AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
-------------------
CHASE PREFERRED CAPITAL CORPORATION
(Exact name of Registrant as specified in its governing instruments)
-------------------
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(212) 270-6000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-------------------
NEILA B. RADIN, ESQ.
CHASE PREFERRED CAPITAL CORPORATION
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(212) 270-6000
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
CELIA A. FELSHER, ESQ. MARK J. WELSHIMER, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY SULLIVAN & CROMWELL
ONE CHASE MANHATTAN PLAZA 125 BROAD STREET
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10004
TEL: (212) 530-5000 TEL: (212) 558-4000
FAX: (212) 530-5219 FAX: (212) 558-3588
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / ____________
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Cumulative Preferred Stock, Series
A, par value $25.00 per share..... 22,000,000 $25.00 $550,000,000 $189,655.18
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) of the Securities Act of 1933.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------------ ------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Special Considerations; The
Company; Business and Strategy; Certain
Transactions Constituting The Formation
4. Determination of Offering Price................. Not Applicable
5. Dilution........................................ Not Applicable
6. Selling Security Holders........................ Not Applicable
7. Plan of Distribution............................ Underwriting
8. Use of Proceeds................................. Use of Proceeds
9. Selected Financial Data......................... Not Applicable
10. Management's Discussion and Analysis of
Financial Condition and Results of Operations... Not Applicable
11. General Information as to Registrant............ Prospectus Summary; The Company; Management;
Business and Strategy; Certain Transactions
Constituting the Formation
12. Policy with Respect to Certain Activities....... Business and Strategy--Management Policies and
Programs
13. Investment Policies of Registrant............... Business and Strategy--Management Policies and
Programs
14. Description of Real Estate...................... Prospectus Summary; Business and Strategy
15. Operating Data.................................. Not Applicable
16. Tax Treatment of Registrant and Its Security
Holders......................................... Federal Income Tax Considerations; ERISA
Considerations
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters............................. Business and Strategy--Dividend Policy; Certain
Transactions Constituting the Formation
18. Description of Registrant's Securities.......... Description of Capital Stock; Description of
Series A Preferred Shares
19. Legal Proceedings............................... Business and Strategy --Legal Proceedings
20. Security Ownership of Certain Beneficial Owners
and Management.................................. Certain Transactions Constituting the Formation
21. Directors and Executive Officers................ Management
22. Executive Compensation.......................... Management
23. Certain Relationships and Related Transactions.. Special Considerations; Use of Proceeds;
Business and Strategy--Management Policies and
Programs; Certain Transactions Constituting The
Formation
24. Selection, Management and Custody of
Registrant's Investments........................ Special Considerations--Risks Associated with
Mortgage Loans Generally; --Relationship with
the Bank and its Affiliates; Conflicts of
Interest; Business and Strategy--Management
Policies and Programs; --Servicing;
Management--The Advisor
25. Policies with Respect to Certain Transactions... Special Considerations; Business and Strategy
--Management Policies and Programs;
--Servicing; Management; Certain Transactions
Constituting the Formation
26. Limitations of Liability........................ Management
27. Financial Statements and Information............ Index to Financial Statement
28. Interests of Named Experts and Counsel.......... Experts; Certain Legal Matters
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED JULY 12, 1996
[LOGO]
20,000,000 SHARES
CHASE PREFERRED CAPITAL CORPORATION
% CUMULATIVE PREFERRED STOCK, SERIES A
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
-------------------
Dividends on the % Cumulative Preferred Stock, Series A, par value $25.00
per share (the "Series A Preferred Shares"), of Chase Preferred Capital
Corporation (the "Company") will be cumulative from , 1996 and will be
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing , 1996, at the rate of % per annum of
the initial liquidation preference (an amount equal to $ per annum per
share).
The Series A Preferred Shares are not redeemable prior to , 2001
(except upon the occurrence of a Tax Event as described herein). On and after
, 2001, the Series A Preferred Shares may be redeemed for cash at the
option of the Company, in whole or in part, at a redemption price of $25.00 per
share, plus accrued and unpaid dividends, if any, thereon. The Series A
Preferred Shares will not be subject to any sinking fund or mandatory redemption
and will not be convertible into any other securities of the Company.
The Company has been formed for the purpose of acquiring, holding and
managing real estate mortgage assets. The Company expects that substantially all
of its mortgage assets will be acquired from The Chase Manhattan Bank, a banking
corporation organized under the laws of the State of New York (the "Bank"), or
its affiliates. All of the shares of the Company's common stock, par value
$300.00 per share (the "Common Stock"), are owned by the Bank. The Chase
Manhattan Corporation, a Delaware corporation and the parent of the Bank, has
agreed that, so long as any Series A Preferred Shares are outstanding, it will
maintain direct or indirect ownership of at least 80% of the outstanding Common
Stock of the Company.
The Company expects to qualify as a real estate investment trust for federal
income tax purposes, commencing with the taxable year ending December 31, 1996.
No person or persons acting as a group is permitted to beneficially own more
than 9.9% of any series of preferred stock of the Company, including the Series
A Preferred Shares, with limited exceptions.
Prior to the offering, there has been no market for the Series A Preferred
Shares. Application will be made to list the Series A Preferred Shares on the
New York Stock Exchange.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(3)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share................................ $25.00 $ $
Total(4)................................. $500,000,000 $ $
</TABLE>
- ------------
(1) Plus accrued dividends, if any, from , 1996.
(2) The Company and the Bank have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting".
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the several Underwriters an option for 30 days to
purchase up to an additional 2,000,000 Series A Preferred Shares at the
initial public offering price per Series A Preferred Share, less
underwriting discounts, solely to cover over-allotments. If such option is
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $550,000,000, $ and
$ , respectively. See "Underwriting".
-------------------
The Series A Preferred Shares are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Series A
Preferred Shares will be ready for delivery through the facilities of The
Depository Trust Company in New York, New York on or about , 1996.
-------------------
GOLDMAN, SACHS & CO.
The date of this Prospectus is , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED SHARES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-11 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Series A Preferred Shares
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information regarding the Company and the Series A Preferred Shares
offered hereby, reference is made to the Registration Statement and the exhibits
thereto.
The Registration Statement and the exhibits forming a part thereof filed by
the Company with the Commission can be inspected at and copies can be obtained
from the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, 14th Floor, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
The Certificate of Designation establishing the rights, preferences and
limitations of the Series A Preferred Shares provides that the Company shall
maintain its status as a reporting company under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), for so long as any of the Series A
Preferred Shares are outstanding.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. See "Glossary" commencing at
page 58 for the definitions of certain terms used in this Prospectus. The
offering of 20,000,000 shares of % Cumulative Preferred Stock, Series A, par
value $25.00 per share (the "Series A Preferred Shares"), is referred to herein
as the "Offering". Unless otherwise indicated, all information in this
Prospectus assumes that the over-allotment option described in "Underwriting" is
not exercised.
THE OFFERING
For a more complete description of the terms of the Series A Preferred
Shares specified in the following summary, see "Description of Series A
Preferred Shares".
<TABLE>
<CAPTION>
<S> <C>
ISSUER............................ Chase Preferred Capital Corporation (the "Company"), a
newly-formed Delaware corporation created for the
purpose of acquiring, holding and managing real estate
mortgage assets ("Mortgage Assets").
SECURITIES OFFERED................ 20,000,000 Series A Preferred Shares.
RANKING........................... With respect to the payment of dividends and amounts
upon liquidation, the Series A Preferred Shares will
rank senior to the Company's common stock, par value
$300.00 per share (the "Common Stock"). Additional
shares of preferred stock, par value $25.00 per share,
of the Company (the "Preferred Stock") ranking senior to
the Series A Preferred Shares may not be issued without
the approval of holders of at least 66 2/3% of the
Series A Preferred Shares. Additional shares of
Preferred Stock ranking on a parity with the Series A
Preferred Shares may not be issued without the approval
of a majority of the Independent Directors.
USE OF PROCEEDS................... The net proceeds to the Company from the Offering,
together with proceeds received in connection with the
sale of shares of Common Stock to The Chase Manhattan
Bank, a banking corporation organized under the laws of
the State of New York and the parent of the Company (the
"Bank"), will be used to purchase the Company's initial
portfolio of Mortgage Assets and to pay the expenses of
the Offering and the formation of the Company (currently
estimated by the Company to be approximately $18 million
in the aggregate). See "Use of Proceeds".
DIVIDENDS......................... Dividends on the Series A Preferred Shares will be
cumulative from the date of original issue and will be
payable quarterly on the last day of March, June,
September and December of each year, commencing , 1996,
at the rate of % per annum of the initial liquidation
preference (an amount equivalent to $ per annum
per share). Dividends on the Series A Preferred Shares
will accrue whether or not the Company has earnings,
whether or not there are funds legally
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
available for the payment of such dividends and whether
or not such dividends are declared. See "Description of
Series A Preferred Shares--Dividends".
LIQUIDATION PREFERENCE............ The liquidation preference for each Series A Preferred
Share is $25.00, plus an amount equal to accrued and
unpaid dividends, if any, thereon. See "Description of
Series A Preferred Shares--Rights Upon Liquidation".
