shares in the Company.
(b) The Company shall furnish the Advisor with a certified copy of all
financial statements of the Company, a signed copy of each report prepared by
the independent certified public accountants and such other information with
regard to the Company's affairs as the Advisor may from time to time reasonably
request.
9. CONSULTATION AND ADVICE. In addition to the services described above,
the Advisor shall consult with the Trustees and shall, at the request of the
Trustees of the Company, furnish advice and recommendations with respect to
other aspects of the business and affairs of the Company.
10. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:
(a) "ADJUSTED FUNDS FROM OPERATIONS" means net income (computed in
accordance with GAAP) including realized gains (or losses) from debt
restructuring and sales of assets, plus depreciation and amortization on real
property, and after adjustments for unconsolidated partnerships and joint
ventures.
(b) "ADVISOR" shall mean CharterMac AMI Associates, Inc.
(c) "AFFILIATE" shall mean (i) any Person directly or indirectly
controlling, controlled by or under common control with another Person, (ii) any
Person owning or controlling 10% or more of the outstanding voting securities or
beneficial interests in such other Person, (iii) any officer, director, trustee,
or general partner of such Person, and (iv) if such other Person is an officer,
director, trustee or partner of another entity, then the entity for which that
Person acts in any such capacity.
74
(d) "AFFILIATED PROGRAMS" shall mean public or private investment
partnerships or, any similar programs organized by the Sponsor, any successors
to such programs or a combination of such programs.
(e) "AGREEMENT" shall mean this Amended and Restated Advisory Services
Agreement.
(f) "ANNUAL INCENTIVE FEE" shall have the meaning set forth in Section
12(b) of this Agreement.
(g) "ASSET MANAGEMENT FEE" shall mean the fees payable to the Advisor
pursuant to Section 11 of this Agreement.
(h) "CAD" shall mean cash available for distribution, which shall
consist of the Company's net income (as determined pursuant to GAAP) adjusted
for certain non-cash charges (as determined pursuant to GAAP).
(i) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
or corresponding provisions of subsequent revenue laws (together with any
regulations and rulings thereunder).
(j) "COMPANY" shall mean American Mortgage Acceptance Company, a
Massachusetts business trust.
(k) "COMPANY EQUITY" means, for purposes of calculating the Asset
Management Fee, for any month the sum of the net proceeds from any issuance of
the Company's Common Shares, after deducting any underwriting discounts and
commissions and other expenses and costs relating to the issuance, plus (or
minus) the Company's retained earnings (or deficit) at the end of such month
(without taking into account any non-cash equity compensation expense incurred
in current or prior periods), which amount shall be reduced by any amount that
the Company pays for repurchases of Common Shares; provided, that the foregoing
calculation of Equity shall be adjusted to exclude one-time events pursuant to
changes in GAAP, as well as non-cash charges after discussion between Advisor
and the Independent Directors and approval by a majority of the Independent
Directors in the case of non-cash charges.
(l) "DECLARATION OF TRUST" shall mean the Third Amended and Restated
Declaration of Trust of the Company, as amended and/or restated from time to
time.
(m) "DISTRIBUTIONS " shall mean any cash distributed to Shareholders
arising from their interest in the Company.
(n) "GAAP" shall mean generally accepted accounting principles applied
on a consistent basis.
(o) "INDEPENDENT TRUSTEE" shall mean the Trustees who (i) are not
affiliated, directly or indirectly, with the Advisor, whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or service as an officer or director of the Advisor, or its
Affiliates, (ii) do not serve as a director or Trustee for more than two other
REITs organized by the Sponsor, and (iii) perform no other services for the
Company, except as Trustees. For this purpose, an indirect relationship shall
include circumstances in which a member of the immediate family of a Trustee has
one of the foregoing relationships with the Advisor or the Company.
(p) "PERSON" shall mean and include individuals, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies or associations, joint ventures, companies, trusts, banks, trust
companies, land trusts, business trusts or other entities and governments and
agencies and political subdivisions thereof.
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(q) "PROSPECTUS" shall mean the final prospectus in connection with
the registration of the Shares filed with the Securities and Exchange Commission
on Form S-11, as amended.
(r) "REIT" shall mean a corporation or trust which qualifies as a real
estate investment trust described in Sections 856 through 860 of the Code (the
"REIT provisions").
(s) "SHAREHOLDER" shall mean a holder of the Shares.
(t) "SHARES" shall mean the shares of beneficial interest, par value
$.10 per share, of the Company.
(u) "SPONSOR" shall mean any Person directly or indirectly
instrumental in organizing, wholly or in part, the Company or any Person who
will manage or participate in the management of the Company and any Affiliate of
such Person, but does not include (i) any Person whose only relationship with
the Company is that of an independent asset manager and whose only compensation
from the Company is as such, and (ii) wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation is for
professional services.
(v) "TRUSTEES" shall mean, collectively, the Persons who constitute
the Board of Trustees of the Company.
11. ASSET MANAGEMENT FEE. Advisor shall receive an asset management fee
equal to 1.75% per annum of Company Equity. The asset management fee shall be
calculated and paid in cash monthly in arrears. Advisor shall make available the
monthly calculation of the asset management fee to the Company within fifteen
(15) days following the last day of each calendar month, and the Company shall
pay the Advisor the asset management fee within five (5) business days
thereafter.
12. OTHER FEES/COMPENSATION TO THE ADVISOR.
(a) ORIGINATION POINTS. The Advisor shall be entitled to receive, with
respect to each investment originated by the Company, the origination points, if
any, paid by borrowers. In connection with the acquisition of investments for
the Company, the Advisor may also act as an advisor to third parties which
participate with the Company in such investments and may receive origination
points, if any, from such third parties or their borrowers.
(b) ANNUAL INCENTIVE FEE. Subject to (1) a minimum annual
Distributions being made to Shareholders from CAD of $1.45 per Share AND (2) the
Company achieving at least annual Adjusted Funds From Operations per share of
$1.60 (net of the Annual Incentive Fee), the Advisor shall be entitled to
receive incentive compensation for each fiscal year in an amount equal to the
product of:
(A) 25% of the dollar amount by which
(1) Adjusted Funds From Operations of the Company (before the Annual
Incentive Fee) per Share (based on the weighted average number of
Shares outstanding)
exceed
(2) an amount equal to the greater of:
(a) (i) the weighted average of (x) $20 (the price per Share the
initial public offering) and (y) the prices per Share of any secondary
offerings by the Company multiplied by
(ii) the Ten-Year U.S. Treasury Rate plus 2% per annum; and
76
(b) $1.45
multiplied by
(B) the weighted average number of Shares outstanding during such
year.
(c) SERVICING FEES AND OTHER COMPENSATION FROM THIRD PARTIES. The
Advisor shall be entitled to receive all servicing fees associated with assets
under the Company's management. To the extent that the Company participates with
a third party in connection with investments, the Advisor may receive special
servicer fees and other fees and compensation from such third party.
13. STATEMENTS. Prior to the payment of any fees hereunder, the Advisor
shall furnish to the Company a statement showing the computation of the fees, if
any, payable under Sections 11, 12 and 14 hereof.
14. COMPENSATION FOR ADDITIONAL SERVICES.
(a) PROPERTY MANAGEMENT. In the event the Company forecloses on a
property on which it holds a mortgage, the Company may be required to take over
the management of the property. In such cases, the Advisor or an Affiliate of
the Advisor may be retained to provide property management services at rates and
on terms no less favorable to the Company than those customary for similar
services, if such entity has knowledge of and experience in the area. In no case
shall such fee (including all rent-up, leasing, and re-leasing fees and bonuses
paid to any person) exceed 5% of the gross revenues from such properties.
(b) PROPERTY DISPOSITIONS FOLLOWING FORECLOSURE. If the Company
forecloses on a property securing a mortgage and sells such property, the
Advisor or an Affiliate of the Advisor may be entitled to a subordinated real
estate commission equal to the lesser of (i) 3% of the gross sales price of such
property received by the Company or (ii) one-half of the normal and competitive
rate customarily charged by unaffiliated parties rendering similar services, and
such fees shall be paid only if the Advisor or Affiliate thereof provides a
substantial amount of services in the sales effort.
15. EXPENSES OF THE COMPANY. (a) The Company shall pay all of its expenses,
except those set forth in paragraph 16 hereof. Without limiting the foregoing,
it is specifically agreed that the following expenses of the Company shall be
paid by the Company and shall not be borne by the Advisor:
(i) the cost of money borrowed by the Company;
(ii) taxes an income and taxes and assessments on real property and
all other taxes applicable to the Company;
(iii) fees and expenses paid to independent contractors, unaffiliated
mortgage servicers, consultants, managers and other agents employed by or on
behalf of the Company;
(iv) expenses directly connected with the ownership, and disposition
of investments, or other property and with the origination or purchase of
investments (including the costs of foreclosure, insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair and improvement
of property);
(v) expenses of maintaining and managing real estate equity interests,
processing and servicing mortgage and other loans and managing the Company's
other investments;
(vi) insurance coverage in connection with the business of the Company
(including officers' and trustees' liability insurance);
(vii) the expenses of revising, amending, converting, modifying or
terminating the Company or revising, amending or modifying its organizational
documents;
77
(viii) expenses connected with payments of interest or Distributions
in cash or any other form made or caused to be made by the Trustees to
Shareholders;
(ix) all expenses connected with communications to Shareholders and
other bookkeeping and clerical work necessary in maintaining relations with the
Shareholders, including the cost of printing and mailing certificates for
securities, proxy solicitation materials and reports to holders of the Company's
securities;
(x) the cost of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Company;
(xi) transfer agent's and registrar's fees and charges;
(xii) other legal, accounting and auditing fees and expenses as well
as any costs incurred in connection with any other litigation in which the
Company is involved and in the examination, investigation or other proceedings
conducted by any regulatory agency with respect to the Company;
(xiii) all expenses relating to any office or office facilities
maintained by the Company or any Subsidiary exclusive of the main office of the
Advisor, including, without limitation, rent, telephones, utilities, office
furniture, equipment, machinery and other office expenses for any persons
employed by the Company;; and
(xiv) the Company's pro rata portion of rent, telephone, utilities,
office furniture, equipment, machinery and other office, internal and overhead
expenses of the Advisor and its Affiliates required for the Company's
operations.
(b) The Company shall reimburse the Advisor and its Affiliates for (i)
the actual costs to the Advisor or its Affiliates of goods, materials and
services used for and by the Company obtained from unaffiliated parties; (ii)
administrative services necessary to the operation of the Company and (iii) the
costs of certain personnel employed by the Company and directly involved in the
organization and business of the Company (including persons who may be employees
or officers of the Advisor and its Affiliates) and for legal, accounting,
transfer agent, reinvestment and redemption plan administration, data
processing, duplicating and investor communications services performed by
employees or officers of the Advisor and its Affiliates which could be performed
directly for the Company by independent parties. The amounts charged to the
Company for services performed pursuant to clause (ii) above will not exceed the
lesser of (a) the actual cost of such services, or (b) the amount which the
Company would be required to pay to independent parties for comparable services.
No reimbursement will be allowed to the Advisor or its Affiliates for services
performed pursuant to clause (ii) above unless the Advisor or its Affiliates
have the appropriate experience and expertise to perform such services.
(c) The Company will reimburse the Advisor for any travel expenses
incurred in connection with the services provided hereunder and for advertising
expenses incurred by it in seeking any investments or seeking the disposition of
any investments held by the Company.
16. EXPENSES OF THE ADVISOR. Except as otherwise provided herein and
without regard to the amount of compensation received hereunder by the Advisor,
the Advisor shall bear the following expenses:
(i) employment expenses of the Advisor's or its Affiliates' personnel
(including partners and directors and officers thereof and employees of the
Company who are Trustees, officers and employees of the Advisor), including, but
not limited to, fees, salaries, wages, payroll taxes, travel expenses (except as
set forth pursuant to Section 15(c) above) and the cost of employee benefit
plans and temporary help expenses;
(ii) advertising expenses (except as set forth pursuant to Section
15(c) above);
Notwithstanding the provisions of Section 16, the Company shall reimburse the
Advisor for the expenses set forth in Section 15(b) and 15(c) above.
78
17. INTENTIONALLY DELETED.
18. OTHER ACTIVITIES OF ADVISOR. Nothing in this Agreement shall prevent
the Advisor or any of its Affiliates from engaging in other business activities
related to real estate, mortgage investments or other investments whether
similar or dissimilar to those made by the Company or from acting as advisor to
any other person or entity having investment policies whether similar or
dissimilar to those of the Company (including another real estate investment
trust). However, before the Advisor, its partners, their officers and directors,
and any person controlled by the partners of the Advisor or their officers and
directors may take advantage of an opportunity for their own account or present
or recommend it to others (except for the presentation and recommendation of
equally suitable investment opportunities to Affiliated Programs, which shall be
governed by the procedures set forth in the Company Investment Policy), they are
obligated to present an investment opportunity to the Company if (i) such
opportunity is within the Company's investment objectives and policies, (ii)
such opportunity is of a character which could be taken by the Company, and
(iii) the Company has the financial resources to take advantage of such
opportunity.
19. TERM; TERMINATION OF AGREEMENT .
(a) TERM. This Agreement shall remain in full force through March 28,
2007, unless terminated by the Company or Advisor as set forth below, and shall
be renewed automatically for successive one (1) year periods thereafter, until
this Agreement is terminated in accordance with the terms hereof.
(b) NON-RENEWAL. Either party may elect not to renew this Agreement at
the expiration of the initial term or any renewal term for any or no reason by
notice to the other party at least six (6) months prior to the end of the term.
(c) VOLUNTARY TERMINATION. Either party may terminate this Agreement
or any reason or no reason upon prior written notice to the other party (1) in
the case of the Company, at least six (6) months prior to the end of the term,
and (2) in the case of the Advisor, at least three (3) months prior to the end
of the term.
(d) TERMINATION BY THE COMPANY. The Company may terminate this
Agreement effective sixty (60) days after notice of termination from the Company
to Advisor in the event that any act of fraud, misappropriation of funds, or
embezzlement against the Company or other willful and material violation of this
Agreement by Advisor in its corporate capacity (as distinguished from the acts
of any employees of Advisor which are taken without the complicity of any of the
executive officers of Advisor); provided, that such willful and material
violation continues for a period of thirty (30) days after written notice
thereof specifying such violation and requesting that the same be remedied in
such thirty (30) day period.
(e) TERMINATION BY ADVISOR. Advisor may terminate this Agreement
effective upon sixty (60) days prior written notice of termination to the
Company in the event that the Company shall default in the performance or
observance of any material term, condition or covenant in this Agreement and
such default shall continue for a period of thirty (30) days after written
notice thereof specifying such default and requesting that the same be remedied
in such thirty (30) day period.
(f) TERMINATION FEES. In the event the Agreement is not renewed by the
Company or is terminated under Section 19(b) or 19(e), the Company shall pay
Advisor on the termination date: (A) if the termination date occurs on or prior
to March 28, 2010, a termination fee equal to (1) four times the Asset
Management Fee Advisor would have been entitled to receive from the Company
during the 4-calendar quarter period immediately preceding the effective date of
such termination, plus (2) four times the Annual Incentive Fee Advisor would
have been entitled to receive from the Company during the 4-calendar quarter
period immediately preceding the effective date of such termination; or (B) if
the termination date occurs after March 28, 2010, the greater of (1) (a) two
times the Asset Management Fee Advisor would have been entitled to receive from
the Company during the 4-calendar quarter period immediately preceding the
effective date of such termination, plus (b) two times the Annual Incentive
Advisor would have been entitled to receive from the Company during the
4-calendar quarter period immediately preceding the effective date of such
termination or (2) a fee equal to the market rate termination fee payable to
outside advisors of real estate investments trusts. The Company's obligation to
pay a termination fee shall survive the termination of this Agreement.
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(g) SURVIVAL. If this Agreement is terminated pursuant to this Section
19, such termination shall be without any further liability or obligation of
either party to the other, except as otherwise expressly provided herein.]
(h) DISPUTE RESOLUTION. If the Company and the Advisor are unable to
reach an agreement regarding the fees payable to the Advisor upon renewal of
this Agreement pursuant to Section 19(a) or the amount of the applicable
market-rate termination fee pursuant to Section 19(e)(B)(2), any such dispute
shall be settled and determined by arbitration in New York City before a panel
of three arbitrators (who shall be required to be members in good standing of
the American Arbitration Association) pursuant to the Commercial Rules then in
effect of the American Arbitration Association. The parties agree that the
arbitrators shall have the power to award damages, preliminary or permanent
injunctive relief and reasonable attorneys' fees and expenses to any party in
such arbitration. The arbitration award shall be final and binding upon the
parties and judgment thereon may be entered in any court having competent
jurisdiction thereof. The arbitrators shall be governed by and shall apply the
substantive law of the State of New York in making their award.
20. AMENDMENTS. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by
both parties hereto, or their respective successors or permitted assigns, or
otherwise as provided herein.
21. ASSIGNMENT. This Agreement may not be assigned by the Advisor without
the written consent of the Company, except to a corporation or other person
which controls, is controlled by, or is under common control with the Advisor,
or a corporation, association, trust or other successor organization which may
take over the property and carry on the affairs of the Advisor. Any assignee of
the Advisor shall be bound hereunder to the same extent as the Advisor. This
Agreement shall not be assigned by the Company without the written consent of
the Advisor, except to a corporation, association, trust or other organization
which is a successor to the Company. Such successor shall be bound hereunder to
the same extent as the Company. Notwithstanding anything to the contrary
contained herein, the economic rights of the Advisor hereunder, including the
right to receive all compensation hereunder, may be sold, transferred or
assigned by the Advisor without the consent of the Company.
22. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Section 19 hereof, the Advisor shall
not be entitled to compensation for further service rendered hereunder but shall
be paid all compensation and reimbursed for all expenses accrued through the
date of termination. The Advisor shall forthwith upon such termination:
(a) pay over to the Company all moneys collected and held for the
account of the Company pursuant to this Agreement, after deducting any accrued
compensation and reimbursement for its expenses to which it is then entitled;
(b) deliver to the Company a full accounting, including a statement
showing all payments collected by it and a statement of all moneys held by it,
covering the period following the date of the last accounting furnished to the
Company; and
(c) deliver to the Company all property and documents of the Company
then in the custody of the Advisor.
23. INCORPORATION OF THE DECLARATION OF TRUST. To the extent the
Declaration of Trust imposes obligations or restrictions on the Advisor or
grants the Advisor certain rights which are not set forth in this Agreement, the
Advisor shall abide by such obligations or restrictions and such rights shall
inure to the benefit of the Advisor with the same force and effect as if they
were set forth herein.
24. MISCELLANEOUS. (a)( a) The Advisor assumes no responsibility under this
Agreement other than to render the services called for hereunder in good faith,
and shall not be responsible for any action of the Company in following or
declining to follow any advice or recommendations of the Advisor. Neither the
Advisor nor its directors, officers and employees shall be liable to the
Company, the Shareholders or to any successor or assignee of the Company, except
80
by reason of acts constituting bad faith, gross negligence or reckless disregard
of their duties. This shall in no way affect the standard for indemnification
but shall only constitute a standard of liability. The duties to be performed by
the Advisor pursuant to this Agreement may be performed by it or by officers,
directors or by Affiliates of the foregoing under the direction of the Advisor
or delegated to unaffiliated third parties under its direction.
(b) The Advisor shall look solely to the assets of the Company for
satisfaction of all claims against the Company, and in no event shall any
Shareholder of the Company have any personal liability for the obligations of
the Company under this Agreement.
(c) All calculations made in accordance with this Agreement (other
than those calculations which by their terms are not based on GAAP) shall be
based on statements (which may be unaudited, except as specifically provided
herein) prepared on an accrual basis consistent with GAAP, regardless of whether
the Company may also prepare statements on a different basis.
25. NOTICES. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing, and shall be given by
delivering such notice by hand or by certified mail, return receipt requested,
postage pre-paid, at the following addresses of the parties hereto:
American Mortgage Acceptance Company
625 Madison Avenue
New York, New York 10022
Attn.: President
CharterMac AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022
Attention: President
Either party may at any time change its address for the purpose of this Section
25 by like notice.
26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
27. GOVERNING LAW. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect.
IN WITNESS WHEREOF, the undersigned have caused this agreement to be signed as
of the day and year first above written.
AMERICAN MORTGAGE ACCEPTANCE COMPANY
By:
---------------------------------------
Name:
Title:
CHARTERMAC AMI ASSOCIATES, INC.
By:
---------------------------------------
Name:
Title:
81
Exhibit 10(d)
LOAN AGREEMENT
BETWEEN
CHARTERMAC
AND
AMERICAN MORTGAGE ACCEPTANCE COMPANY
AS OF JUNE 30, 2004
82
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.......................................1
1.1 DEFINITIONS...............................................................1
1.2 ACCOUNTING TERMS AND DETERMINATIONS.......................................8
SECTION 2. THE CREDIT ACCOMMODATIONS..............................................8
2.1 THE CREDIT ACCOMMODATIONS.................................................8
2.2 TERM OF AGREEMENT.........................................................9
2.3 PREPAYMENT OF THE OBLIGATIONS; BORROWER'S REDUCTION OF LOAN AMOUNT........9
2.4 EVIDENCE OF INDEBTEDNESS, MATURITY.......................................10
2.5 INTEREST, LOAN FEES AND PAYMENT OF EXPENSES..............................10
SECTION 3. CONDITIONS TO CREDIT...................................................2
3.1 DOCUMENTS................................................................12
3.2 REPRESENTATIONS AND WARRANTIES...........................................12
3.3 EVENTS OF DEFAULT........................................................13
3.4 APPROVAL OF LENDER'S COUNSEL.............................................13
3.5 PAYMENT OF FEES..........................................................13
SECTION 4. REPRESENTATIONS AND WARRANTIES.........................................3
4.1 EXISTENCE; PLACE OF BUSINESS; IDENTIFICATION NUMBERS.....................13
4.2 AUTHORITY................................................................13
4.3 FINANCIAL STATEMENTS.....................................................14
4.4 FINANCIAL CONDITION......................................................14
4.5 ASSETS...................................................................14
4.6 LITIGATION...............................................................14
4.7 BURDENSOME PROVISIONS....................................................14
4.8 OTHER AGREEMENTS.........................................................15
4.9 TAXES....................................................................15
4.10 THE LOAN.................................................................15
4.11 CAPITALIZATION...........................................................15
4.12 SOLVENCY.................................................................15
4.13 EVENTS OF DEFAULT........................................................15
4.14 ERISA....................................................................16
4.15 ENVIRONMENTAL AND REGULATORY COMPLIANCE..................................16
4.16 CONTRACTS WITH AFFILIATES, ETC...........................................17
4.17 FEDERAL REGULATIONS......................................................17
4.18 QUALIFICATION AS A REIT..................................................17
4.19 ADVISORY AGREEMENT; ADVISORY SUBCONTRACT.................................17
83
TABLE OF CONTENTS
(continued)
PAGE
4.20 HOLDING COMPANY AND INVESTMENT COMPANY ACTS..............................18
4.21 INVESTMENT COMPANY ACT; OTHER REGULATIONS................................18
SECTION 5. AFFIRMATIVE COVENANTS..................................................8
5.1 FINANCIAL STATEMENTS.....................................................18
5.2 MAINTENANCE OF EXISTENCE; CHARACTER OF EQUITY............................19
5.3 MAINTENANCE OF PROPERTIES................................................19
5.4 COMPLIANCE WITH LAWS.....................................................19
5.5 TAXES AND CLAIMS.........................................................20
5.6 NOTICE OF DEFAULTS.......................................................20
5.7 CHANGES IN MANAGEMENT....................................................20
5.8 NOTICE OF LITIGATION.....................................................20
5.9 RECORDS..................................................................20
5.10 EXECUTION OF OTHER INSTRUMENTS...........................................20
5.11 MAINTENANCE OF REIT STATUS...............................................20
5.12 CONTINUATION OF ADVISORY AGREEMENT AND ADVISORY SUBCONTRACT..............20
5.13 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS...................21
SECTION 6. NEGATIVE COVENANTS.....................................................1
6.1 ENCUMBRANCES AND LIENS...................................................21
6.2 INDEBTEDNESS.............................................................22
6.3 CONSOLIDATION AND MERGER.................................................23
6.4 LOANS, GUARANTEES, INVESTMENTS...........................................23
6.5 ACQUISITIONS.............................................................23
6.6 DISPOSAL OF ASSETS.......................................................23
6.7 PAYMENT OF DISTRIBUTIONS.................................................23
6.8 LIMITATIONS ON LEASING...................................................23
6.9 DEFAULT UNDER OTHER AGREEMENTS OR INDENTURES.............................23
6.10 PURCHASE OF MARGIN STOCK.................................................24
6.11 AMENDMENT TO CERTAIN DOCUMENTS...........................................24
6.12 TRANSACTIONS WITH AFFILIATES.............................................24
6.13 ERISA COMPLIANCE.........................................................24
6.14 REAL ESTATE ACTIVITIES...................................................25
6.15 DEFAULT UNDER ADVISORY AGREEMENT OR ADVISORY SUBCONTRACT.................25
SECTION 7. FINANCIAL COVENANTS....................................................5
7.1 INDEBTEDNESS.............................................................25
7.2 MINIMUM TANGIBLE NET WORTH...............................................25
84
TABLE OF CONTENTS
(continued)
PAGE
7.3 LIQUIDITY................................................................25
7.4 MATERIAL ADVERSE CHANGE..................................................25
SECTION 8. EVENTS OF DEFAULT......................................................6
8.1 EVENTS OF DEFAULT........................................................26
SECTION 9. MISCELLANEOUS PROVISIONS..........................................28
9.1 INCORPORATION OF PREAMBLE, RECITAL AND EXHIBITS..........................28
9.2 NOTICES..................................................................28
9.3 AMENDMENTS, WAIVERS, ETC.................................................28
9.4 INDEMNIFICATION..........................................................29
9.5 INCONSISTENCIES WITH OTHER LOAN DOCUMENTS................................29
9.6 EXPENSES.................................................................29
9.7 ASSIGNABILITY............................................................29
9.8 TIME OF ESSENCE..........................................................30
9.9 ENTIRE AGREEMENT.........................................................30
9.10 SEVERABILITY.............................................................30
9.11 GOVERNING LAW............................................................30
9.12 NO PARTNERSHIP OR JOINT VENTURE..........................................30
9.13 REPLACEMENT DOCUMENTS....................................................30
9.14 HEADINGS.................................................................30
9.15 USURY LIMITATION.........................................................30
9.16 WAIVER OF JURY TRIAL.....................................................31
85
EXHIBITS TO LOAN AGREEMENT
--------------------------
EXHIBIT A Form of Note
EXHIBIT 2.1 Form of Borrowing Notice
EXHIBIT 3.1 Closing Checklist
EXHIBIT 4.6 Litigation
EXHIBIT 4.16 Contracts with Affiliates
EXHIBIT 5.1 Form of Covenant Compliance Certificate
EXHIBIT 6.2 Indebtedness
86
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is entered into as of this 30th day
of JUNE, 2004 among American Mortgage Acceptance Company, a Massachusetts
business trust ("Borrower"), and CharterMac, a Delaware statutory trust
("Lender") .