REDEMPTION........................ The Series A Preferred Shares are not redeemable prior
to , 2001 (except upon the occurrence of a Tax Event as
defined in "Description of Series A Preferred Shares--
Redemption"). On and after , 2001, the Series A
Preferred Shares may be redeemed for cash at the option
of the Company, in whole or in part, at any time and
from time to time, at a redemption price of $25.00 per
share, plus accrued and unpaid dividends, if any,
thereon. Upon the occurrence of a Tax Event, the Company
will have the right at any time to redeem the Series A
Preferred Shares in whole (but not in part) at a
redemption price of $25.00 per share, plus accrued and
unpaid dividends, if any, thereon. See "Description of
Series A Preferred Shares-- Redemption".
VOTING RIGHTS..................... Except as described herein with respect to certain
voting rights in the Company, holders of Series A
Preferred Shares will not have any voting rights. In any
matter in which the Series A Preferred Shares may vote
(as expressly provided herein or as may be required by
law), each Series A Preferred Share will be entitled to
one vote. See "Description of Series A Preferred
Shares--Voting Rights".
OWNERSHIP LIMITS.................. Ownership of more than 9.9% of any outstanding series of
Preferred Stock, including the Series A Preferred Shares
offered hereby, is restricted in order to preserve the
Company's status as a real estate investment trust (a
"REIT") for federal income tax purposes. See
"Description of Capital Stock--Restrictions on Ownership
and Transfer".
TRADING........................... Application will be made to list the Series A Preferred
Shares on the New York Stock Exchange.
RATINGS........................... It is expected that the Series A Preferred Shares will
be rated by Moody's Investors Service, Inc. and by
Standard and Poor's Ratings Group. A security rating is
not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by
the assigning rating organization.
</TABLE>
4
<PAGE>
THE COMPANY
The Company is a newly-formed Delaware corporation incorporated on June 28,
1996 and created for the purpose of acquiring, holding and managing Mortgage
Assets. The Company will elect to be subject to tax as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), and will generally not be subject
to federal income tax to the extent that it distributes its earnings to its
stockholders and maintains its qualification as a REIT. All of the shares of the
Company's Common Stock are owned by the Bank. The Chase Manhattan Corporation, a
Delaware corporation ("CMC") that owns all of the issued and outstanding shares
of the capital stock of the Bank, has agreed that, so long as any Series A
Preferred Shares are outstanding, it will maintain direct or indirect ownership
of at least 80% of the outstanding Common Stock of the Company.
The Company's principal business objective is to acquire, hold and manage
Mortgage Assets that will generate net income for distribution to stockholders.
The Company expects that substantially all of its Mortgage Assets will be
acquired from the Bank or affiliates of the Bank as whole loans ("Mortgage
Loans") secured by first mortgages or deeds of trust on single-family (one- to
four-unit) residential real estate properties or by commercial real estate
properties. The Company may also from time to time acquire mortgage securities
rated by at least one nationally recognized independent rating organization and
representing interests in or obligations backed by pools of mortgage loans
("Mortgage-Backed Securities"). Mortgage loans underlying the Mortgage-Backed
Securities will be secured by single-family residential, multifamily or
commercial real estate properties located in the United States.
Simultaneously with the consummation of the Offering, the Bank will purchase
shares of Common Stock for a price equal to $500 million. The Company will use
the aggregate proceeds of $1 billion received in connection with both the
Offering and such sale of shares of Common Stock to the Bank to purchase a
portfolio of Mortgage Loans (the "Initial Portfolio") from the Bank. If the
Underwriters exercise their option to purchase additional Series A Preferred
Shares to cover over-allotments, the Bank will purchase additional shares of
Common Stock for a price equal to the aggregate public offering price of the
additional Series A Preferred Shares purchased pursuant to the Underwriters'
over-allotment option, and the Company will use the additional proceeds from any
such additional sales of Series A Preferred Shares and shares of Common Stock to
purchase additional Mortgage Loans of the types described in "Business and
Strategy--Description of the Initial Portfolio". See "Use of Proceeds".
Simultaneously with the consummation of the Offering (or upon the exercise by
the Underwriters of their over-allotment option), the Bank will also purchase
additional shares of Common Stock for a price equal to the aggregate amount of
underwriting discounts and expenses incurred by the Company in connection with
the Offering (including without limitation any underwriting discounts associated
with the exercise by the Underwriters of their over-allotment option) and all
expenses incurred by the Company in connection with its formation in order to
provide the Company with funds sufficient to pay such expenses.
On , 1996, the Mortgage Loans included in the Initial Portfolio had
an aggregate outstanding principal balance of $ . Approximately 90%
(measured by aggregate outstanding principal balance) of the Initial Portfolio
consists of Mortgage Loans secured solely by first mortgages or deeds of trust
on single-family (one- to four-unit) residential properties ("Residential
Mortgage Loans"). See "Business and Strategy--Description of the Initial
Portfolio-- Residential Mortgage Loans". The remainder of the Company's Initial
Portfolio consists of Mortgage Loans secured solely by first mortgages or deeds
of trust on commercial real estate properties ("Commercial Mortgage Loans"). See
Business and Strategy--Description of Initial Portfolio--Commercial Mortgage
Loans". Chase Mortgage Services, Inc., an indirect wholly-owned subsidiary of
the Bank ("CMSI"), will service the Residential Mortgage Loans included in the
Initial Portfolio, and the Bank will service the Commercial Mortgage Loans
included in the Initial Portfolio. Each will be entitled to receive fees in
connection with the servicing of such Mortgage Loans. The
5
<PAGE>
Company anticipates that Chase Manhattan Mortgage Corporation, an indirect
wholly-owned subsidiary of CMC, will perform the actual servicing of the
Mortgage Loans included in the Initial Portfolio pursuant to sub-servicing
agreements with the Bank and CMSI. See "Business and Strategy--Servicing".
The Company and the Bank believe that the fair value of the Initial
Portfolio will equal the amount (approximately $1 billion) that the Company will
pay for the Initial Portfolio. However, no third party valuations of the
Mortgage Loans constituting the Initial Portfolio have been or will be obtained
for purposes of the Offering. See "Special Considerations--No Third Party
Valuation of the Mortgage Loans; No Arm's-Length Negotiations with Affiliates".
The Company will enter into an advisory agreement with the Bank (the
"Advisory Agreement") pursuant to which the Bank will administer the day-to-day
operations of the Company. The Bank in its role as advisor under the terms of
the Advisory Agreement is hereinafter referred to as the "Advisor". The Advisor
will be responsible for (i) monitoring the credit quality of Mortgage Assets
held by the Company and (ii) advising the Company with respect to the
acquisition, management, financing and disposition of the Company's Mortgage
Assets. The Advisor may from time to time subcontract all or a portion of its
obligations under the Advisory Agreement to one or more of its affiliates
involved in the business of managing Mortgage Assets. If no affiliate of the
Advisor is engaged in the business of managing Mortgage Assets, the Advisor may,
with the approval of a majority of the Board of Directors, as well as a majority
of the Independent Directors, subcontract all or a portion of its obligations
under the Advisory Agreement to unrelated third parties. The Advisor will not,
in connection with the subcontracting of any of its obligations under the
Advisory Agreement, be discharged or relieved in any respect from its
obligations under the Advisory Agreement. The Advisor and its personnel have
substantial experience in mortgage finance and in the administration of Mortgage
Loans.
The Advisory Agreement has an initial term of five years, and will be
renewed automatically for additional five-year periods unless notice of
nonrenewal is delivered to the Advisor by the Company. The Advisory Agreement
may be terminated by the Company at any time upon 90 days' prior notice. As long
as any Series A Preferred Shares remain outstanding, any decision by the Company
either not to renew the Advisory Agreement or to terminate the Advisory
Agreement must be approved by a majority of the Board of Directors, as well as
by a majority of the Independent Directors. The Advisor will be entitled to
receive an advisory fee equal to . See "Management--The Advisor".
The Company will initially have a board of directors (the "Board of
Directors") composed of seven members, two of whom will be Independent
Directors. An "Independent Director" is a director who is not a current officer
or employee of the Company, CMC, the Bank or any affiliate of the Bank. Pursuant
to the Certificate of Designation establishing the Series A Preferred Shares,
the Independent Directors are required to take into account the interests of the
holders of both the Series A Preferred Shares and the Common Stock in assessing
the benefit to the Company of any proposed action requiring their approval. The
Company currently has four officers. The Company has no other employees and does
not anticipate that it will require additional employees. See "Management".
The Company may from time to time purchase additional Mortgage Loans or
interests in Mortgage Loans out of proceeds received in connection with the
repayment or disposition of Mortgage Loans or the issuance of additional shares
of Common Stock and Preferred Stock. Additional shares of Preferred Stock
ranking senior to the Series A Preferred Shares may not be issued by the Company
without the approval of holders of at least 66 2/3% of the outstanding Series A
Preferred Shares. Additional shares of Preferred Stock ranking on a parity with
the Series A Preferred Shares may not be issued by the Company without the
approval of a majority of the
6
<PAGE>
Independent Directors. See "Description of Series A Preferred Shares--Voting
Rights" and "-- Independent Director Approval". The Company does not currently
intend to issue any additional shares of Preferred Stock unless it
simultaneously issues additional shares of Common Stock to the Bank, and the
aggregate proceeds to be received from such issuance of Common Stock
approximately equals the sum of the aggregate offering price of such additional
Preferred Stock and the Company's expenses (including any underwriting discounts
or placement fees) incurred in connection with the issuance of such additional
shares of Preferred Stock.