RECITALS
By means of a loan facility to be established under and subject to this
Agreement (the "Line of Credit"), Borrower desires to secure from the Lender up
to $20,000,000 for use by Borrower to originate bridge loans, mortgage loans,
mezzanine loans and other mortgage investments and Lender has agreed to provide
such financing.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained therein and set forth below, and for other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties, the
parties agree as follows:
Section 1.
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, as used in this Agreement, shall have
the following meanings, unless the context clearly indicates otherwise:
"Accountants" means independent certified public accountants reasonably
acceptable to the Lender. The Lender hereby acknowledges that the
Accountants for Borrower may include Deloitte & Touche LLP, which
accountants are acceptable to the Lender.
"Advances" means any and all advances made or to be made by the Lender to
Borrower pursuant to and as contemplated by the terms of this Agreement.
"Advisor" means Related AMI Associates, Inc., a Delaware corporation, or
any Person directly or indirectly succeeding to Related AMI Associates,
Inc. (or RCC under the Advisory Subcontract) as the Advisor in accordance
with the terms of SECTION 5.12 hereof.
"Advisory Agreement" means (i) that certain Amended and Restated Advisory
Services Agreement, effective as of April 6, 1999, amended as of November
29, 2001, between Borrower and the Advisor, restating an Agreement, dated
March 29, 1993, or (ii) any replacement thereof executed and delivered by
Borrower in accordance with the terms of Section 5.12 hereof, pursuant to
which the Advisor performs investment advisory services to Borrower, and
manages Borrower's assets and day-to-day affairs.
"Advisory Subcontract" means that certain advisory subcontract, dated as of
March 29, 1993, between the Advisor and RCC, pursuant to which all of the
Advisor's obligations and duties under the Advisory Agreement are assigned
to and assumed by RCC. In the event that the Advisor or RCC are replaced in
accordance with the terms of SECTION 5.12 hereof, the term Advisory
Subcontract shall mean the Advisory Agreement or such other document as
Borrower and the Lender may agree.
"Affiliates" means, with reference to any Person (including an individual,
a corporation, a partnership, a limited liability company, a trust and a
governmental agency or instrumentality) (i) any director, officer, general
partner, manager, or employee of that Person, (ii) any other Person
controlling, controlled by or under direct or indirect common control of
that Person, (iii) any other Person directly or indirectly holding five
percent (5%) or more of any class of the capital stock or other equity
interests (including partnership interests, member interest, options,
warrants, convertible securities and similar rights) of that Person and
(iv) any other Person five percent (5%) or more of any class of whose
capital stock or other equity interests (including partnership interests,
member interest, options, warrants, convertible securities and similar
rights) is held directly or indirectly by that Person.
"Agreement" means this Loan Agreement.
"AMAC Credit Facility" means AMAC Credit Facility LLC, a Delaware limited
liability company.
87
"AMAC Credit Facility Loan Agreement" means that certain loan agreement
among Fleet National Bank, AMAC Credit Facility and Borrower, dated as of
October 22, 2002, as the same may be amended or otherwise modified from
time to time.
"AMAC Funds" means the funds advanced by Borrower to AMAC Credit Facility
LLC under the AMAC Credit Facility Loan Agreement.
"Borrower" means that term as defined in the first paragraph of this
Agreement.
"Borrowing Notice" means any borrowing request submitted by Borrower in the
form of EXHIBIT 2.1 attached hereto.
"Business Day" means any day on which commercial banks in New York, New
York settle payments.
"Cash and Cash Equivalents" means the aggregate amount of cash and cash
equivalents, as determined in accordance with GAAP.
"Closing Date" means the date on which the conditions set forth in SECTION
3.1 through SECTION 3.5 are first satisfied.
"Code" means the Internal Revenue Code of 1986, as amended.
"Control" means either (i) having an economic interest in greater than 50%
of the equity of an entity and the power and authority to elect or
otherwise determine a majority of the board of directors or similar
governing body of such entity, or (ii) having the power and authority to
determine and control the policies and operations of such entity.
"Covenant Compliance Certificate" means the Covenant Compliance Certificate
substantially in the form of EXHIBIT 5.1 attached hereto, from the
principal financial officer of Borrower, certifying that the information
prepared thereon has been prepared in accordance with GAAP, and stating
that such officer has no knowledge that a Default or Event of Default has
occurred and is continuing or, if a Default or an Event of Default or such
event has occurred and is continuing, the statement as to its nature and
the action which such entity or any other entity proposes to take with
respect to such Default or Event of Default.
"Default" means an event or condition which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"ERISA Affiliate" means each entity that may have been at any time during
the sixty month period ending on the date of this Agreement or may be
treated as a single employer with Borrower under the rules of Subsections
(b), (c), (m) or (o) of Section 414 of the Code.
"Event of Default" means any act or occurrence specified as an Event of
Default in SECTION 8.
"Fair Market Value of Total Assets" means the aggregate fair market value
of all of a Person's assets, valuing those assets customarily bought and
sold on a recognized market yielding widely distributed standard price
quotations at their readily ascertainable market price, and all other
assets valued using such methodology and data as shall be fully disclosed
to, and approved by, the Lender in its reasonable discretion.
"Fannie Mae" means the Federal National Mortgage Association.
"FHA" means the Federal Housing Administration.
"Financial Statements" means that term as defined in SECTION 4.3.
88
"Freddie Mac" means the Federal Home Loan Mortgage Corporation.
"GAAP" means generally accepted accounting principles and practices as
applicable under SECTION 1.2 below and as set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession. GAAP shall be consistently applied from one accounting period
to another.
"GNMA Certificates" means securities guaranteed by the Government National
Mortgage Association including GNMA pass-through mortgage-backed
securities.
"Indebtedness" with respect to any Person means and includes, without
duplication (i) all items which, in accordance with GAAP, would be
liabilities on the balance sheet of such Person, but excluding anything in
the nature of capital stock or other equity, surplus capital and retained
earnings, (ii) the face amount of all banker's acceptances and of all
drafts drawn under all banker's acceptances and of all letters of credit
issued by any bank for the account of such Person and, without duplication,
all drafts drawn thereunder, (iii) the total amount of all indebtedness
secured by any encumbrance to which any property or asset of such Person is
subject, whether or not the indebtedness secured thereby shall have been
assumed, and (iv) the total amount of all indebtedness and obligations of
others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business), discounted with recourse or agreed (contingently or otherwise)
to purchase or repurchase or otherwise acquire, including, without
limitation, any agreement (a) to provide or supply funds to such other
Person to maintain working capital, equity capital, net worth or solvency,
or (b) otherwise to assure or hold harmless such other Person against loss
in respect of its obligations.
"Interest Period" means, as to any LIBOR Rate Amount, the period the
commencement and duration of which shall be determined in accordance with
SECTION 2.5.1(A), provided that if any such Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on
the Business Day next preceding or next succeeding such day as determined
by the Lender in accordance with its usual practices, of which the Lender
shall notify Borrower in writing at the beginning of such Interest Period.
"IRS" means the United States Internal Revenue Service.
"LIBOR Business Day" means any Business Day on which commercial banks are
open for international business (including dealings in dollar deposits) in
London or such other eurodollar interbank market as may be selected by the
Lender in its sole discretion acting in good faith.
"LIBOR Rate" means for any Interest Period with respect to a LIBOR Rate
Amount, the rate of interest equal to the rate per annum (rounded upwards
to the nearest 100,000th of one percent) as determined on the basis of the
offered rates for deposits in U.S. dollars, for a period of time comparable
to the Interest Period selected by Borrower with respect to such LIBOR Rate
Amount which appears on the Telerate page 3750 as of 11:00 a.m. London time
on the day that is two LIBOR Business Days preceding the first day of the
applicable Interest Period. If the rate described above does not appear on
the Telerate System on any applicable interest determination date, the
LIBOR Rate shall be the rate (rounded upwards as described above, if
necessary) determined on the basis of the offered rates for deposits in
U.S. dollars for a period of time comparable to the applicable Interest
Period and in an amount comparable to the principal amount of the requested
LIBOR Rate Amount which are offered by four major banks in the London
interbank market at approximately 11:00 a.m. London time on the day that is
two (2) LIBOR Business Days preceding the first day of the applicable
Interest Period. The principal London office of each of the four major
London banks will be requested to provide a quotation of its U.S. dollar
deposit offered rate. If at least two such quotations are provided, the
rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that date will
be determined on the basis of the rates quoted for loans in U.S. dollars to
leading European banks for a period of time comparable to the applicable
Interest Period for such LIBOR Rate Amount and in an amount comparable
thereto offered by major banks in New York City at approximately 11:00 a.m.
New York City time, on the day that is two LIBOR Business Days preceding
the first day of such Interest Period. In the event that the Lender is
unable to obtain any such quotation as provided above, it will be deemed
that the LIBOR Rate cannot be determined and the interest rate applicable
89
to such LIBOR Rate Amount shall be determined in accordance with SECTION
2.5.1(D). In the event that the Board of Governors of the Federal Reserve
System shall impose a LIBOR Reserve Rate, then for any period during which
such LIBOR Reserve Rate shall apply, the LIBOR Rate shall be equal to the
amount determined above divided by an amount equal to 1 minus the LIBOR
Reserve Rate.
"LIBOR Rate Amount" means, in relation to any Interest Period, any portions
of the principal amount of the Loan on which Borrower elects pursuant to
SECTION 2.5.1 to pay interest at a rate determined by reference to the
LIBOR Rate.
"LIBOR Reserve Charge" means, for each day on which any LIBOR Rate Amount
is outstanding, a reserve charge in an amount equal to the product of:
(i) the outstanding principal amount of the LIBOR Rate Amount,
multiplied by
(ii) (a) the LIBOR Rate (expressed as a decimal) divided by one minus
the LIBOR Reserve Rate, minus (b) the LIBOR Rate (expressed as a
decimal),
multiplied by
(iii) 1/360.
"LIBOR Reserve Rate" means, for any day with respect to a LIBOR Rate
Amount, the maximum rate (expressed as a decimal) at which any lender
subject thereto would be required to maintain reserves (including all
basic, supplemental, marginal and other reserves) under Regulation D of the
Board of Governors of the Federal Reserve System (or any successor or
similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The LIBOR Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the LIBOR
Reserve Rate.
"Line of Credit" means that term as defined in the recital set forth above.
"Liquidity" means Cash and Cash Equivalents plus availability to Borrower
under any working capital facilities or Repo Facilities.
"Loan" means all Advances made or other credit accommodations provided by
the Lender to Borrower in accordance with the terms and conditions of this
Agreement.
"Loan Amount" means the principal amount of TWENTY MILLION AND NO/100
DOLLARS ($20,000,000.00), or such lesser amount as may from time to time be
in effect following exercise of the reduction procedure set forth in
SECTION 2.3.
"Loan Documents" means this Agreement, the Note and the documents specified
in Section 3.1 and any other documents, instruments or agreements relating
to the Line of Credit required or contemplated hereby and thereby.
"Loan Fees" means the Upfront Fee. The Loan Fees shall be in addition to
all out-of-pocket expenses, including, without limitation, reasonable
attorneys' fees and costs for the Lender and customary recording, filing or
other similar document fees and charges, each of which shall be paid by
Borrower.
"Maturity Date" means such date as determined in accordance with the terms
of SECTION 2.4, upon which date all Obligations, including, without
limitation, any remaining unpaid principal, interest, Loan Fees,
out-of-pocket expenses including attorneys' fees and costs, and
documentation charges and other charges relating to the Loan shall be due
and payable in full.
90
"Net Equity" means equity raised by Borrower, net of costs incurred in
raising such equity, including, without limitation, brokerage costs and
reasonable fees for professional services.
"Note" means the credit note in the aggregate principal amount of the Loan
Amount executed substantially in the form of EXHIBIT A attached hereto by
Borrower, payable to the order of the Lender.
"Obligations" means any and all obligations of Borrower to the Lender of
every kind and description, direct or indirect, absolute or contingent,
primary or secondary, due or to become due, now existing in connection with
or hereafter arising out of this Agreement and the other Loan Documents.
"Organizational Documents" means, with regard to (i) a corporation, its
charter and bylaws, (ii) a limited partnership, its certificate of limited
partnership and agreement of limited partnership, (iii) a limited liability
company, its certificate of organization and operating agreement or such
similar certificate or agreement as is customary in the jurisdiction of
formation for such limited liability company, (iv) a Massachusetts business
trust, its charter and declaration of trust, and (v) any other type of
entity, documents, agreements and certificates serving substantially the
same purposes as the foregoing.
"Person" means and includes any natural person, partnership, limited
liability company, trust, estate, association, corporation or other entity.
"Plans" means that term as defined in SECTION 4.14.
"RCC" means the Related Capital Company, LLC, a New York limited liability
company.
"Registration Statement" means that certain Form S-2 Registration Statement
under the Securities Act of 1933, for Borrower, as amended by Amendment No.
1, filed with the Securities and Exchange Commission on January 11, 2002.
The Registration Statement shall be defined, for purposes of this
Agreement, as the Registration Statement as filed with the Securities and
Exchange Commission prior to the date hereof, without amendment,
modification or restatement.
"REIT" means a "real estate investment trust" as such term is defined in
Section 856 of the Code.
"Repo Facilities" means the facilities existing on the date hereof between
Borrower, on the one hand, and each of RBC Capital Markets Corporation,
Greenwich Capital Markets, Inc. and Bear, Stearns & Co. Inc. on the other
hand.
"Revolving Commitment Period" means that term as defined in SECTION 2.1.
"Subsidiaries" means, with reference to any Person (including an
individual, a corporation, a partnership, a limited liability company, a
trust or a governmental agency or instrumentality), any corporation,
partnership, association, joint stock company, business trust or other
similar organization of whose total capital stock, voting stock or other
equity such Person directly or indirectly owns or controls more than 50%
thereof or any partnership, limited liability company or other entity in
which such Person directly or indirectly has more than a 50% interest or
which is controlled directly or indirectly by such Person.
"Tangible Net Worth" means the net worth of the entity for which Tangible
Net Worth is being calculated, computed in accordance with GAAP and with
inventory and cost of goods sold determined on a "first-in, first-out"
basis, and minus (i) the book value, net of applicable reserves, of all
intangible assets of such entity including, without limitation, goodwill,
trademarks, tradenames, copyrights, patents and any similar rights, and
unamortized debt discount and expense, (ii) intercompany accounts with
Affiliates (including receivables due from Affiliates), unless created at
market rates in the ordinary course of business, consistent with past
practices and approved by the Lender, (iii) to the extent not otherwise
approved in advance by the Lender, any write up in the book value of any
asset of such entity resulting from a revaluation thereof after June 30,
2004, (iv) the value in excess of the cost thereof, if any, attributable to
any equity interests of such entity held in treasury, (v) the value of any
minority equity interests in any Person, and (vi) notes or subscriptions
receivable due from any equityholders of such entity or due from any
equityholders in respect of such entity.
91
"Ten Year U.S. Treasury Rate" means the arithmetic average of the weekly
average yield to maturity for actively traded current coupon U.S. Treasury
fixed interest rate securities (adjusted to constant maturities of ten
years) published by the Federal Reserve Board during a fiscal year, or, if
such rate is not published by the Federal Reserve Board, any Federal
Reserve Bank or agency or department of the federal government selected by
the Lender. If the Lender determines in good faith that the Ten Year U.S.
Treasury Rate cannot be calculated as provided above, then the rate will be
the arithmetic average of the per annum average yields to maturities, based
upon closing ask prices on each business day during a quarter, for each
actively traded marketable U.S. Treasury fixed interest rate security with
a final maturity date not less than 8 nor more than 12 years from the date
of closing ask prices as chosen and quoted for each business day in each
such quarter in New York City by at least three recognized dealers in U.S.
Government Securities selected by the Lender.
"Upfront Fee" means that term as defined in SECTION 2.5.2.
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires:
(1) references to any Person defined in this SECTION 1.1 refer to such
Person and its successor in title and assigns or (as the case may be) his
successors, assigns, heirs, executors, administrators and other legal
representatives;
(2) references to this Agreement refer to such document as originally
executed, or if subsequently varied, supplemented or restated from time to
time, as so varied, supplemented or restated and in effect at that relevant
time of reference thereto;
(3) words importing the singular only shall include the plural and
vice versa, and words importing the masculine gender shall include the
feminine gender and vice versa, and all references to dollars shall be to
United States Dollars; and
(4) grammatical variations of terms defined in this Agreement shall be
defined with reference to and in the context of such defined terms (e.g.
"Controlling," "Controlled," etc. shall be defined in the context of the
definition of the word "Control" to refer to situations in which a Person
holds greater than fifty percent (50%) of the equity of an entity and the
power and authority to elect or otherwise determine a majority of the Board
of Directors or similar governing body of such entity).
1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP as in effect from time to time.
Section 2.
THE CREDIT ACCOMMODATIONS
2.1 THE CREDIT ACCOMMODATIONS.
2.1.1 ADVANCES. Subject to the terms and conditions hereof, from and
including the Closing Date and prior to the Maturity Date (the "REVOLVING
COMMITMENT PERIOD"), the Lender agrees to make revolving loans ("ADVANCES") to
Borrower from time to time in an aggregate principal amount at any one time
outstanding which does not exceed the Loan Amount. During the Revolving
Commitment Period, Borrower may use the Loan Amount by borrowing, prepaying the
Advances in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof. Borrower shall give the Lender written notice of each
requested Advance in the form of a Borrowing Notice, signed by Borrower. On the
Maturity Date, Borrower shall repay in full the outstanding principal balance of
all Advances.
2.1.2 MAKING OF REVOLVING LOANS. Promptly after receipt of the Borrowing
Notice, the Lender shall make the funds available to Borrower on the applicable
Borrowing Date, utilizing reasonable efforts to initiate the transfer of such
funds so received by not later than 2:00 p.m. (New York time) and shall disburse
such proceeds in accordance with Borrower's instructions set forth in such
Borrowing Notice.
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2.1.3 TERMINATION OF REVOLVING COMMITMENT PERIOD. Without limiting any
other rights or remedies available to the Lender hereunder or under any
applicable law, and notwithstanding any other provision of this Agreement, the
Revolving Commitment Period shall end immediately in the event that Borrower
fails to perform or observe any covenant, term, provision, condition, agreement
or obligation under any of the Loan Documents or any other note, agreement or
instrument in favor of the Lender, or in the event that any of Borrower's
Subsidiaries fails to perform or observe any covenant, term, provision,
condition, agreement or obligation under any of the Loan Documents.
2.1.4 APPLICATION OF PAYMENTS. All Obligations incurred with respect to any
Loan made to Borrower shall be paid within the applicable repayment periods set
forth in this Section 2.1. All payments shall be applied first to the payment of
all Loan Fees, expenses and other amounts due to the Lender (excluding principal
and interest), then to accrued interest, and the balance on account of
outstanding principal of the Loan; provided, however, that after a Default or an
Event of Default has occurred and is continuing, payments will be applied to the
Obligations as the Lender determines in its unrestricted discretion. If the
entire amount of any required principal and/or interest payment is not paid in
full within fifteen (15) days after the same is due, Borrower shall pay to the
Lender a late fee equal to five percent (5%) of the required payment.
2.2 TERM OF AGREEMENT. This Agreement shall continue in full force and
effect so long as any Obligation remains outstanding and the Lender continues to
have any commitment to make any Advance or other credit accommodation hereunder.
2.3 PREPAYMENT OF THE OBLIGATIONS; BORROWER'S REDUCTION OF LOAN AMOUNT.
Borrower may prepay any Obligation in whole or part at any time or from time to
time, with accrued interest to the date of such prepayment on the amount
prepaid, but without premium or penalty. Any such partial prepayment shall be
applied against the Advances under the Line of Credit as Borrower shall direct
so long as there is not then outstanding any Default or Event of Default and,
after the occurrence of such Default or Event of Default, as the Lender shall
determine in its unrestricted discretion (provided that the Lender agrees not to
prepay a LIBOR Rate Amount prior to the end of an Interest Period if there are
any outstanding Advances accruing interest with reference to the LIBOR Rate at
such time). Any prepayment of a LIBOR Rate Amount shall be accompanied by
payment of any additional amounts required pursuant to SECTION 2.5.1 (F).
Borrower may from time to time by written notice delivered to the Lender at
least three (3) Business Days prior to the date of the requested reduction,
reduce the Loan Amount by integral multiples of $1,000,000 as to any unborrowed
portion of the Loan Amount. No reduction of the Loan Amount shall be subject to
reinstatement.
2.4 EVIDENCE OF INDEBTEDNESS, MATURITY. The Loan shall be evidenced by the
Note in the aggregate principal amount of the Loan Amount. The outstanding
principal balance of the Loan, together with accrued interest thereon, and all
other amounts payable by Borrower under the terms of the Loan Documents, shall
be due and payable on June 30, 2005 (the "MATURITY DATE").
2.5 INTEREST, LOAN FEES AND PAYMENT OF EXPENSES.
2.5.1 LIBOR Interest Rate.
-------------------
(A) At the option of Borrower, so long as no Default or Event of Default
has occurred and is then continuing, Borrower may elect from time to
time prior to the Maturity Date to have all or a portion of the unpaid
principal amount of the Loans bear interest at a per annum rate during
any particular Interest Period with reference to the LIBOR Rate plus
three percent (3%); provided, however, that any such portion of any
Loan shall be in an amount not less than $100,000 or some greater
integral multiple of $100,000 with respect to any single Interest
Period. During the continuation of any Event of Default, interest on
the Loans will be calculated based on the one month LIBOR Rate plus
any default interest and other penalties provided for in this
Agreement. Each Interest Period selected hereunder shall commence on
the first day of a calendar month. Any election by Borrower to have
interest calculated at the LIBOR Rate shall be made by notice (which
shall be irrevocable) to the Lender at least three (3) Business Days
prior to the first day of the proposed Interest Period, specifying the
LIBOR Rate Amount and the duration of the proposed Interest Period
(which must be for one, two, three or six months). Any such election
of a LIBOR Rate shall lapse at the end of the expiring Interest Period
unless extended by a further election notice provided in accordance
with this paragraph. Interest shall be payable in the last day of each
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such Interest Period and if such Interest Period has a duration of
more than three months, on each date during such Interest Period
occurring every three months from the first day of such Interest
Period. All computations of interest accruing on the unpaid balance of
Loans from time to time shall be calculated on the basis of a 360-day
year for the actual number of days elapsed. From and after the
occurrence of an Event of Default and, when applicable, the expiration
of the 15-day cure period for such Event of Default as provided in
SECTION 8.1, and during the continuation of such Event of Default, the
unpaid balance of the Loan shall bear interest, to the extent
permitted by law, at the annual rate of interest equal to four percent
(4%) above the interest rate applicable to such Loan pursuant to
SECTION 2.5.1 in effect on the first Business Day prior to the
occurrence of such Event of Default, which interest shall be
compounded monthly and payable on demand. Notwithstanding the
foregoing, Borrower may not select an Interest Period which extends
beyond the Maturity Date.
(B) Borrower shall pay to the Lender, the LIBOR Reserve Charge, if any,
with respect to LIBOR Rate Amounts of the Loans outstanding from time
to time on the dates interest is payable on such LIBOR Rate Amounts.
(C) The Lender shall forthwith upon determining any LIBOR Rate provide
notice thereof to Borrower. Each such notice shall be conclusive and
binding upon Borrower.
(D) If, with respect to any Interest Period, the Lender is unable to
determine the LIBOR Rate relating thereto, or adverse or unusual
conditions in or changes in applicable law relating to the applicable
Eurodollar interbank market make it illegal or, in the reasonable
judgment of the Lender, impracticable, to fund therein the LIBOR Rate
Amount or make the projected LIBOR Rate unreflective of the actual
costs of funds therefor to the Lender, or if it shall become unlawful
for the Lender to charge interest on the Loans on a LIBOR Rate basis,
then in any of the foregoing events the Lender shall so notify
Borrower and interest will be calculated and payable in respect of
such projected Interest Period (and thereafter for so long as the
conditions referred to in this sentence shall continue) by reference
to the "prime rate" published by Citibank, N.A. plus 1% per annum.
(E) If any Interest Period would otherwise end on a day which is not a
Business Day for LIBOR Rate purposes, that Interest Period shall end
on the Business Day next preceding or next succeeding such day as
determined by the Lender in accordance with its usual practice, of
which the Lender shall notify Borrower at the beginning of such
Interest Period.
(F) Borrower may prepay a LIBOR Rate Amount only upon at least three (3)
Business Days prior written notice to the Lender (which notice shall
be irrevocable). Borrower shall pay to the Lender, upon request of the
Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Lender) to compensate the Lender for any
loss, cost, or expense incurred as a result of: (i) any payment of a
LIBOR Rate Amount on a date other than the last day of the Interest
Period for such Loan; (ii) any failure by Borrower to borrow a LIBOR
Rate Amount on the date specified by Borrower's written notice; or
(iii) any failure by Borrower to pay a LIBOR Rate Amount on the date
for payment specified in Borrower's written notice.
2.5.2 UPFRONT FEE. On the Closing Date, the Borrower agrees to pay the
Lender a fee of $30,000 (the "Upfront Fee").
2.5.3 PAYMENT OF FEES. Borrower hereby authorizes the Lender to disburse
proceeds of the Loan to pay the Loan Fees and the reasonable fees and expenses
of the Lender's legal counsel notwithstanding that Borrower may not have
requested a disbursement of such amount. Such disbursements shall constitute a
portion of the outstanding principal balance of the Loan and the Note and shall
be deemed to be the first principal amounts repaid by Borrower in making
principal payments, whether or not designated as such by Borrower. Invoices for
all expenses charged to Borrower pursuant hereto will be provided to Borrower by
the Lender prior to any such disbursement, and Borrower shall pay to the Lender
all amounts due pursuant to any such invoices as repayment of such portion of
the outstanding principal balance of the Loan and the Note represented by such
invoices, with all interest accrued thereon, within twenty (20) Business Days
following Borrower's receipt thereof.