The Company currently anticipates that substantially all of the Mortgage
Loans that it may acquire in the future will be purchased from the Bank and
affiliates of the Bank. The Company expects that any such Mortgage Loans will
represent first lien positions, will be acquired on a basis consistent with
secondary market standards and will have been originated and underwritten in
conformity with standards generally applied by the Bank or affiliates of the
Bank at the time the Mortgage Loans were originated. The Company currently
intends to maintain approximately 90% of its portfolio of Mortgage Assets in
Residential Mortgage Loans and approximately 10% of its portfolio in Commercial
Mortgage Loans. The Company's current policy is not to acquire any Commercial
Mortgage Loan if such Commercial Mortgage Loan would constitute more than 5% of
the total book value of the Mortgage Assets of the Company at the time of its
acquisition. The Company's current policy prohibits the acquisition of any
Mortgage Loan or any interest in a Mortgage Loan (other than an interest
resulting from the acquisition of Mortgage-Backed Securities), which Mortgage
Loan (i) is delinquent in the payment of principal or interest; (ii) is or was
at any time during the preceding 12 months (a) classified, (b) in nonaccrual
status, or (c) renegotiated due to financial deterioration of the borrower; or
(iii) has been, more than once during the preceding 12 months, more than 30 days
past due in the payment of principal or interest. The Company anticipates that
the right to service Mortgage Loans acquired by the Company in the future will
be retained by the Bank or an affiliate of the Bank.
As a newly-formed entity, the Company has no prior operating history. As of
the date hereof, it has $1,000 in assets, $1,000 in stockholder's equity and no
indebtedness. Immediately after the issuance by the Company of the Series A
Preferred Shares to the public and the Common Stock to the Bank and the purchase
by the Company of the Initial Portfolio, the Company (assuming that (i) the
Underwriters' over-allotment option is not exercised and (ii) there are $18
million in aggregate offering and organizational expenses) will have $1 billion
in Mortgage Assets, $500 million of stated capital attributable to the Series A
Preferred Shares, $155.4 million of stated capital attributable to the Common
Stock and $344.6 million of additional paid-in capital. See "Capitalization".
The principal executive offices of the Company are located at 270 Park
Avenue, New York, New York 10017, telephone number (212) 270-6000.
TAX STATUS OF THE COMPANY
The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ending December 31, 1996. As a
REIT, the Company generally will not be subject to federal income tax on net
income and capital gains that it distributes to the holders of its Common Stock
and Preferred Stock, including the Series A Preferred Shares.
A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute to
stockholders at least 95% of its "REIT taxable income". Notwithstanding
qualification for taxation as a REIT, the Company may be subject to federal,
state and/or local tax. See "Special Considerations--Tax Risks" and "Federal
Income Tax Considerations".
7
<PAGE>
THE COMPANY
The Company is a newly-formed Delaware corporation created for the purpose
of acquiring, holding and managing Mortgage Assets that will generate net income
for distribution to stockholders. The Company anticipates that approximately 90%
of its portfolio of Mortgage Assets will represent interests in Residential
Mortgage Loans and that approximately 10% of its portfolio of Mortgage Assets
will represent interests in Commercial Mortgage Loans.
The Company expects that substantially all of its Mortgage Assets will be
acquired as whole loans from the Bank or affiliates of the Bank. The Bank will
administer the day-to-day operations of the Company in its role as Advisor under
the Advisory Agreement. The Company will elect to be subject to tax as a REIT
under the Code, and will generally not be subject to federal income tax to the
extent that it distributes its earnings to its stockholders and maintains its
qualification as a REIT.
All of the Common Stock of the Company is owned by the Bank, and all of the
common stock of the Bank is owned by CMC. CMC is a bank holding company
organized under the laws of Delaware in 1968 and registered under the Bank
Holding Company Act of 1956, as amended. On March 31, 1996, The Chase Manhattan
Corporation ("Old Chase") merged with and into Chemical Banking Corporation, and
Chemical Banking Corporation, as the surviving corporation of the merger,
changed its name to "The Chase Manhattan Corporation". As a result of the
merger, CMC has become the largest banking institution in the United States,
with over $300 billion in assets and $20 billion in stockholders' equity.
For a further description of the operations of the Company, see "Business
and Strategy", "Management", "Special Considerations" and "Federal Income Tax
Considerations".
USE OF PROCEEDS
The proceeds to the Company from the sale of the Series A Preferred Shares
offered hereby are expected to be $500,000,000 (assuming the Underwriters'
over-allotment option is not exercised). Simultaneously with the consummation of
the Offering, the Bank will purchase shares of Common Stock for a price equal to
$500,000,000. The Company will use the aggregate proceeds of $1 billion received
in connection with both the Offering and the sale of shares of Common Stock to
the Bank to purchase the Initial Portfolio from the Bank. See "Business and
Strategy".
If the Underwriters exercise their option to purchase additional Series A
Preferred Shares to cover over-allotments in the Offering, the Bank will
purchase additional shares of Common Stock for a price equal to the aggregate
initial public offering price of such additional Series A Preferred Shares. The
Company will use the additional proceeds from any such additional sales of
Series A Preferred Shares and shares of Common Stock to purchase additional
Mortgage Loans of the types described in "Business and Strategy--Description of
Initial Portfolio". The Company expects that it will purchase any such
additional Commercial and Residential Mortgage Loans within six months from the
exercise by the Underwriters of their over-allotment option. Pending such
purchase, the Company will invest such additional proceeds in Mortgage-Backed
Securities or short-term money market investments.
Simultaneously with the consummation of the Offering, the Bank will also
purchase additional shares of Common Stock for a price equal to the aggregate
amount of underwriting discounts and expenses incurred by the Company in
connection with the Offering and all expenses incurred by the Company in
connection with its formation (currently estimated by the Company to be
approximately $18 million in the aggregate) in order to provide the Company with
funds sufficient to pay such
8
<PAGE>
expenses. Simultaneously with the consummation of any sale of additional Series
A Preferred Shares in connection with the exercise by the Underwriters of their
over-allotment option, the Bank will also purchase additional shares of Common
Stock for a price equal to the aggregate amount of underwriting discounts and
expenses incurred by the Company in connection with the exercise of such
overallotment option in order to provide the Company with funds sufficient to
pay such expenses.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
11, 1996 and as adjusted to reflect (i) the consummation of the Offering
(assuming the Underwriters' over-allotment option is not exercised) and (ii) the
transactions described in "Certain Transactions Constituting The Formation" and
the use of the net proceeds therefrom as described under "Use of Proceeds".
<TABLE>
<CAPTION>
JULY 11, 1996
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
DEBT
Total long-term debt.............................................. $ -- $ --
---------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $25.00 per share; none authorized, none
issued and outstanding, actual; and ,000,000 shares
authorized, 20,000,000 shares issued and outstanding, as
adjusted........................................................ -- 500,000
Common Stock, par value $1.00 per share(1); 1,000 shares
authorized, 1,000 shares issued and outstanding, actual; and
,000,000 shares authorized, 518,001 shares issued and
outstanding, as adjusted....................................... 1 155,400(1)
Additional paid-in capital........................................ -- 344,601(1)
---------- -----------
Total stockholders' equity.................................... $ 1 $ 1,000,001
---------- -----------
TOTAL CAPITALIZATION.............................................. $ 1 $ 1,000,001
---------- -----------
---------- -----------
</TABLE>
- ------------
(1) The Company was formed with an initial capitalization of $1,000. Prior to
consummation of the Offering, the charter of the Company will be amended to
increase the authorized capital of the Company and to increase the par value
of the Common Stock to $300.00 per share. Since the par value per share of
the Preferred Stock equals the issue price of a Series A Preferred Share,
the full $500 million raised in the Offering will represent Preferred Stock
capital. Since the par value of the Common Stock equals 30% of its purchase
price of $1,000 per share and the Bank will be acquiring 518,000 shares of
Common Stock upon the consummation of the Offering for an aggregate purchase
price of $518 million (including Common Stock acquired by the Bank in order
to provide sufficient funds to pay aggregate offering and organization
expenses, currently estimated by the Company to be approximately $18
million), the Common Stock capital will equal $155.4 million. The additional
paid-in capital of $344.6 million represents the excess of the purchase
price for the Common Stock over the par value of such shares after deducting
the aggregate amount of offering and organization expenses.
9
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing Series A Preferred Shares in the Offering.