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2.5.4 CHANGE IN LAWS. Anything herein to the contrary notwithstanding, if
any future applicable law (which expression, as used in this Agreement, includes
statutes and rules and regulations thereunder and interpretations thereof by any
competent court or by any governmental or other regulatory body or official
charged with the administration or the interpretation thereof) shall (1) subject
the Lender to any tax, levy, impost, duty, charge, fee, deduction or withholding
of any nature with respect to this Agreement, the Loans or the payment to the
Lender of any amounts due to it hereunder, or (2) materially change the basis of
taxation of payments to the Lender of the principal or the interest on or any
other amounts payable to the Lender hereunder, or (3) impose on the Lender any
other conditions or requirements with respect to this Agreement, the Loan Amount
or any Loan, and the result of any of the foregoing is (a) to increase the cost
to making, funding or maintaining all or any part of the Loans, or (b) to reduce
the amount of principal, interest or other amount payable to the Lender
hereunder, or (c) to require the Lender to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregoing interest or other sum is calculated by reference to the gross amount
of any sum receivable or deemed received by the Lender from Borrower hereunder,
then, and in each such case not otherwise provided for hereunder, Borrower will,
upon demand made by the Lender accompanied by calculations thereof in reasonable
detail, pay to the Lender such additional amounts as will be sufficient to
compensate the Lender for such additional cost, reduction, payment or foregoing
interest or other sum, provided that the foregoing provisions of this sentence
shall not apply in the case of any additional cost, reduction, payment or
foregoing interest or other sum resulting from any taxes charged upon or by
reference to the overall net income, profits or gains of the Lender.
Section 3.
CONDITIONS TO CREDIT
The Lender's obligations to make any Advances hereunder are subject to the
fulfillment of each of the following conditions to the Lender's satisfaction
immediately prior to or contemporaneously with the making of any such Advances:
3.1 DOCUMENTS. Prior to or concurrently with the execution and delivery of
this Agreement, the Lender shall receive each of the following documents in form
and substance satisfactory to the Lender:
3.1.1 All of the documents listed on the Closing Checklist attached hereto
as EXHIBIT 3.1; and
3.1.2 Such other instruments or documents as the Lender's counsel may
reasonably request.
3.2 REPRESENTATIONS AND WARRANTIES. Upon execution and delivery of this
Agreement and upon each request by Borrower for an Advance, the representations
and warranties contained in Section 4 of this Agreement shall be accurate and
complete (except to the extent such representations and warranties relate solely
to an earlier specific date, in which case such representations and warranties
shall have been accurate and complete as of such date).
3.3 EVENTS OF DEFAULT. Upon execution and delivery of this Agreement and
upon each request by Borrower for an Advance, no Default or Event of Default
hereunder shall have occurred and be continuing.
3.4 APPROVAL OF LENDER'S COUNSEL. Upon execution and delivery of this
Agreement and upon each request by Borrower for an Advance, all legal matters
incident to or in connection with the transactions hereby contemplated shall be
reasonably satisfactory to counsel for the Lender.
3.5 PAYMENT OF FEES. At the Closing Date and prior to making any Advance
hereunder, the Lender shall have received from Borrower an unconditional payment
of the Loan Fees then due and payable, together with payment of all costs and
expenses, including without limitation reasonable attorneys' fees and costs
incurred by the Lender in connection with the preparation and execution of this
Agreement and the Loan Documents. Notwithstanding the foregoing, and without in
any way reducing Borrower's obligation to pay such fees, the Lender agrees not
to refuse to make an Advance solely because attorneys fees incurred by the
Lender, for which Borrower has been invoiced within 30 days of such Advance,
remain outstanding.
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Section 4.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, as of the date hereof and as of any
date any Advances under the Line of Credit are to be made:
4.1 EXISTENCE; PLACE OF BUSINESS; IDENTIFICATION NUMBERS. Borrower and its
Subsidiaries are duly organized, validly existing and in good standing under the
laws of the state of its formation. Borrower and its Subsidiaries are duly
licensed or qualified in all jurisdictions wherein the character of the property
owned or the nature of the business transacted by it makes licensing or
qualification necessary or advisable, except to the extent that the failure to
do so could not reasonably be expected to have a material adverse effect on the
business, results of operations or condition (financial or otherwise) of
Borrower and its Subsidiaries, taken as a whole. Borrower and its Subsidiaries
are also duly authorized, qualified and licensed under all applicable laws,
regulations, ordinances or orders of public authorities to carry on its business
in the places and in the manner presently conducted, except to the extent that
the failure to do so could not reasonably be expected to have a material adverse
effect on the business, results of operations or condition (financial or
otherwise) of Borrower and its Subsidiaries, taken as a whole. Borrower has the
organizational power to enter into any transaction and to make and perform any
agreement or instrument which this Agreement or the Loan Documents require or
contemplate.
4.2 AUTHORITY. The execution, delivery and performance by Borrower of the
Loan Documents and the transactions contemplated by this Agreement: (a) have
been duly authorized and do not require any other filing with, consent from, or
approval by any Person or governmental authority, (b) do not violate Borrower's
Organizational Documents or any law, rule, regulation, order, writ, judgment or
decree, and will not result in or constitute a default under any indenture,
credit agreement, or any other agreement or instrument, to which it is a party
or to which any of its property is subject.
4.3 FINANCIAL STATEMENTS. The balance sheet and statements of income and
retained earnings of Borrower, on a consolidated basis, as of December 31, 2003,
audited by the Accountants, and the interim management prepared financial
statements of Borrower, on a consolidated basis, as of March 31, 2004, each duly
certified by the principal financial officer of Borrower, as furnished to the
Lender (collectively, the "Financial Statements"), are complete and correct and
fairly present the financial position of Borrower and the results of operations
for the period indicated. Each of the Financial Statements was prepared in
accordance with GAAP.
4.4 FINANCIAL CONDITION. Since the date of the latest Financial Statement
(a) there has been no materially adverse change in the condition financial or
otherwise of Borrower, and its Subsidiaries, taken as a whole, and (b) Borrower
and its Subsidiaries have not entered into, incurred or assumed any material
long-term debts, mortgages, leases or oral or written commitments, nor commenced
any significant project, nor made any significant purchase or acquisition of any
property except with the prior written consent of the Lender in accordance with
the terms hereof. Notwithstanding the foregoing sentence, Borrower and its
Subsidiaries may enter into, incur or assume debt, mortgages, leases or oral or
written commitments, commence significant projects and purchase or acquire
property so long as such action is done in the ordinary course of business and
is consistent with the description of Borrower's Business. Borrower and its
Subsidiaries do not have any contingent liabilities of any substantial amount
which are not reflected in the Financial Statements described above, except for
liabilities incurred by Borrower and its Subsidiaries since the date of the
Financial Statements in the ordinary course of its business consistent with past
practices.
4.5 ASSETS. Borrower and its Subsidiaries have good and marketable title to
all of its properties and assets, including without limitation as reflected in
the balance sheet included in the Financial Statements, except property and
assets sold or otherwise disposed of at market rates in the ordinary course of
business and consistent with the description of Borrower's Business subsequent
to the date of such balance sheet. Borrower and its Subsidiaries do not have any
outstanding liens or encumbrances on any of its properties or assets, other than
as fully described in the Financial Statements. Borrower and its Subsidiaries
are not a party to any security agreements or title retention agreements,
whether in the form of leases or otherwise, of any personal property except as
reflected in the financial statements.
4.6 LITIGATION. There are no actions, suits, proceedings or investigations
pending or, to the knowledge of Borrower upon reasonable inquiry, threatened
against or affecting Borrower, at law, in equity, or before or by any
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governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, which if adversely determined would have a materially
adverse effect on the business or condition of Borrower and its Subsidiaries,
taken as a whole, other than those actions, suits, proceedings or investigations
set forth on EXHIBIT 4.6. Borrower and its Subsidiaries are not in default or
violation, in either case, beyond expiration of applicable grace, cure or notice
periods of any order, writ, injunction or decree.
4.7 BURDENSOME PROVISIONS. Other than as reflected in the Financial
Statements, Borrower and its Subsidiaries are not a party to any indenture,
agreement, instrument or lease, or subject to any charter, bylaw, operating
agreement or other restriction, or any law, rule, regulation, order, writ,
judgment or injunction, which will, under current or reasonably anticipated
conditions, materially and adversely affect its ability to fully perform all of
the Obligations.
4.8 OTHER AGREEMENTS. Borrower and its Subsidiaries are not in default
beyond applicable grace, cure or notice periods to any material extent in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any debenture, note or other evidence of indebtedness of
such entity or any indenture or agreement to which it is a party or is bound,
which would have a material adverse effect on the financial condition of
Borrower and its Subsidiaries, taken as a whole.
4.9 TAXES. Borrower and its Subsidiaries have filed all United States
federal and state tax returns which are required to be filed by it (taking into
account extensions permitted by applicable law) and have paid or made adequate
provision for the payment of all taxes which have or may become due pursuant to
those returns, to any matters raised by audits, assessments received by it, and
for any other causes known to it, including foreign taxes.
4.10 THE LOAN. This Agreement, any Note and any other of the Loan
Documents, or any other documents delivered by Borrower to or for the benefit of
the Lender at any time in connection with the execution and delivery of any of
the Loan Documents, will, when executed and delivered, constitute valid and
binding obligations of such entity, enforceable against such entity in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, or
general principles of equity, affecting the rights of creditors generally.
Borrower will duly and punctually pay any principal and interest when due on any
Obligation requiring the payment of money.
4.11 CAPITALIZATION. The outstanding equity of Borrower is comprised
exclusively of trust interests or member interests, all of which have been duly
issued and are outstanding and fully paid and nonassessable. There are (i) no
outstanding securities or agreements exchangeable for or convertible into or
carrying any rights to acquire any equity interests in Borrower, and (ii) no
outstanding commitments, options, warrants, calls or other agreements (whether
written or oral) binding on Borrower which require or could require such entity
to sell, grant, transfer, assign, mortgage, pledge or otherwise dispose of any
equity interests of Borrower, except as set forth on EXHIBIT 4.11. Except as set
forth in any Organizational Document provided to the Lender for Borrower, no
equity interests of Borrower are subject to any restrictions on transfer or any
member agreements, voting agreements, trust agreements, trust deeds, irrevocable
proxies, or any other similar agreements or interests (whether written or oral).
4.12 SOLVENCY. Borrower has and, after giving effect to each Advance under
the Line of Credit will have, tangible assets having a fair salable value in
excess of the amount required to pay the probable liability on its then existing
debts (whether matured or unmatured, liquidated or unliquidated, fixed or
contingent); Borrower has and will have access to adequate capital for the
conduct of its business and the discharge of its debts incurred in connection
therewith as such debts mature.
4.13 EVENTS OF DEFAULT. No Event of Default or, to the best knowledge of
Borrower, Default exists.
4.14 ERISA. Borrower and the ERISA Affiliates, and each "Employee Pension
Benefit Plan" and each "Employee Welfare Benefit Plan" (as defined in ERISA)
established, maintained or contributed to (including any such plan to which an
obligation to contribute exists) by Borrower or any ERISA Affiliate
(collectively, the "Plans") is in compliance in all material respects with ERISA
and the provisions of the Code applicable to such entity or Plan; neither
Borrower nor any ERISA Affiliate or any Plan has engaged in a "prohibited
transaction" (as defined in ERISA and the Code) which would subject such entity
or such Plan to a material tax or penalty imposed on a "prohibited transaction";
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neither Borrower nor any ERISA Affiliate or any Plan has incurred any material
"accumulated funding deficiency" (as defined in ERISA); the aggregate current
value of all assets of the funded Plans of each of Borrower and any ERISA
Affiliate is at least equal to the aggregate current value of all accrued
benefits under such Plans calculated in accordance with actuarial assumptions
current as of the date of this representation and warranty on a Plan termination
basis; neither Borrower nor any ERISA Affiliate has incurred any material
liability to the Pension Benefit Guaranty Corporation over and above premiums
required by law and which have been paid or are not yet due; neither Borrower
nor any ERISA Affiliate has terminated any Plan in a manner which could result
in the imposition of a lien on the property of such entity; none of the Plans
are multi-employer plans (as defined in ERISA). All contributions to all Plans
which were required to be made or provided for as of the date of this
representation and warranty have been made or provided for in accordance with
GAAP and, in the case of Plans, funded by means other than direct employer
contributions, all such funding required through the date of this representation
and warranty has been made or provided for in accordance with GAAP; each of
Borrower and the ERISA Affiliates have performed in all material respects all of
their respective obligations under each Plan and each Plan has been administered
in accordance with its terms; there are no claims, complaints or causes of
action pending or, to Borrower's knowledge, threatened against any Plan (other
than claims filed in the ordinary course for benefits under such Plans); and
Borrower does not have any liability, contingent or otherwise, under any Plan
that is not disclosed on its Financial Statements.
4.15 ENVIRONMENTAL AND REGULATORY COMPLIANCE.
4.15.1 As to each of the real properties either owned or leased by Borrower
or any of its Subsidiaries, each such property is presently in compliance in all
material respects with, and has in full force and effect, all material permits
or approvals required by, all applicable anti-pollution, hazardous substance,
hazardous material, oil, environmental, health, safety or other laws, ordinances
or regulations, and Borrower and its Subsidiaries have not received notification
that any of the foregoing properties is in violation of any of the foregoing
provisions, except for any non-compliance with respect to, or lack of possession
of the foregoing, which does not have or will not have a direct or indirect
material adverse effect, in the Lender's reasonable judgment, on the ability of
Borrower to meet its Obligations under any of the Loan Documents. No inquiry,
notice or threat to give notice by any governmental authority or third party has
been received by Borrower or any of its Subsidiaries with respect to the
generation, storage or disposal or release or threat of release on, under or
from any real property either owned or leased by Borrower or any of its
Subsidiaries, of any hazardous substance, hazardous material or oil, or with
respect to any violation of any federal, state or local environmental, health or
safety statute or regulation which could have a direct or material adverse
effect, in the Lender's reasonable judgment, on the ability of Borrower to meet
its Obligations under any of the Loan Documents.
4.16 CONTRACTS WITH AFFILIATES, ETC. Except as disclosed in EXHIBIT 4.16 or
in the Financial Statements and except for agreements or transactions (in each
case) in the ordinary course of business and on an arm's-length basis upon terms
at least as favorable as would be available to Borrower as is a party thereto
with an unaffiliated third party, neither Borrower nor any of its Subsidiaries
is a party to or otherwise bound by any agreement, instrument or contract
(whether written or oral) with any Affiliate, except for any such agreement,
instrument or contract as would not materially and adversely affect the
condition (financial or otherwise), properties, business or results of
operations of Borrower and its Subsidiaries, taken as a whole, or Borrower's
ability to meet its Obligations under any of the Loan Documents.
4.17 FEDERAL REGULATIONS. No part of the proceeds of any Advance, and no
other extensions of credit hereunder, will be used for "buying" or "carrying"
any "margin stock" within the respective meanings of each of the quoted terms
under Regulation U as now and from time to time hereafter in effect. If
requested by the Lender, Borrower will furnish to the Lender a statement to the
foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U
1, as applicable, referred to in Regulation U.
4.18 QUALIFICATION AS A REIT. Borrower qualified as a REIT under the
provisions of the Code, as applicable for its fiscal years ended December 31,
1991 through December 31, 2001, and from December 31, 2001 through the date
hereof. All appropriate federal income tax returns for the fiscal years through
December 31, 2001 have been filed by Borrower with the IRS and no previously
filed return has been examined and reported on by the IRS. Borrower has not
incurred any liability for excise taxes pursuant to Section 4981 of the Code.
Borrower is organized in conformity with the requirements for qualification as a
REIT pursuant to Sections 856 through 860 of the Code, and Borrower's proposed
method of operation consistent with Borrower's business and the business
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activities contemplated by this Agreement will enable it to meet the
requirements for qualification and taxation as a REIT under the Code.
4.19 ADVISORY AGREEMENT; ADVISORY SUBCONTRACT.
4.19.1 In furtherance, and without limiting the provisions of SECTION 4.8
of this Agreement, the Advisory Agreement is in full force and effect, neither
party thereto is in breach or default of any of its terms or provisions, and no
party has given notice to the other of the intent to terminate, or cause not to
be renewed or extended, the Advisory Agreement. To the best of Borrower's
knowledge, none of the parties to the Advisory Agreement has any basis or
intention to terminate or cause not to be renewed or extended the terms and
provisions of the Advisory Agreement.
4.19.2 In furtherance, and without limiting the provisions of SECTION 4.8
of this Agreement, the Advisory Subcontract is in full force and effect, neither
party thereto is in breach or default of any of its terms or provisions, and no
party has given notice to the other of the intent to terminate, or cause not to
be renewed or extended, the Advisory Subcontract. To the best of Borrower's
knowledge, none of the parties to the Advisory Subcontract has any basis or
intention to terminate or cause not to be renewed or extended the terms and
provisions of the Advisory Subcontract.
4.20 HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Borrower is not a
"holding company," or a subsidiary company of a `holding company" or an
"affiliate" of a "holding company," as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is it an "investment company," or an
"affiliated company" or a "principal underwriter" of an "investment company," as
such terms are defined in the Investment Company Act of 1940.
4.21 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. Borrower
is not subject to regulation under any Requirement of Law that limits its
ability to incur Indebtedness.
Section 5.
AFFIRMATIVE COVENANTS
Unless the Lender waives compliance in writing, Borrower agrees to, and
shall cause its Subsidiaries to, do the following until the Lender is no longer
obligated to make any further Advances and all Obligations hereunder have been
repaid in full (including all principal, interest, costs, fees and expenses,
including, without limitation, Loan Fees and reasonable attorneys' fees and
costs):
5.1 FINANCIAL STATEMENTS.
5.1.1 Within one hundred twenty (120) days after the end of Borrower's
fiscal year, deliver to the Lender a complete copy of Borrower's audited
financial statements certified as being true and correct by the chief financial
officer of Borrower. The above financial statements are to be prepared in
accordance with GAAP and shall include at least, on a consolidated and
consolidating basis, a balance sheet as of the close of each such fiscal year
and a statement of income and retained earnings (or comparable statement) for
each such fiscal year, as at the end of the fiscal year, together with the
report by Borrower's Accountants, which financial statements shall fairly
reflect the financial condition and operations of such entity, together with a
certificate of said chief financial officer, in the form of Exhibit 5.1 hereof,
to the effect that, in making the examination necessary for his report of the
financial affairs of such entity for such fiscal year, he has obtained no
knowledge of the occurrence of any condition, event or act which would
constitute a Default or an Event of Default, or, if said officer shall have
obtained knowledge of any such violation, condition, event or act, a statement
as to the nature and status thereof.
5.1.2 Deliver to the Lender as soon as such statements are available, but
not later than sixty (60) days after the end of each quarter, a copy of
Borrower's unaudited financial statements, on a consolidated and consolidating
basis, certified by the principal financial officer of each entity as having
been prepared in accordance with GAAP (subject to year end adjustments, none of
which shall be material individually or in the aggregate), together with a
certificate of said officer, in the form of the Covenant Compliance Certificate
attached hereto as EXHIBIT 5.1, stating he has no knowledge that a Default or an
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Event of Default, has occurred and is continuing or, if a Default or an Event of
Default or such event has occurred and is continuing, a statement as to its
nature and the action which Borrower or any other entity proposes to take with
respect to such event.
5.1.3 Deliver to the Lender as soon as such statements are available, but
not later than sixty (60) days prior to December 31 of each year, a copy of the
consolidated and consolidating budgeted operating statements (including, without
limitation balance sheet, statement of income and retained earnings and
statement of cash flows) for Borrower for the fiscal year commencing immediately
following such December 31.
5.1.4 Deliver, promptly upon receipt, to the Lender copies of all material
notices received from any governmental authority.
5.1.5 Deliver, upon the Lender's request from time to time, delinquency
reports with respect to any of Borrower's investments.
5.1.6 Deliver to the Lender within thirty days of the end of each calendar
month a valuation of each so-called GNMA Certificate owned directly or
indirectly by Borrower or any of its Subsidiaries. In addition, Borrower will
notify the Lender within five Business Days of any change in value greater than
5% of any GNMA Certificate.
5.1.7 Deliver to the Lender, simultaneously with each Borrowing Notice, a
Covenant Compliance Certificate in which the officer executing and delivering
such Certificate states that he has no knowledge that a Default or an Event of
Default has occurred and is continuing.
5.1.8 Deliver such additional information as the Lender from time to time
may reasonably request with respect to the business affairs and financial
condition of Borrower.
5.2 MAINTENANCE OF EXISTENCE; CHARACTER OF EQUITY.
5.2.1 Remain in and continue to operate, and cause its Subsidiaries to
remain in and continue to operate, substantially the same line of business
presently engaged in or contemplated to be engaged in by the terms of this
Agreement as described in the Registration Statement (except that Borrower and
its Subsidiaries may, upon notice to the Lender, withdraw from any business
activity which its trustee(s) or manager(s) reasonably deem unprofitable or
unsound in the due exercise of their authority, provided, however, such
withdrawal shall not impair in any way such entity's ability to fully pay and
perform all of its Obligations), maintain and preserve, and cause Borrower to
maintain and preserve, its existence and all rights, privileges and franchises
necessary or desirable in the conduct of its business as contemplated by this
Agreement; and conduct its business (and no other business) as contemplated by
the terms of this Agreement in an orderly, efficient and customary manner.
Borrower shall not modify or amend its Organizational Documents without first
giving 20 days prior written notice of a proposed change to the Lender.
5.3 MAINTENANCE OF PROPERTIES. Restore, maintain and operate all of its
respective properties, if any, in accordance with sound commercial practices and
maintain, preserve and keep all of its respective properties and assets
necessary or useful in its respective business in good working order and
condition.
5.4 COMPLIANCE WITH LAWS. Comply with and duly observe the requirements of
all applicable laws, rules, regulations and orders of all federal, state and
local governmental authorities, including without limitation obligations imposed
by ERISA and hazardous substance and environmental laws, non-compliance with
which could materially adversely affect the Borrower's business or credit.
5.5 TAXES AND CLAIMS. Pay and discharge promptly all taxes, assessments,
governmental charges and levies imposed, respectively, upon it or upon its
income or profits or upon any properties belonging to it, prior to the date on
which penalties would be imposed, and pay all lawful claims for labor, materials
and supplies that, if unpaid, might become a lien or charge upon its respective
property, provided that Borrower and its Subsidiaries shall not be required to
pay any such tax, assessment, charge, levy or claim if the amount, applicability
or validity thereof is currently being contested in good faith and by proper
proceedings and if such entity, respectively, has set aside on its books and
shall maintain adequate reserves for the payment of the same in conformity with
GAAP.
5.6 NOTICE OF DEFAULTS. Give prompt written notice to the Lender of any
Default or Event of Default or of any default arising under any other agreement
or indenture entered into by Borrower or any of its Subsidiaries, or of any
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other matter which has resulted in or is reasonably anticipated to result in a
materially adverse change in Borrower's financial condition, operations or
prospects.
5.7 CHANGES IN MANAGEMENT. Give prompt written notice to the Lender of any
changes in the senior management positions of Borrower or the Advisor.
5.8 NOTICE OF LITIGATION. Give prompt written notice of any pending or
threatened claim, action or proceeding which would, in the event of an
unfavorable outcome, have a materially adverse effect on the condition
(financial or otherwise), operations or prospects of Borrower and its
Subsidiaries, taken as a whole.
5.9 RECORDS. Keep and maintain full and accurate accounts and records of
its operations according to GAAP and permit the Lender (and its designated
officers, employees, agents and representatives) to have access to such
accounts, records and operations and to make examinations thereof upon
reasonable prior notice during normal business hours.
5.10 EXECUTION OF OTHER INSTRUMENTS. Do, execute, acknowledge and deliver,
or cause to be done, executed, acknowledged and delivered by others, all further
acts, covenants, assurances or further instruments and documents, promptly after
the Lender reasonably requests, in order to carry out the intent and purpose of
this Agreement and the other Loan Documents. Borrower shall pay all fees and
expenses (including without limitation reasonable attorneys' fees and costs) in
connection with the foregoing.
5.11 MAINTENANCE OF REIT STATUS. Engage in such business activities, and
shall refrain from engaging in such activities, so as to have Borrower continue
to meet the requirements for qualification and taxation as a REIT under the
Code.
5.12 CONTINUATION OF ADVISORY AGREEMENT AND ADVISORY SUBCONTRACT. Borrower
shall notify the Lender at least 90 days prior to any of the terms or conditions
of the Advisory Agreement or the Advisory Subcontract no longer being in full
force and effect or otherwise being terminated or amended for any reason or for
no reason. Borrower shall notify the Lender at least 90 days prior to either the
Advisor or RCC no longer being bound by the Advisory Agreement or the Advisory
Subcontract, including, without limitation, because of either the Advisor's or
RCC's assignment or delegation of their respective obligations or duties
thereunder; provided, however, that the transfer of all of the equity interests
in RCC to an Affiliate of RCC or to a Person whose chief executive with
senior-most responsibility for the business and operations of such Person is an
Affiliate of RCC, shall not constitute an assignment or delegation of RCC's
obligations or duties thereunder. In the event that either the Advisor or RCC
provides notice of its intention to terminate the Advisory Agreement or the
Advisory Subcontract, regardless of whether such termination is in accordance
with the terms of the Advisory Agreement or the Advisory Subcontract, or fails
to renew or extend the Advisory Agreement or the Advisory Subcontract for any
reason or for no reason, Borrower shall provide to the Lender written notice at
least 90 days prior to the effectiveness of such notice from the Advisor or from
RCC or such failure to renew or extend. During the 90 day period following any
such notice from, or failure by, Borrower pursuant to this SECTION 5.12,
Borrower shall execute and deliver with one or more Persons reasonably
acceptable to the Lender an agreement to provide those services following the
end of such 90 day period provided by the Advisor and RCC pursuant to the
Advisory Agreement and the Advisory Subcontract.
5.13 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.
5.13.1 Borrower and its Subsidiaries shall keep proper books of records and
account in which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities.
5.13.2 Borrower shall permit the Lender to examine and make abstracts from
any of its books and records, at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations, properties and
financial and other condition of Borrower and its Subsidiaries, taken as a whole
with its representatives and with its independent certified public accountants.
5.13.3 Borrower shall permit the Lender to conduct audits of Borrower (but
not more than once during each semi-annual period unless a Default or an Event
of Default has occurred and is continuing). Borrower shall bear, and reimburse
the Lender for, the commercially reasonable expenses of each such audit.
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Section 6.