NO OPERATING HISTORY; DEPENDENCE UPON ADVISOR
The Company is a newly organized corporation with no operating history and
has no revenues to date. The Company will be dependent for the selection,
structuring and monitoring of its Mortgage Assets on the diligence and skill of
its officers and the officers and employees of the Advisor. See "Management". In
addition, the Company will be dependent upon the expertise of CMSI and the Bank
for the servicing of its Mortgage Loans. The Advisor may subcontract all or a
portion of its obligations under the Advisory Agreement, and CMSI and the Bank
may subcontract all or a portion of their obligations under their respective
servicing arrangements, to one or more affiliates, and under certain conditions
to non-affiliates, involved in the business of managing Mortgage Assets. In the
event the Advisor or any servicer subcontracts its obligations in such a manner,
the Company will be dependent upon the subcontractor to provide services. See
"Management--The Advisor" and "Business and Strategy--Servicing".
RISKS ASSOCIATED WITH THE COMPANY BEING A SUBSIDIARY OF THE BANK
Because the Company is a subsidiary of the Bank, federal and state banking
authorities will have the right to examine the Company and its activities. Under
certain circumstances, including any determination that the Bank's relationship
to the Company results in an unsafe and unsound banking practice, such banking
authorities will have the authority to issue an order which restricts the
ability of the Company to transfer assets or to make distributions to its
stockholders.
INTEREST RATE RISK
The Company's income will consist primarily of interest payments on the
Mortgage Loans held by it. The Company anticipates that most of its Mortgage
Loans will bear interest at adjustable rates. If there is a decline in interest
rates (as measured by the indices upon which the interest rates of the Mortgage
Loans are based), then the Company will experience a decrease in income
available to be distributed to its stockholders. In addition, certain
Residential Mortgage Loan products which the Company will purchase could allow
borrowers in such an interest rate environment to convert an adjustable rate
mortgage to a fixed rate mortgage, thus "locking in" a low fixed interest rate.
Because the rate at which dividends are required to be paid on the Series A
Preferred Shares is fixed, there can be no assurance that an interest rate
environment in which there is a significant decline in interest rates would not
adversely affect the Company's ability to pay dividends on the Series A
Preferred Shares.
RISKS ASSOCIATED WITH MORTGAGE LOANS GENERALLY
An investment in the Series A Preferred Shares may be affected by, among
other things, a decline in real estate values. In the event the Mortgage Assets
held by the Company become nonperforming, the Company may not have funds
sufficient to pay dividends on the Series A Preferred Shares. Factors that could
affect the value of the Mortgage Assets held by the Company include the
following:
10
<PAGE>
STRUCTURAL RISKS OF MORTGAGE LOANS
The Company generally does not intend to obtain credit enhancements such as
mortgagor bankruptcy insurance or to obtain special hazard insurance for its
Mortgage Loans, other than standard hazard insurance, which will in each case
only relate to individual Mortgage Loans. Accordingly, during the time it holds
Mortgage Loans for which third party insurance is not obtained, the Company will
be subject to risks of borrower defaults and bankruptcies and special hazard
losses that are not covered by standard hazard insurance (such as those
occurring from earthquakes or floods). In addition, in the event of a default on
any Mortgage Loan held by the Company resulting from declining property values
or worsening economic conditions, among other factors, the Company would bear
the risk of loss of principal to the extent of any deficiency between (i) the
value of the related mortgaged property, plus any payments from an insurer (or
guarantor in the case of Commercial Mortgage Loans) and (ii) the amount owing on
the Mortgage Loan.
The Company anticipates that approximately 10% (measured by aggregate
outstanding principal amount) of its portfolio of Mortgage Assets on an ongoing
basis will consist of Commercial Mortgage Loans. Commercial Mortgage Loans have
certain distinct risk characteristics. The Company's current policy is not to
acquire any Commercial Mortgage Loan if such Commercial Mortgage Loan would
constitute more than 5% of the total book value of the Mortgage Assets of the
Company at the time of its acquisition. Commercial Mortgage Loans generally lack
standardized terms, which may complicate their structure. Commercial real estate
properties themselves tend to be unique and are more difficult to value than
residential real estate properties. Commercial Mortgage Loans also tend to have
shorter maturities than Residential Mortgage Loans and may not be fully
amortizing, meaning that they may have a significant principal balance or
"balloon" payment due on maturity. In addition, commercial real estate
properties, particularly industrial and warehouse properties, are generally
subject to relatively greater environmental risks than non-commercial properties
and to the corresponding burdens and costs of compliance with environmental laws
and regulations. See "--Environmental Considerations". Also, there may be costs
and delays involved in enforcing rights of a property owner against tenants in
default under the terms of leases with respect to commercial properties. For
example, tenants may seek the protection of the bankruptcy laws, which could
result in termination of lease contracts.
REAL ESTATE MARKET CONDITIONS
The results of the Company's operations will be affected by various factors,
many of which are beyond the control of the Company, such as: (i) local and
other economic conditions affecting real estate value, (ii) the ability of
tenants to make lease payments, (iii) the ability of a property to attract and
retain tenants, which may in turn be affected by local conditions such as an
oversupply of space or a reduction in demand for rental space in the area, the
attractiveness of properties to tenants, competition from other available space,
the ability of the owner to pay leasing commissions, provide adequate
maintenance and insurance, pay tenant improvement costs and make other tenant
concessions, (iv) interest rate levels and the availability of credit to
refinance such loans at or prior to maturity and (v) increased operating costs,
including energy costs, real estate taxes and costs of compliance with
environmental controls and regulations. The results of the Company's operations
depend on, among other things, the level of interest income generated by the
Company's Mortgage Assets, the market value of such Mortgage Assets and the
supply of and demand for such Mortgage Assets. Further, no assurance can be
given that the values of the properties securing the Mortgage Loans included in
the Company's Initial Portfolio have remained or will remain at the levels
existing on the dates of origination of such Mortgage Loans.
11
<PAGE>
GEOGRAPHIC CONCENTRATION
In addition to the foregoing, certain geographic regions of the United
States from time to time will experience natural disasters or weaker regional
economic conditions and housing markets, and, consequently, may experience
higher rates of loss and delinquency on Mortgage Loans generally. Any
concentration of the Mortgage Loans in such a region may present risks in
addition to those generally present with respect to Mortgage Loans generally.
The Company currently anticipates that approximately 50% of the residential
properties underlying the Company's Residential Mortgage Loans included in the
Initial Portfolio will be located in California. The Company currently
anticipates that substantially all of the commercial properties underlying its
Commercial Mortgage Loans will be located in the New York metropolitan tri-state
area. These Mortgage Loans may be subject to a greater risk of default than
other comparable Mortgage Loans in the event of adverse economic, political or
business developments or natural hazards that may affect such regions and the
ability of property owners in such regions to make payments of principal and
interest on the underlying mortgages. See "Business and Strategy--Description of
Initial Portfolio--Geographic Distribution" herein for further information
regarding the geographic concentration of the Mortgage Loans in the Initial
Portfolio.
DELAYS IN LIQUIDATING DEFAULTED MORTGAGE LOANS
Even assuming that the mortgaged properties underlying the Mortage Loans
held by the Company provide adequate security for such Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Mortgage Loans, with corresponding delays in the receipt of related
proceeds by the Company. An action to foreclose on a mortgaged property securing
a Mortgage Loan is regulated by state statutes and rules and is subject to many
of the delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a mortgaged property. In the event of a default by a
mortgagor, these restrictions, among other things, may impede the ability of the
Company to foreclose on or sell the mortgaged property or to obtain proceeds
sufficient to repay all amounts due on the related Mortgage Loan. In addition,
the servicers of the Company's Mortgage Loans will be entitled to deduct from
collections received all expenses reasonably incurred in attempting to recover
amounts due and not yet repaid on liquidated Mortgage Loans, including legal
fees and costs of legal action, real estate taxes and maintenance and
preservation expenses, thereby reducing amounts available to the Company.
LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other charges
and require certain disclosures to borrowers. In addition, most states have
other laws, public policy and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and practices which may
apply to the servicing and collection of the Mortgage Loans. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Company to collect all or part of the principal of or interest on
the Mortgage Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the Company to damages and administrative
sanctions.
ENVIRONMENTAL CONSIDERATIONS
In the event that the Company is forced to foreclose on a defaulted Mortgage
Loan to recover its investment in such Mortgage Loan, the Company may be subject
to environmental liabilities in connection with such real property which could
exceed the value of the real property. Although the
12
<PAGE>
Company intends to exercise due diligence to discover potential environmental
liabilities prior to the acquisition of any property through foreclosure,
hazardous substances or wastes, contaminants, pollutants or sources thereof (as
defined by state and federal laws and regulations) may be discovered on
properties during the Company's ownership or after a sale thereof to a third
party. If such hazardous substances are discovered on a property, the Company
may be required to remove those substances and clean up the property. There can
be no assurances that the Company would not incur full recourse liability for
the entire costs of any removal and clean-up, that the cost of such removal and
clean-up would not exceed the value of the property or that the Company could
recoup any of such costs from any third party. The Company may also be liable to
tenants and other users of neighboring properties. In addition, the Company may
find it difficult or impossible to sell the property prior to or following any
such clean-up.