NEGATIVE COVENANTS
Borrower covenants and agrees that until the Lender is no longer obligated
to make any further Advances on account of the Line of Credit and the
Obligations have been repaid and performed in full, Borrower will not and will
cause its Subsidiaries to not:
6.1 ENCUMBRANCES AND LIENS. Create, execute, assume or allow any mortgage,
deed of trust, security agreement, pledge or encumbrance, or any other lien of
any kind, or execute or allow to be filed any financing statement affecting, any
or all of its property, real, personal or mixed, whether now owned or hereafter
acquired, except:
6.1.1 Liens or charges for current taxes, assessments or other governmental
charges which are not delinquent or which remain payable without penalty, or the
validity of which is contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof, provided such entity shall have
set aside on its books and shall maintain adequate reserves for their payment in
conformity with GAAP;
6.1.2 Liens or encumbrances granted with respect to its real estate,
partnership interests or other assets, now owned or hereafter acquired, solely
to the extent that such lien or encumbrance secures Indebtedness permitted under
the terms of this Agreement;
6.1.3 Liens or encumbrances related to carriers', warehouse men's,
mechanics', materialmen's, repairman's, or other like liens arising in the
ordinary course of business which are not overdue for a period of more than
thirty days or which are being contested in good faith and by appropriate
proceedings diligently conducted, provided that such entities shall have set
aside on their books and shall maintain adequate reserves for their payment in
conformity with GAAP;
6.1.4 Liens or encumbrances arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; and
6.1.5 Liens or encumbrances that are easements, rights-of-way, restrictions
and other similar encumbrances affecting the real property which, in the
aggregate, are not substantial in amount, and which do not in any case
materially and adversely detract from the value of the property subject thereto
or materially interfere with the ordinary conduct of the business of the
applicable Person
6.1.6 Liens or encumbrances created under the AMAC Credit Facility Loan
Agreement.
6.2 INDEBTEDNESS.
6.2.1 Create, incur, assume or suffer to exist, nor in any manner become or
be liable directly or indirectly with respect to any Indebtedness (on a
consolidated basis) except: (A) the Obligations; (B) Indebtedness for other
borrowed money existing on the date of this Agreement, listed and described, but
only to the extent so listed and described, on EXHIBIT 6.2 attached hereto, and
any refinancings, refundings, renewals, restatement, or extensions thereof,
provided that the principal amount of such Indebtedness is not increased at the
time of such refinancing, refunding, renewal, restatement or extension except
for an amount equal to a reasonable premium for accrued and unpaid interest
thereon and the fees and expenses incurred in connection with such refinancing,
refunding, renewal, restatement or extension, and by an amount equal to any
existing commitments unutilized thereunder; (C) Indebtedness for the purchase
price of capital assets incurred in the ordinary course of business (other than
real estate), subject, however, to the limitation that such Indebtedness does
not exceed the lesser of the cost of such capital assets or its fair market
value at the time of acquisition; (D) Indebtedness permitted under SECTION 6.4
hereof; (E) Indebtedness for taxes, assessments or governmental charges to the
extent that payment thereof shall at the time not be required to be made in
accordance with SECTION 5.5 hereof; (F) Indebtedness represented by trust
preferred securities issued by the Borrower or any of its Subsidiaries; or (G)
Indebtedness on open account for the cost of services, materials and supplies
incurred by Borrower in the ordinary course of business (not as a result of
borrowing), so long as all of such open account Indebtedness shall be promptly
paid and discharged when due or in conformity with customary trade terms and
practices, except for any such open account Indebtedness which is being
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contested in good faith by such debtor, respectively, as to which adequate
reserves required by GAAP have been established and are being maintained and as
to which no lien or encumbrance has been placed on any property of such debtor,
respectively.
6.3 CONSOLIDATION AND MERGER. Liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture, syndicate or other
combination.
6.4 LOANS, GUARANTEES, INVESTMENTS. Except as expressly permitted by this
Agreement, make any advance, loan or extension of credit to nor become a
guarantor or surety for any Person, firm or corporation; except that (a)
Borrower may make subordinated loans of AMAC Funds to AMAC Credit Facility; (b)
Subsidiaries of the Borrower may make loans to the Borrower or any other
Subsidiary of the Borrower; (c) the Borrower and its Subsidiaries may make
investments (i) in direct obligations of the United States of America or of any
state, U.S. federal agency obligations and commercial paper designated as
"prime" by the National Credit Office of Dun & Bradstreet, and (ii) in the
ordinary course of Borrower's Business substantially consistent with past
practices.
6.5 ACQUISITIONS. Except in the ordinary course of Borrower's Business
substantially consistent with past practices, purchase, acquire or incur any
liability for the purchase or acquisition of any or all of the assets or
business (including stock, partnership, membership or other equity interests) of
any Person.
6.6 DISPOSAL OF ASSETS. Sell, lease, assign, transfer or otherwise dispose
of more than five percent (5%) of its property or assets, now owned or hereafter
acquired, except for (a) obsolete or worn-out property and real estate not used
or useful in its business, and inventory sold at market rates in the ordinary
course of business, (b) in the ordinary course of Borrower's Business
substantially consistent with past practices.
6.7 PAYMENT OF DISTRIBUTIONS. Declare or pay directly or indirectly
(through any Affiliate or otherwise), any distributions in respect to its equity
interests or make any distribution of assets with respect to its equity
interests or in payment of fees or other compensation or reimbursement of any
expenses to a party related to any other Affiliates, whether in cash, property
or securities, except that so long as there does not then exist a Default or
Event of Default (with and without taking into account the making of any such
distribution), Borrower may make distributions to its equity holders as it may
elect from time to time.
6.8 LIMITATIONS ON LEASING. Lease or become liable as lessee upon any lease
of real or personal property, other than leases of office space and equipment at
market rates entered into in the ordinary course of business consistent with
past practices.
6.9 DEFAULT UNDER OTHER AGREEMENTS OR INDENTURES. Commit or do, or fail to
commit or do, any act or thing which action or failure to act would constitute a
material event of default under any of the terms or provisions of any other
agreement, indenture, contract, document or instrument executed or to be
executed by such entity where such event of default would have a material
adverse effect on the business or condition (financial or otherwise) of
Borrower.
6.10 PURCHASE OF MARGIN STOCK. In furtherance, and not in limitation, of
SECTION 5.2 hereof, utilize any part of the proceeds of the Loan to purchase or
carry any margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
6.11 AMENDMENT TO CERTAIN DOCUMENTS. Except with the prior written consent
of the Lender:
6.11.1 amend or agree with any party to vary the terms of any
Organizational Documents of any of Borrower in a manner which may be materially
adverse to the Lender; or
6.11.2 Subject to the terms of SECTION 5.12 hereof, amend or vary the terms
of either the Advisory Agreement or Advisory Subcontract in a manner which may
be materially adverse to the Lender. Borrower hereby acknowledges and agrees
that, unless a Person reasonably acceptable to the Lender is engaged to perform
such services in accordance with the terms of SECTION 5.12 hereof, RCC's no
longer serving as its advisor in substantially the same capacity in which RCC
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serves as its advisor as of the date of this Agreement shall constitute
circumstances which are, for purposes of this Agreement, materially adverse to
the Lender.
6.12 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into, any
purchase, sale, lease or other transaction with any Affiliate except (i) AMAC
Credit Facility's borrowings of AMAC Funds from Borrower, and (ii) in the
ordinary course of business on terms that are no less favorable to such
transacting entity than those which might be obtained at the time in a
comparable arm's-length transaction with any Person (including an individual,
corporation, partnership, trust, limited liability company and governmental
agency or instrumentality) who is not an Affiliate.
6.13 ERISA COMPLIANCE. Permit, suffer or cause any Plan or any fiduciary or
any party-in-interest (as such terms are defined in ERISA) thereof, to (A)
engage in any "prohibited transaction" (as defined in ERISA and the Code), (B)
incur any material "accumulated funding deficiency" (as defined in Section
412(a) of the Code and Section 302 of ERISA) whether or not waived, (C) fail to
satisfy any additional funding requirements set forth in Section 412 of the Code
and Section 302 of ERISA, (D) terminate any Plan in a manner which could result
in the imposition of a lien on any property of an such entity, and (E) fail to
administer the Plan in accordance with its terms, ERISA and the Code. Each Plan
shall comply in all material respects with ERISA. In furtherance of the
foregoing, with respect to any Plan, Borrower shall, or shall cause its
Affiliates to, furnish to the Lender promptly (T) Written notice of the failure
to make any contribution, premium payment or other payment relating to the
funding of any Plan when due, (U) written notice of the actual or threatened
insertion of any claim, complaint or cause of action against any Plan (other
than a claim for benefits under such Plan filed in the ordinary course of such
Plan's administration) or any fiduciary thereof, (V) written notice of the
occurrence of a Reportable Event (as defined in ERISA and the Code), (W) a copy
of any request for a waiver of the funding standards or an extension of the
amortization periods required under Section 412 of the Code and Section 302 of
ERISA, (X) a copy of any notice of intent to terminate any funded Plan that is a
defined benefit plan, (Y) notice that Borrower or any of its Affiliates will or
may incur any liability to or on account of a Plan under Section 4062, 4064,
4201 or 4204 of ERISA, and (Z) upon the Lender's request, a copy of the annual
report of each Plan (Form 5500 or comparable form) required to be filed with the
IRS and/or the U.S. Department of Labor. Any notice to be provided to the Lender
under this Section shall include a certificate of the chief financial officer of
Borrower setting forth details as to such occurrence and the action, if any,
which such entity and/or the Affiliate is required or proposes to take, together
with any notices required or proposed to be filed with or by such entity and/or
any Affiliate, the Pension Benefit Guaranty Corporation, the IRS, the trustee or
the Plan administrator with respect thereto. Promptly after the adoption of any
Plan subject to ERISA, the entity adopting such Plan shall notify the Lender of
such adoption and of the vesting and funding schedules and other principal
provisions thereof.
6.14 REAL ESTATE ACTIVITIES.
6.14.1 Engage in the development or acquisition of real estate (except
solely to the extent permitted under Subchapter M of the Code and all
regulations thereunder); or
6.14.2 Undertake or participate in, directly or indirectly, any real estate
development project or asset of any kind whatsoever except as specifically
contemplated by this Agreement or in the ordinary course of Borrower's Business
consistent with past practices.
6.15 DEFAULT UNDER ADVISORY AGREEMENT OR ADVISORY SUBCONTRACT. Commit or
do, or fail to commit or do, any act or thing which action or failure to act
would constitute a breach or default under any of the terms or provisions of
either the Advisory Agreement or Advisory Subcontract.
Section 7.
FINANCIAL COVENANTS
7.1 INDEBTEDNESS. Borrower shall not at any time create, incur, assume or
suffer to exist or in any manner become or be liable with respect to any (i)
unsecured Indebtedness, or (ii) secured Indebtedness in excess of 70% of
Borrower's Fair Market Value of Total Assets.
7.2 MINIMUM TANGIBLE NET WORTH. Borrower shall at all times maintain, and
shall have maintained, on a consolidated basis, a Tangible Net Worth of not less
than FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) as determined at the end
of each calendar quarter beginning with the calendar quarter ending September
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30, 2004, and increasing at the end of each calendar quarter thereafter by
seventy-five percent (75%) of any Net Equity raised during each such calendar
quarter.
7.3 LIQUIDITY. Borrower, on a consolidated basis, shall at all times
maintain Liquidity of not less than FIVE MILLION AND 00/100 DOLLARS
($5,000,000.00) as determined at the end of each calendar quarter.
7.4 MATERIAL ADVERSE CHANGE. Borrower shall not cause, permit or suffer to
exist any material adverse change in its financial condition as compared to its
financial condition as of June 30, 2004.
Section 8.