RISK OF FUTURE REVISIONS IN POLICIES AND STRATEGIES BY BOARD OF DIRECTORS
The Board of Directors has established the investment policies and operating
policies and strategies of the Company, certain of which are described in this
Prospectus. These policies, which are discussed herein, may be amended or
revised from time to time at the discretion of the Board of Directors (in
certain circumstances subject to the approval of a majority of the Independent
Directors) without a vote of the Company's stockholders, including holders of
the Series A Preferred Shares. The ultimate effect of any change in the policies
and strategies set forth in this Prospectus on a holder of Series A Preferred
Shares may be positive or negative. See "Business and Strategy--Management
Policies and Programs".
RISK ASSOCIATED WITH LEVERAGE
Although the Company does not currently intend to incur any indebtedness in
connection with the acquisition and holding of Mortgage Loans, the Company may
do so at any time (although indebtedness in excess of 20% of the aggregate
amount of net proceeds received in connection with the issuance of Preferred
Stock and Common Stock may not be incurred without the approval of a majority of
the Independent Directors of the Company). To the extent the Company were to
change its policy with respect to the incurrence of indebtedness, the Company
would be subject to risks associated with leverage, including, without
limitation, changes in interest rates, prepayment risk and risks of various
hedging strategies.
RELATIONSHIP WITH THE BANK AND ITS AFFILIATES; CONFLICTS OF INTEREST
The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. The Bank is the sole holder of the Common Stock of the
Company and administers the day-to-day activities of the Company in its role as
Advisor under the Advisory Agreement. Both the Bank and CMSI, an indirect wholly
owned subsidiary of the Bank, act as servicers of the Company's Mortgage Loans.
In addition, other than the Independent Directors, all of the officers and
directors of the Company are also officers and directors of the Bank or its
affiliates. As the holder of all of the outstanding voting stock of the Company,
the Bank will have the right to elect all directors of the Company, including
the Independent Directors.
The Company is dependent for the selection, structuring and monitoring of
its Mortgage Assets on the diligence and skill of its officers and the officers
and employees of the Bank in its role as Advisor and of any affiliates with
which the Advisor enters into sub-advisory agreements. In addition, the Company
is dependent on the Bank and CMSI (and affiliates with which they enter into
sub-servicing agreements) for the servicing of its Mortgage Loans. The Bank and
its affiliates may have interests which are not identical to those of the
Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation the Company's acquisition of the
Initial Portfolio; future acquisitions of Mortgage Loans from the Bank or its
affiliates; future
13
<PAGE>
dispositions of Mortgage Loans to CMC or any of its non-bank subsidiaries; and
the modification of the Advisory Agreement or any servicing agreement entered
into with CMSI, the Bank or any other affiliate of the Bank. It is the intention
of the Company, CMC and the Bank that any agreements and transactions between
the Company, on the one hand, and CMC, the Bank or their affiliates, on the
other hand, are fair to all parties and consistent with market terms, including
the prices paid and received for Mortgage Loans, including those in the Initial
Portfolio, on their acquisition or disposition by the Company. The requirement
in the Certificate of Designation establishing the Series A Preferred Shares
that certain actions of the Company be approved by a majority of the Independent
Directors is also intended to ensure fair dealings between the Company and CMC,
the Bank and their respective affiliates. However, there can be no assurance
that such agreements or transactions will be on terms as favorable to the
Company as those that could have been obtained from unaffiliated third parties.
See "Business and Strategy--Management Policies and Programs--Conflict of
Interest Policies".
NO THIRD PARTY VALUATION OF THE MORTGAGE LOANS; NO ARM'S-LENGTH NEGOTIATIONS
WITH AFFILIATES
The Company and the Bank intend that the fair value of the Initial Portfolio
will approximately equal the amount (approximately $1 billion) that the Company
will pay for the Initial Portfolio. However, no third party valuations of the
Mortgage Loans constituting the Initial Portfolio were obtained for purposes of
the Offering, and there can be no assurance that the fair value of the Initial
Portfolio does not differ from the purchase price payable by the Company.
In addition, it is not anticipated that third party valuations will be
obtained in connection with future acquisitions and dispositions of Mortgage
Loans even in circumstances where an affiliate of the Company is selling the
Mortgage Loans to, or purchasing the Mortgage Loans from, the Company.
Accordingly, although the Company, the Bank and CMC intend that future
acquisitions or dispositions of Mortgage Loans be on a fair value basis, there
can be no assurance that the consideration to be paid (or received) by the
Company to (or from) the Bank, CMC or any of their respective affiliates in
connection with future acquisitions or dispositions of Mortgage Loans will not
differ from the fair value of such Mortgage Loans.
TAX RISKS
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company intends to operate so as to qualify as a REIT under the Code.
Although the Company believes that it will be owned and organized and will
operate in such a manner, and Milbank, Tweed, Hadley & McCloy will render
certain opinions, described under "Federal Income Tax Considerations" below,
regarding the Company's qualification as a REIT, no assurance can be given that
the Company will be able to operate in such a manner so as to qualify as a REIT
or to remain so qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. The determination of various factual
matters and circumstances, not entirely within the Company's control and not
addressed by the opinion of Milbank, Tweed, Hadley & McCloy, may affect the
Company's ability to qualify as a REIT. Although the Company is not aware of any
proposal in Congress to amend the tax laws in a manner that would materially and
adversely affect the Company's ability to operate as a REIT, no assurance can be
given that new legislation or new regulations, administrative interpretations or
court decisions will not significantly change the tax laws in the future with
respect to qualification as a REIT or the federal income tax consequences of
such qualification.
14
<PAGE>
The Company is relying on the opinion of Milbank, Tweed, Hadley & McCloy,
counsel to the Company, regarding various issues affecting the Company's ability
to qualify, and retain qualification, as a REIT. Such legal opinions are not
binding on the Internal Revenue Service ("IRS").
If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for distributions to stockholders in computing
its taxable income and would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. As a result, the amount available for distribution to the Company's
stockholders would be reduced for the year or years involved. In addition,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. A failure of the Company
to qualify as a REIT would not by itself give the Company the right to redeem
the Series A Preferred Shares. See "Description of Series A Preferred Shares--
Redemption."
Notwithstanding that the Company currently intends to operate in a manner
designed to qualify as a REIT, future economic, market, legal, tax or other
considerations may cause the Company to determine that it is in the best
interest of the Company and the holders of its Common Stock and Preferred Stock
to revoke the REIT election. As long as any Series A Preferred Shares are
outstanding, any such determination by the Company may not be made without the
approval of a majority of the Independent Directors. The tax law prohibits the
Company from electing treatment as a REIT for the four taxable years following
the year of such revocation. See "Federal Income Tax Considerations".
REIT REQUIREMENTS WITH RESPECT TO STOCKHOLDER DISTRIBUTIONS
To obtain favorable tax treatment as a REIT qualifying under the Code, the
Company generally will be required each year to distribute as dividends to its
stockholders at least 95% of its "REIT taxable income" (excluding capital
gains). Failure to comply with this requirement would result in the Company's
income being subject to tax at regular corporate rates. In addition, the Company
will be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions considered as paid by it with respect to any calendar year
are less than the sum of 85% of its ordinary income for the calendar year, 95%
of its capital gains net income for the calendar year and any undistributed
taxable income from prior periods.
REDEMPTION UPON OCCURRENCE OF A TAX EVENT
At any time following the occurrence of a Tax Event (as defined under
"Description of Series A Preferred Shares--Redemption"), even if such Tax Event
occurs prior to , 2001, the Company will have the right to redeem
the Series A Preferred Shares in whole but not in part. See "Description of
Series A Preferred Shares--Redemption".
NO PRIOR MARKET FOR SERIES A PREFERRED SHARES
Prior to the Offering, there has been no public market for the Series A
Preferred Shares and there can be no assurance that an active trading market
will develop or be sustained or that the Series A Preferred Shares may be resold
at or above the initial public offering price.
15
<PAGE>
BUSINESS AND STRATEGY
GENERAL
The Company's principal business objective is to acquire, hold and manage
Mortgage Loans that will generate net income for distribution to stockholders.
The Company will acquire the Initial Portfolio of Mortgage Loans from the Bank
for an aggregate purchase price of approximately $1 billion. See "Certain
Transactions Constituting the Formation".
In order to preserve its status as a REIT under the Code, substantially all
of the assets of the Company will consist of Mortgage Loans and other qualified
REIT real estate assets of the type set forth in Section 856(c)(6)(B) of the
Code. See "Federal Income Tax Considerations".
DIVIDEND POLICY
The Company currently expects to pay an aggregate amount of dividends with
respect to its outstanding shares of capital stock equal to approximately 100%
of the Company's "REIT taxable income" (excluding capital gains). In order to
remain qualified as a REIT, the Company must distribute annually at least 95% of
its "REIT taxable income" (excluding capital gains) to stockholders.
Dividends will be declared at the discretion of the Board of Directors after
considering the Company's distributable funds, financial requirements, tax
considerations and other factors. The Company currently expects that both its
cash available for distribution and its "REIT taxable income" will be
significantly in excess of amounts needed to pay accrued dividends on the Series
A Preferred Shares. Accordingly, the Company expects that it will, after paying
all accrued and unpaid dividends on the Series A Preferred Shares, pay dividends
on an annual basis to holders of its Common Stock. However, there are several
limitations which restrict the Company's ability to pay dividends on the Common
Stock (none of which should adversely affect either the ability of the Company
to pay dividends in respect of the Series A Preferred Shares or the ability of
the Company to maintain its status as a REIT).
First, under the Company's current dividend policy, the Company may not make
any distribution in respect of the Common Stock with respect to any year to the
extent that, after taking into account such proposed distribution, total cash or
property distributions on the Company's outstanding shares of Preferred Stock
and Common Stock with respect to that year would exceed 105% of the Company's
"REIT taxable income" (excluding capital gains) for that year plus net capital
gains of the Company for that year. This policy regarding the limitations on
payment of dividends in respect of Common Stock may not be modified without the
approval of a majority of the Independent Directors. Second, no cash or property
dividends may be paid on the Common Stock unless all accrued and unpaid
dividends on the Series A Preferred Shares, and all other capital stock of the
Company ranking senior to the Common Stock, have been paid. Third, Delaware law
provides that dividends may be paid on the capital stock of the Company only out
of (i) the Company's capital surplus (i.e., the excess of the Company's net
assets over the aggregate par value of all shares of capital stock issued by the
Company) and (ii) the Company's net profits for the year in which the dividend
is declared and for the preceding year. Because upon the consummation of the
Offering the aggregate par value of the Series A Preferred Shares and the
outstanding shares of Common Stock will equal $655.4 million (assuming the
Underwriters' over-allotment option is not exercised and there are $18 million
of offering and organizational expenses in the aggregate), the amount of
dividends which the Company could legally pay on its Common Stock cannot exceed
an amount which would cause the Company's net assets to be less than $655.4
million.
16
<PAGE>
Under certain circumstances, including any determination that the Bank's
relationship to the Company results in an unsafe and unsound banking practice,
federal and state banking authorities will have the authority to issue an order
which restricts the ability of the Company to make dividend payments to its
stockholders.
GENERAL DESCRIPTION OF MORTGAGE ASSETS; INVESTMENT POLICY
RESIDENTIAL MORTGAGE LOANS
The Company may from time to time acquire both conforming and nonconforming
Residential Mortgage Loans; however, the Company expects that substantially all
of the Residential Mortgage Loans it acquires will be nonconforming.
Conventional conforming Residential Mortgage Loans comply with the requirements
for inclusion in a loan guarantee program sponsored by either the Federal Home
Loan Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"). Under current regulations, the maximum principal balance allowed on
conforming Residential Mortgage Loans ranges from $207,000 ($310,500 for
Residential Mortgage Loans secured by mortgaged properties located in either
Alaska or Hawaii) for one-unit residential loans to $397,800 ($596,700 for
Residential Mortgage Loans secured by mortgaged properties located in either
Alaska or Hawaii) for four-unit residential loans. Nonconforming Residential
Mortgage Loans are Residential Mortgage Loans that do not qualify in one or more
respects for purchase by FNMA or FHLMC. The Company expects that a majority of
the nonconforming Residential Mortgage Loans it purchases will be nonconforming
because they have original principal balances which exceed the requirements for
FHLMC or FNMA programs or generally because they vary in certain other respects
from the requirements of such programs other than the requirements relating to
creditworthiness of the mortgagors. A substantial portion of the Company's
nonconforming Residential Mortgage Loans are expected to meet the requirements
for sale to national private mortgage conduit programs or other investors in the
secondary mortgage market.
Each Residential Mortgage Loan will be evidenced by a promissory note
secured by a mortgage or deed of trust or other similar security instrument
creating a first lien on single-family (one- to four-unit) residential
properties, including stock allocated to a dwelling unit in a residential
cooperative housing corporation. Residential real estate properties underlying
Residential Mortgage Loans consist of individual dwelling units, individual
cooperative apartment units, individual condominium units, two- to four-family
dwelling units, planned unit developments and townhouses. The Company currently
expects that most of the Residential Mortgage Loans to be acquired by it will be
adjustable rate Mortgage Loans; however, the Company will also purchase fixed
interest rate Residential Mortgage Loans.
COMMERCIAL MORTGAGE LOANS
The Company may from time to time acquire Commercial Mortgage Loans secured
by industrial and warehouse properties, office buildings, retail space and
shopping malls, hotels and motels, hospitals, nursing homes or senior living
centers; however the Company expects that substantially all of the Commercial
Mortgage Loans it acquires will be secured by offices, industrial warehouses and
manufacturing facilities in the New York metropolitan tri-state area. The
Company anticipates that substantially all of these commercial real estate
properties will be at least 70% occupied by the borrowers of the related
Commercial Mortgage Loan or their affiliates, which are customers of the Bank or
its affiliates. Unlike Residential Mortgage Loans, Commercial Mortgage Loans
generally lack standardized terms. Although Commercial Mortgage Loans are
generally nonrecourse to the borrower, the Company anticipates that
substantially all of the Commercial Mortgage Loans that it will acquire will be
supported by a guarantee of the borrower or an affiliate of the borrower. In
addition, Commercial Mortgage Loans tend to be fixed rate loans having shorter
maturities than Residential Mortgage Loans. Commercial Mortgage Loans may also
not be fully amortizing,
17
<PAGE>
meaning that they may have a significant principal balance or "balloon" payment
due on maturity. Moreover, commercial properties, particularly industrial and
warehouse properties, are generally subject to relatively greater environmental
risks than non-commercial properties, generally giving rise to increased costs
of compliance with environmental laws and regulations. See "Special
Considerations--Risks Associated with Mortgage Loans Generally--Environmental
Considerations".
The credit quality of a Commercial Mortgage Loan may depend on, among other
factors, the existence and structure of underlying leases, the physical
condition of the property (including whether any maintenance has been deferred),
the creditworthiness of tenants, the historical and anticipated level of
vacancies and rents on the property and on other comparable properties located
in the same region, potential or existing environmental risks, the availability
of credit to refinance the Commercial Mortgage Loan at or prior to maturity and
the local and regional economic climate in general. Foreclosures of defaulted
Commercial Mortgage Loans are generally subject to a number of complicating
factors, including environmental considerations, which are generally not present
in foreclosures of Residential Mortgage Loans. See "Special
Considerations--Risks Associated with Mortgage Loans Generally--Structural Risks
of Mortgage Loans" and "--Environmental Considerations".
MORTGAGE-BACKED SECURITIES
The Company may from time to time acquire Mortgage-Backed Securities
representing interests in or obligations backed by pools of Mortgage Loans. The
Mortgage Loans underlying the Mortgage-Backed Securities will be secured by
single-family residential, multifamily or commercial real estate properties
located throughout the United States.
ACQUISITION OF INITIAL PORTFOLIO
Simultaneously with the consummation of the Offering, the Company will
acquire the Initial Portfolio pursuant to the terms of two mortgage purchase
agreements with the Bank: the Residential Mortgage Loan Purchase and Warranties
Agreement (the "Residential Mortgage Purchase Agreement") and the Commercial
Mortgage Loan Purchase and Warranties Agreement (the "Commercial Mortgage
Purchase Agreement"), each dated as of , 1996. The Residential
Mortgage Loans in the Initial Portfolio will be assigned to the Company pursuant
to the Residential Mortgage Purchase Agreement. The Commercial Mortgage Loans in
the Initial Portfolio will be assigned to the Company pursuant to the Commercial
Mortgage Purchase Agreement. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to its respective mortgage purchase agreement (each, a
"Mortgage Loan Schedule"). Each Mortgage Loan Schedule will specify, among other
things, with respect to each Mortgage Loan: the interest rate or interest rate
formula applicable to each Mortgage Loan, the original principal amount and the
unpaid principal balance as of the purchase date, the monthly payment, maturity
date, the mortgagor, the type of the mortgaged property, the location of the
mortgaged property and the current interest rate.
In addition, the Bank will deliver or cause to be delivered to the Company
the mortgage note with respect to each Mortgage Loan (together with all
amendments and modifications thereto) endorsed in blank, the original or
certified copy of the mortgage (together with all amendments and modifications
thereto) with evidence of recording indicated thereon, if available, and an
original or certified copy of an assignment of the mortgage in recordable form.
None of the assignments of the Mortgage Loans in the Initial Portfolio will be
recorded since CMSI, with respect to each Residential Mortgage Loan, and the
Bank, with respect to each Commercial Mortgage Loan, will hold record title in
their roles as servicers of the Mortgage Loans. See "--Servicing" and "--
Description of Initial Portfolio--General".
18
<PAGE>
The Bank will make certain representations and warranties with respect to
the Mortgage Loans in the Initial Portfolio for the benefit of the Company and
will be obligated to repurchase any Mortgage Loan sold by it to the Company as
to which there is a material breach of any such representation or warranty. The
repurchase price for any such Mortgage Loan will be its outstanding principal
amount plus accrued and unpaid interest on the date of repurchase. Such
repurchase will constitute the sole remedy available to the Company for a breach
of such representations or warranties. In addition, under the terms of the
Residential Mortgage Purchase Agreement and the Commercial Mortgage Purchase
Agreement, the Company will acquire, in addition to the Mortgage Loans included
in the Initial Portfolio, (i) the amounts held in one or more accounts
maintained in the name of the Company pursuant to the Servicing Agreements
(defined below) and (ii) all insurance policies relating to the Mortgage
Properties and the proceeds thereof.