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. If one or more of the following described Events of
Default occurs:
8.1.1 Borrower defaults in the punctual payment of any principal or
interest on any Obligation when due and such default continues for a period of
five (5) days after the due date of such principal or interest payment; or
8.1.2 Any of the representations or warranties made by Borrower in this
Agreement, any Note, any other Loan Document, agreement, guaranty, certificate
or financial or other statements delivered or later furnished by or on behalf of
Borrower in connection with this Loan is false or misleading in any material
respect at the time made; or
8.1.3 Borrower fails to pay, perform or otherwise observe any other
covenant, term, provision, condition, agreement or obligation of, or otherwise
defaults under, this Agreement, or any other Loan Document; or
8.1.4 Borrower or any of its Subsidiaries becomes insolvent, or admits in
writing its inability to pay its debts as they mature, or fails generally to pay
its debts as they become due, or makes an assignment for the benefit of
creditors or commences a case for its dissolution; or applies for or consents to
the appointment of or taking possession by a trustee, liquidator, assignee,
custodian, sequestrator or receiver (or similar official) for it or for a
substantial part of its property or business; or takes any action in furtherance
of any of the foregoing; or
8.1.5 A trustee, liquidator, assignee, custodian, sequestrator or receiver
(or similar official) is appointed for Borrower or any of its Subsidiaries or
for a substantial part of any of its property or business without its consent
and is not discharged within thirty (30) days after such appointment; or
8.1.6 Any governmental agency or any court of competent jurisdiction at the
insistence of any governmental agency assumes custody or control of the whole or
any substantial portion of the properties or assets of Borrower or any of its
Subsidiaries and such is not dismissed within thirty (30) days thereafter; or
8.1.7 Any money judgment, writ or warrant of attachment, or similar
process, in excess of $1,000,000.00 is entered or filed against Borrower or any
of its Subsidiaries, any of its properties or other assets and is not vacated,
bonded, or stayed within the earlier of (a) a period of thirty (30) days or (b)
five (5) days prior to the date of any proposed sale thereunder, unless (i)
currently contested by such party in good faith and by proper proceedings and
(ii) such party shall have set aside on its books and shall maintain adequate
reserves for the payment of the same in conformity with GAAP; or
8.1.8 A bankruptcy, reorganization, insolvency, or liquidation case or
other case for relief under any bankruptcy law or any law for the relief of
debtors is commenced by or against Borrower or any of its Subsidiaries and, if
instituted against Borrower or any of its Subsidiaries, is not dismissed within
thirty (30) days after such institution or such entity by any action or answer
approves of, consents to, or acquiesces in any such case or admits the material
allegations of, or defaults in answering a petition filed in any such case; or
8.1.9 This Agreement or any other guaranty or other agreement entered into
in connection herewith or therewith, or any other Loan Document, at any time
while any Obligations remain unpaid or unperformed, ceases to be in full force
and effect or is declared null and void, or the validity or enforceability
thereof is contested or any party thereto denies that it has any or further
liability or obligation under this Agreement, such other agreement, such
guarantee or any other Loan Document; or
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8.1.10 A default or a breach shall have occurred and be continuing beyond
any applicable cure period in the payment or performance of any direct or
contingent liability of Borrower or any of its Subsidiaries in excess of
$1,500,000.00; or
8.1.11 Any security issued by Borrower and listed on a national securities
exchange or quoted on an automated quotation system of a national securities
association is delisted from such national securities exchange or ceases to be
quoted on such automated quotation system, as applicable; or
8.1.12 The assignment by the Advisor or RCC, by act or omission, or by
operation of law, of all or any portion of their respective rights, benefits and
entitlements, including, without limitation, their respective economic
interests, under the Advisory Agreement or the Advisory Subcontract (except if
and to the extent (i) arising out of the transfer of all of the equity interests
in RCC to an Affiliate of RCC or to a Person whose chief executive with
senior-most responsibility for the business and operations of such Person is an
Affiliate of RCC, or (ii) in accordance with the terms of Section 5.12 hereof);
or either the Advisor or RCC gives notice of its intention to terminate the
Advisory Agreement or the Advisory Subcontract, or either the Advisor or RCC
fails to renew the Advisory Agreement or the Advisory Subcontract (except in
accordance with the terms of Section 5.12 hereof
And any such Event of Default (except for an Event of Default described in
SECTIONS 8.1.1, 8.1.2, 8.1.4 THROUGH 8.1.10 (INCLUSIVE) AND 8.1.12, for which
there shall be no grace period except as specifically provided therein, and
except for any other Event of Default that is not capable of being cured (for
example, without limitation, an Event of Default arising out of a breach of a
financial covenant set forth in SECTION 7 hereof)) shall continue for more than
fifteen (15) days after the Lender shall have first notified Borrower of such
Event of Default (or for more than sixty (60) days after the Lender shall have
first notified Borrower of such Event of Default, if such Event of Default is a
non-monetary failure or breach and is not capable of being cured within such
fifteen (15) day period but is, nevertheless, capable of cure and Borrower shall
have commenced and is diligently pursuing (in the sole determination of the
Lender) a cure of such failure or breach) THEN, or at any time thereafter,
(unless such Event of Default shall have been waived in writing by the Lender in
accordance with the terms of SECTION 9.3 hereof) at the option of the Lender's
unrestricted discretion the Lender may terminate the Line of Credit and each
commitment to make any Advances to Borrower and each Obligation outstanding
shall, without presentment, demand, protest, or notice of any kind, all of which
are hereby expressly waived, be forthwith due and payable, if not otherwise then
due and payable, anything herein contained or in any Note or other document to
the contrary notwithstanding, and the Lender may immediately, and without any
expiration of any period of grace, enforce any and all of the Lender's rights or
remedies provided by this Agreement, any Note, any Loan Document or any other
rights or remedies afforded by law.
Section 9.
MISCELLANEOUS PROVISIONS
9.1 INCORPORATION OF PREAMBLE, RECITAL AND EXHIBITS. The preamble,
Recitals, and exhibits hereto are incorporated into this Agreement by reference
and made a part hereof.
9.2 NOTICES. All notices, requests and demands given under the terms of
this Agreement shall be in writing and may be effected by personal delivery,
including by any commercial courier or overnight delivery service, or by United
States certified mail, return receipt requested, with all postage and fees fully
prepaid. Notices shall be effective upon receipt by the party being given
notice, as indicated by the return receipt if mailed; EXCEPT that if a party has
relocated without providing the other party with its new address for service of
notices, or if a party refuses delivery of a notice upon its tender, the notice
shall be effective upon the attempt to serve the notice at the last address
given for service of notices upon that party. In addition to the foregoing,
notice may be served by facsimile transmission, in which case service shall be
deemed effective only upon receipt by the party serving the notice of telephonic
or return facsimile transmission confirmation that the party to whom the notice
is directed has received a complete and legible copy of the notice. Notices
shall be addressed as follows:
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Borrower: American Mortgage Acceptance Company
625 Madison Avenue
New York, NY 10022
Attention: Stuart J. Boesky, President and Chief Executive Officer
Telephone: (212) 588-1765
Facsimile: (212) 751-3550
Lender: CharterMac
625 Madison Avenue
New York, NY 10022
Attention: Alan P. Hirmes, Chief Financial Officer
Telephone: (212) 317-5700
Facsimile: (212) 751-3550
The addresses for service of notice on any party may be changed by that
party by serving a notice upon the others of the new address or addresses,
except that any change of address to a post office box shall not be effective
unless a street address is also specified for use in effectuating personal
service.
9.3 AMENDMENTS, WAIVERS, ETC.
The Lender may exercise its rights and remedies under this Agreement, the
Note and the Loan Documents without resorting or regard to other interests or
sources of reimbursement. The Lender shall not be deemed to have waived any of
such rights or remedies unless such waiver be in writing and signed by the
Lender. No delay or omission on the part of the Lender in exercising any of such
rights or remedies shall operate as a waiver of such right or any other right. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. All such rights and remedies shall be cumulative
and may be exercised separately or concurrently.
9.4 INDEMNIFICATION. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless the Lender, its trustees,
officers, agents, employees and representatives from and against any and all
liability, expense, loss or damage of any kind or nature and from any suits,
claims or demands, including without limitation reasonable attorneys' fees and
costs, on account of any matter or thing or action or failure to act by the
Lender, or its trustees, officers, agents, employees or representatives, whether
in suit or not, arising out of this Agreement or in connection herewith or with
the transactions contemplated hereby, unless such suit, claim or demand is
caused principally by any grossly negligent act or omission or willful
malfeasance of, the Lender, its trustees, officers, agents and employees and
representatives. Upon receiving knowledge of any suit, claim or demand asserted
by a third party that the Lender believes is covered by this indemnity, such
indemnified party shall give Borrower notice of the matter and an opportunity to
defend it, at Borrower's sole cost and expense, with legal counsel satisfactory
to such indemnified party. If such indemnified party is not satisfied with the
defense being provided, such indemnified party may employ an attorney or
attorneys selected by it to protect its rights hereunder, and Borrower shall pay
to such indemnified party the reasonable attorneys' fees and costs incurred by
such indemnified party. This obligation on the part of Borrower shall survive
the closing of the Loan the repayment of all obligations hereunder and the
termination or expiration of this Agreement.
9.5 INCONSISTENCIES WITH OTHER LOAN DOCUMENTS. In the event that it is
impossible to simultaneously comply with the terms of this Agreement and any
term of any of the other Loan Documents, the terms of this Agreement shall
govern and prevail over the conflicting portion of the other Loan Document(s).
9.6 EXPENSES. Borrower shall pay on demand all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
incurred (A) by the Lender in connection with the preparation of this Agreement,
(B) by the Lender in connection with the administration of this Agreement, and
(C) by the Lender in connection with the enforcement and protection of its
rights under this Agreement, including the protection of the rights of the
Lender in any bankruptcy, reorganization, liquidation or insolvency proceeding,
whether or not litigation is commenced.
9.7 ASSIGNABILITY.
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9.7.1 This Agreement shall bind and its benefits shall inure to Borrower,
the Lender, and their respective successors and permitted assigns, as the case
may be.
9.7.2 Borrower may not assign (voluntarily or by force of law) all or any
portion of its interests, rights and obligations under this Agreement, the Note
or any of the Loan Documents, without the prior written consent of the Lender,
which consent may be withheld in the Lender's sole and unrestricted discretion.
9.7.3 The Lender may assign all or any portion of its interests, rights and
obligations under this Agreement, the Note and the Loan Documents (for purposes
of this SECTION 9.7 only, collectively, the "Assigned Commitment"); provided,
however, that if there does not then exist a Default or Event of Default, the
prior written consent of Borrower shall be required to any such proposed
assignment; provided further, however, that such consent shall not be
unreasonably withheld, conditioned or delayed.
9.8 TIME OF ESSENCE. Time is of the essence of this Agreement.
9.9 ENTIRE AGREEMENT. This Agreement and the Loan Documents and other
materials furnished to the Lender by and on behalf of Borrower constitute the
entire agreement and understanding of the Lender and Borrower with respect to
the matters set forth herein and therein. No representation, warranty, covenant,
promise, understanding or condition shall be enforceable against any party
unless it is contained in this Agreement or the Loan Documents.
9.10 SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement or any Loan Document under particular circumstances
or in its entirety shall not affect the validity or enforceability of such
provisions under different circumstances or the validity or enforceability of
any other provision.
9.11 GOVERNING LAW. This Agreement, any Note and all other documents
executed pursuant to this Agreement or any Note shall be deemed entered into,
and shall be governed and construed according to the laws of the State of New
York, notwithstanding choice of law rules to the contrary.
9.12 NO PARTNERSHIP OR JOINT VENTURE. The Lender and Borrower agree that
the Lender is not a partner or joint venturer with Borrower, in any manner
whatsoever.
9.13 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit from the Lender
(containing standard indemnification provisions or representations) as to the
loss, theft, destruction or mutilation of any Loan Document or Note, Borrower
shall issue or execute and deliver to the Lender in lieu thereof, an identical
replacement therefor.
9.14 HEADINGS. The headings of this Agreement are solely for the purpose of
identification and shall not be construed as a part of the paragraphs they head.
9.15 USURY LIMITATION. If, at any time, the rate of interest, together with
all amounts which constitute interest and which are reserved, charged or taken
by the Lender as compensation for fees, services or expenses incidental to the
making, negotiating or collection of the Loan, shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate of
interest permitted to be charged by the Lender to Borrower under then applicable
law, then, during such time as such rate of interest would be deemed excessive,
that portion of each sum paid attributable to that portion of such interest rate
that exceeds the maximum rate of interest so permitted shall be deemed a
voluntary prepayment of principal of the Obligations; provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Agreement shall be governed by such new law as of
its effective date.
9.16 WAIVER OF JURY TRIAL. BORROWER SHALL NOT SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION ACTION INVOLVING THE
LENDER (OR ANY OFFICER, TRUSTEE, EMPLOYEE OR AGENT THEREOF) BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR THE
DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ENTITIES, OR ANY
OF THEM. BORROWER WILL NOT SEEK TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL
HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT
108
BEEN WAIVED. ANY COURT PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY OTHER OF
THE LOAN DOCUMENTS SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN NEW YORK CITY (OR THE FEDERAL COURTS LOCATED THEREIN).
NOTWITHSTANDING THE FOREGOING FORUM DESIGNATION, BORROWER AGREES THAT THE LENDER
SHALL HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS RESPECTIVE PROPERTY IN A
COURT IN ANY LOCATION TO ENABLE THE LENDER TO (1) OBTAIN PERSONAL JURISDICTION
OVER ANY OF THEM OR (2) IN ORDER TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE LENDER. BORROWER FURTHER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER TO REALIZE
ON ANY SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE LENDER. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH THE LENDER HAS COMMENCED ANY PROCEEDING. THE
PROVISIONS OF THIS SECTION 9.16 HAVE BEEN FULLY DISCUSSED BY BORROWER AND THE
LENDER, AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY
HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS
OF THIS SECTION 9.16 WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(SIGNATURES APPEAR ON NEXT PAGE)
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WITNESS the execution hereof under seal as of the day and year first above
written.
BORROWER:
AMERICAN MORTGAGE ACCEPTANCE COMPANY
By: ____________________________________
Name:
Title:
LENDER:
CHARTERMAC
By: ____________________________________
Name:
Title:
110
Exhibit 21
Subsidiaries of the Company as of December 31, 2005
---------------------------------------------------
AMAC Credit Facility, LLC, a Delaware limited liability company
AMAC Capital Financing I, a Delaware statutory trust
AMC Repo Seller, LLC, a Delaware limited liability company
111
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No.
33-87440 of American Mortgage Acceptance Company on Form S-3 and in Registration
Statement No. 33-118572 of American Mortgage Acceptance Company on Form S-8 of
our reports dated March 9, 2006 relating to the consolidated financial
statements of American Mortgage Acceptance Company and management's report on
the effectiveness of internal control over financial reporting appearing in this
Annual Report on Form 10-K of American Mortgage Acceptance Company for the year
ended December 31, 2005.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 9, 2006
112
Exhibit 31.1
CERTIFICATION
I, Jeff T. Blau, hereby certify that:
1. I have reviewed this annual report on Form 10-K of American Mortgage
Acceptance Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 9, 2006 By: /s/ Jeff T. Blau
------------- ----------------
Jeff T. Blau
Chief Executive Officer
113
Exhibit 31.2
CERTIFICATION
I, Alan P. Hirmes, hereby certify that:
1. I have reviewed this annual report on Form 10-K of American Mortgage
Acceptance Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure the material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 9, 2006 By: /s/ Alan P. Hirmes
------------- ------------------
Alan P. Hirmes
Chief Financial Officer
114
Exhibit 32.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of American Mortgage Acceptance Company
(the "Company") on Form 10-K for the year ending December 31, 2005, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Jeff T. Blau, Chief Executive Officer of the Company and I, Alan P. Hirmes,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Jeff T. Blau By: /s/ Alan P. Hirmes
---------------- ------------------
Jeff T. Blau Alan P. Hirmes
Chief Executive Officer Chief Financial Officer
March 9, 2006 March 9, 2006
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
115