MANAGEMENT POLICIES AND PROGRAMS
In administering the Company's Mortgage Assets, the Advisor has a high
degree of autonomy. The Board of Directors, however, has adopted certain
policies to guide administration of the Company and the Advisor with respect to
the acquisition and disposition of assets, use of capital and leverage, credit
risk management and certain other activities. These policies, which are
discussed below, may be amended or revised from time to time at the discretion
of the Board of Directors (in certain circumstances subject to the approval of a
majority of the Independent Directors) without a vote of the Company's
stockholders, including holders of the Series A Preferred Shares. See also
"--Dividend Policy".
ASSET ACQUISITION AND DISPOSITION POLICIES
Subsequent to the acquisition of the Initial Portfolio, the Company
anticipates that it will from time to time purchase additional Mortgage Loans on
a basis consistent with secondary market standards from the Bank or its
affiliates, although Mortgage Loans may be acquired from unaffiliated third
parties, out of proceeds received in connection with the repayment or
disposition of Mortgage Loans or the issuance of additional shares of Common
Stock and Preferred Stock. The Company currently anticipates that such Mortgage
Loans will be of the types described in "--Description of Initial Portfolio",
although if the Bank or its affiliates develop additional Mortgage Loan
products, the Company may purchase such additional types of Mortgage Loans. In
addition, the Company may from time to time acquire Mortgage-Backed Securities
representing interests in or obligations backed by pools of Mortgage Loans that
will be secured by single-family residential, multifamily or commercial real
estate properties located throughout the United States. The Company currently
anticipates that it will not acquire the right to service any Mortgage Loan it
acquires in the future and that the Bank or an affiliate of the Bank will act as
servicer of any such Mortgage Loan. The Company anticipates that any servicing
arrangement that it enters into in the future will contain fees and other terms
consistent with secondary market standards.
The Company currently intends to maintain approximately 90% of its portfolio
of Mortgage Assets in Residential Mortgage Loans and approximately 10% of the
Company's portfolio of Mortgage Assets in Commercial Mortgage Loans. The
Company's current policy is not to acquire any Commercial Mortgage Loan that
constitutes more than 5% of the total book value of the Mortgage Assets of the
Company at the time of its acquisition. In addition, the Company's current
policy prohibits the acquisition of any Mortgage Loan or any interest in a
Mortgage Loan (other than an interest resulting from the acquisition of
Mortgage-Backed Securities), which Mortgage Loan (i) is delinquent in the
payment of principal or interest at the time of proposed acquisition; (ii) is or
was at any time during the preceding 12 months (a) classified, (b) in nonaccrual
status, or (c) renegotiated due to financial deterioration of the borrower; or
(iii) has been, more than once during the preceding 12 months, more than 30 days
past due in the payment of principal or interest.
19
<PAGE>
The Company currently maintains a policy of disposing of any Mortgage Loan
which subsequent to its acquisition by the Company (i) becomes classified, (ii)
falls into nonaccrual status, (iii) has to be renegotiated due to the financial
deterioration of the borrower or (iv) is more than 30 days past due in the
payment of principal or interest more than once in any 12 month period. The Bank
has indicated to the Company that it will not purchase any Mortgage Loans of the
Company that fall into any of the foregoing categories; accordingly, the Company
currently anticipates that any such Mortgage Loan would be sold at its then
current fair value by the Company only to CMC, a non-bank subsidiary of CMC or
an unrelated third party.
The Company will develop forms of assignment and a policy regarding
recording of mortgage assignments.
CAPITAL AND LEVERAGE POLICIES
To the extent that the Board of Directors determines that additional funding
is required, the Company may raise such funds through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of a certain
percentage of taxable income and taking into account taxes that would be imposed
on undistributed taxable income), or a combination of these methods.
The Company will have no debt outstanding following consummation of the
Offering, and the Company does not currently intend to incur any indebtedness.
However, the organizational documents of the Company do not contain any
limitation on the amount or percentage of debt, funded or otherwise, the Company
might incur. Notwithstanding the foregoing, the Company may not, without the
approval of a majority of the Independent Directors, incur debt for borrowed
money other than debt not in excess of 20% of the aggregate amount of net
proceeds received in connection with the issuance of all outstanding Preferred
Stock and Common Stock of the Company. Any such debt incurred may include
intercompany advances made by the Bank to the Company.
The Company may also issue additional series of Preferred Stock. However,
the Company may not issue additional shares of Preferred Stock senior to the
Series A Preferred Shares without the consent of holders of at least 66 2/3% of
the outstanding shares of Preferred Stock at that time, including the Series A
Preferred Shares, and the Company may not issue additional shares of Preferred
Stock on a parity with the Series A Preferred Shares without the approval of a
majority of the Company's Independent Directors. In addition, the Company does
not currently intend to issue any additional series of Preferred Stock unless it
simultaneously issues additional Common Stock to the Bank and the proceeds to be
received from the issuance of the Common Stock are approximately equal to the
aggregate offering price of such additional Preferred Stock plus the Company's
expenses (including underwriting discounts or placement fees) in connection with
the issuance of such additional shares of Preferred Stock.
CREDIT RISK MANAGEMENT POLICIES
The Company expects that each Mortgage Loan acquired from the Bank or one of
its affiliates in the future will represent a first lien position and will be
originated by the Bank or such affiliate in the ordinary course of its real
estate lending activities based on the underwriting standards generally applied
(at the time of origination) for its own account by the Bank or the affiliate of
the Bank which originated the Mortgage Loan. See "--Description of Initial
Portfolio--Underwriting Standards". In addition, the Company currently maintains
a policy of disposing of any Mortgage Loan or any interest in a Mortgage Loan
(other than an interest through a Mortgage-Backed Security) held by it, which
Mortgage Loan (i) is or has been, at any time during the preceding 12 months,
(a) classified, (b) in nonaccrual status or (c) renegotiated due to financial
deterioration of the borrower or (ii) has been, more than once during the
preceding 12 months, more than 30 days
20
<PAGE>
past due in the payment of principal and interest. The Bank has indicated to the
Company that it will not purchase any Mortgage Loans of the Company that fall
into any of the foregoing categories; accordingly, the Company currently
anticipates that any such Mortgage Loan would be sold at its then current fair
value by the Company only to CMC, a non-bank subsidiary of CMC or an unrelated
third party.
CONFLICT OF INTEREST POLICIES
Because of the nature of the Company's relationship with the Bank and its
affiliates, it is likely that conflicts of interest will arise with respect to
inter-affiliate transactions, including without limitation the Company's
acquisition of Mortgage Loans from, or disposition of Mortgage Loans to, the
Bank, CMC or their respective affiliates and the modification of the Advisory
Agreement or either of the Servicing Agreements. It is the Company's policy that
the terms of any financial dealings with the Bank, CMC and their respective
affiliates will be consistent with those available from third parties in the
mortgage lending industry. In addition, neither the Advisory Agreement nor
either of the Servicing Agreements may be modified or terminated without the
approval of a majority of the Independent Directors. Conflicts of interest
between the Company and the Bank and its affiliates may also arise in connection
with making decisions that bear upon the credit arrangements that the Bank or
one of its affiliates may have with the borrower. The Servicing Agreements
provide that servicing of the Mortgage Loans are performed solely with a view to
the interests of the Company as owner of the Mortgage Loans and without regard
to the interests of the Bank or its other affiliates. Conflicts could also arise
in connection with actions taken by the Bank as a controlling person in the
Company. It is the intention of the Company, the Bank and CMC that any
agreements and transactions between the Company, on the one hand, and CMC, the
Bank or their affiliates, on the other hand, are fair to all parties and are
consistent with market terms for such types of transactions. The requirement in
the Certificate of Designation establishing the Series A Preferred Shares that
certain actions of the Company be approved by a majority of the Independent
Directors is also intended to ensure fair dealings between the Company and CMC,
the Bank and their respective affiliates. However, there can be no assurance
that any such agreement or transaction will be on terms as favorable to the
Company as would have been obtained from unaffiliated third parties.
There are no provisions in the Company's Certificate of Incorporation
limiting any officer, director, security holder or affiliate of the Company from
having any direct or indirect pecuniary interest in any Mortgage Asset to be
acquired or disposed of by the Company or in any transaction in which the
Company has an interest or from engaging in acquiring, holding and managing
Mortgage Assets. As described herein, it is expected that the Bank and its
affiliates will have direct interests in transactions with the Company
(including without limitation the sale of Mortgage Assets to the Company);
however, it is not currently anticipated that any of the officers or directors
of the Company will have any interests in such Mortgage Assets.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
to (i) invest in the securities of other issuers for the purpose of exercising
control over such issuers, (ii) underwrite securities of other issuers,
(iii) actively trade in loans or other investments, (iv) offer securities in
exchange for property or (v) make loans to third parties, including without
limitation officers, directors or other affiliates of the Company. The Company
may, under certain circumstances, purchase the Series A Preferred Shares and
other shares of its capital stock in the open market or otherwise, provided,
however, that the Company will not redeem or repurchase any shares of its Common
Stock for so long as any Series A Preferred Shares are outstanding without the
approval of a majority of the
21
<PAGE>
Independent Directors. The Company has no present intention of causing the
Company to repurchase any shares of its capital stock, and any such action would
be taken only in conformity with applicable federal and state laws and the
requirements for qualifying as a REIT.
The Company intends to publish and distribute to stockholders, in accordance
with New York Stock Exchange rules, annual reports containing financial
statements prepared in accordance with generally accepted accounting principles
and certified by the Company's independent public accountants. The Certificate
of Designation establishing the Series A Preferred Shares provides that the
Company shall maintain its status as a reporting company under the Exchange Act,
for so long as any of the Series A Preferred Shares are outstanding.
The Company currently intends to make investments and operate its business
at all times in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT. However, future economic, market, legal, tax or other
considerations may cause the Board of Directors, subject to approval by a
majority of Independent Directors, to determine that it is in the best interests
of the Company and its stockholders to revoke its REIT status.
DESCRIPTION OF INITIAL PORTFOLIO
Information with respect to the Initial Portfolio is presented as of
, 1996. Factual data with respect to Mortgage Loans included in the
Initial Portfolio relates to Mortgage Loans which the Company currently believes
will be purchased simultaneously with the consummation of the Offering. The
composition of the Initial Portfolio as actually purchased contemporaneously
with the consummation of the Offering may differ in certain respects from the
Initial Portfolio as described in this Prospectus, provided, however, that (i)
at least % of the Mortgage Loans included in the actual Initial Portfolio
measured by aggregate outstanding principal balance shall include Mortgage Loans
described herein and (ii) the Company shall have determined that any changes in
the Initial Portfolio from the description herein are not material.
References herein to percentages of Mortgage Loans included in the Initial
Portfolio refer in each case to the percentage of the aggregate outstanding
principal balance of the Mortgage Loans in the Initial Portfolio as of ,
1996, based on the outstanding principal balances of such Mortgage Loans as of
such date, after giving effect to scheduled monthly payments due on or prior to
such date, whether or not received.
The detailed information set forth in this Prospectus with respect to the
Mortgage Loans applies only to the Initial Portfolio. Except for the anticipated
approximate allocation of the Company's portfolio of Mortgage Assets going
forward between Residential Mortgage Loans (90%) and Commercial Mortgage Loans
(10%), the Company's portfolio of Mortgage Assets may or may not have the
characteristics described below at future dates.
GENERAL
The Initial Portfolio contains Residential Mortgage Loans,
representing approximately 90% of the Mortgage Loans contained in the Initial
Portfolio, and approximately Commercial Mortgage Loans, representing
approximately 10% of the Mortgage Loans contained in the Initial Portfolio. On
, 1996, the Mortgage Loans included in the Initial Portfolio had an
aggregate outstanding principal balance of $ .
Substantially all of the Residential Mortgage Loans included in the Initial
Portfolio were originated by either CMSI or one of its predecessors in interest
in the ordinary course of their respective real estate lending activities.
Certain of the Residential Mortgage Loans included in the Initial Portfolio may
have been originated by mortgagees approved by the Secretary of Housing and
Urban Development or institutions (such as banks, credit unions and insurance
companies) subject
22
<PAGE>
to supervision and examination by federal and state authorities and then sold to
CMSI or one of its predecessors. All of the Residential Mortgage Loans included
in the Initial Portfolio were originated generally in accordance with the
underwriting standards customarily employed by CMSI or its predecessors in
interest during the period in which such Mortgage Loans were originated. On
, 1996, CMSI sold all of the Residential Mortgage Loans included in
the Initial Portfolio to the Bank, but retained the right to service such
Residential Mortgage Loans.
Each Commercial Mortgage Loan included in the Initial Portfolio was
originated by the Bank in the ordinary course of its middle market commercial
real estate lending activities.
All of the Residential Mortgage Loans included in the Initial Portfolio were
originated between and , and have original terms to stated
maturity of either 15, 20, 25 or 30 years. The weighted average number of months
since origination of the Residential Mortgage Loans included in the Initial
Portfolio (calculated as of , 1996) was approximately months. All
of the Commercial Mortgage Loans included in the Initial Portfolio were
originated between and , and have original terms to stated
maturity of between two and ten years.
Except as described below, upon transfer of the residential mortgaged
property underlying a Residential Mortgage Loan included in the Initial
Portfolio that is an adjustable rate Mortgage Loan, the mortgage note generally
will not preclude assumption of the related Residential Mortgage Loan by the
proposed transferee if the proposed transferee satisfies certain criteria with
respect to its ability to repay the Residential Mortgage Loan. The mortgage
notes with respect to certain of the Mortgage Loans included in the Initial
Portfolio contain "due-on-sale" provisions which prevent the assumption of the
Mortgage Loan by a proposed transferee and accelerates the payment of the
outstanding principal balance of the Mortgage Loan. "Due-on-sale" provisions in
mortgage notes with respect to adjustable rate Mortgage Loans may be applicable
in the period prior to the first Rate Adjustment Date (as defined herein) or
following the exercise of a conversion option fixing the interest rate. All
fixed rate Residential Mortgage Loans included in the Initial Portfolio have
mortgage notes which contain "due-on-sale" provisions. Most of the Commercial
Mortgage Loans in the Initial Portfolio also have "due-on-sale" provisions,
although certain Commercial Mortgage Loans in the Initial Portfolio may permit
assumption thereof by a proposed transferee upon the satisfaction of certain
criteria with respect to the ability of such transferee to repay such Commercial
Mortgage Loan.
None of the Mortgage Loans included in the Initial Portfolio (i) is
currently delinquent in the payment of principal or interest; (ii) is or was at
any time during the preceding 12 months (a) classified, (b) in nonaccrual
status, or (c) renegotiated due to financial deterioration of the borrower; or
(iii) was, more than once during the preceding 12 months, more than 30 days past
due in the payment of principal or interest. If, prior to the acquisition of the
Initial Portfolio, any Mortgage Loan included in the description of the Initial
Portfolio herein falls within any of the foregoing categories, the Company will
not purchase such Mortgage Loan but will instead purchase a Mortgage Loan
similar in aggregate outstanding principal balance and product type which does
not fall into any of these categories.
RESIDENTIAL MORTGAGE LOANS
The Company currently anticipates that the following different types of
Residential Mortgage Loan products, each of which is more fully described below,
will be included in the Initial Portfolio: Six-Month Prime Rate ARM, Six-Month
Treasury Rate ARM, One-Year ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM, 15-year
fixed rate Residential Mortgage Loan and 30-year fixed rate Residential Mortgage
Loan.
The following table sets forth certain information with respect to each type
of Residential Mortgage Loan included in the Initial Portfolio:
23
<PAGE>
TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF INITIAL WEIGHTED AVERAGE
PRINCIPAL PORTFOLIO BY WEIGHTED AVERAGE EXPECTED
BALANCE AGGREGATE PRINCIPAL INITIAL LOAN TO REMAINING
TYPE (IN THOUSANDS) BALANCE VALUE RATIO MATURITY
- ------------------------- -------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Six-Month Prime Rate
ARM...................... $ % %
Six-Month Treasury Rate
ARM......................
One-Year ARM.............
3/1 ARM..................
5/1 ARM..................
7/1 ARM..................
10/1 ARM.................
15-Year Fixed Rate.......
30-Year Fixed Rate.......
-------------- --- --- ---
Total................ $ % %
-------------- --- --- ---
-------------- --- --- ---
</TABLE>
% of the Residential Mortgage Loans in the Initial Portfolio bear
interest at fixed rates. The interest rates of the fixed rate Residential
Mortgage Loans included in the Initial Portfolio range from % per annum to
% per annum. The weighted average interest rate of the fixed rate Residential
Mortgage Loans included in the Initial Portfolio is approximately % per
annum. The following table contains certain additional data with respect to the
interest rates of the fixed rate Residential Mortgage Loans included in the
Initial Portfolio (including adjustable rate Mortgage Loans that have been
converted, pursuant to their terms, to fixed rates):
INTEREST RATE OF FIXED RATE RESIDENTIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PORTFOLIO
BY
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL BALANCE PRINCIPAL
INTEREST RATE MORTGAGE LOANS (IN THOUSANDS) BALANCE
- --------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
% to %..............................
% to %..............................
% to %..............................
-------------- -------- --------
Total.......................... $ %
-------------- -------- --------
-------------- -------- --------
</TABLE>
% of the Residential Mortgage Loans included in the Initial Portfolio
bear interest at adjustable rates. The interest rate on an "adjustable rate
mortgage" or an "ARM" is typically tied to an index (such as the interest rate
on United States Treasury Bills), and is adjustable periodically. ARMs are
typically subject to lifetime interest rate caps and periodic interest rate
caps. The current interest rates of the Residential Mortgage Loans included in
the Initial Portfolio that are ARMs ranged from % per annum to % per annum
as of , 1996. The weighted average current interest rate of the
Residential Mortgage Loans included in the Initial Portfolio that are ARMs as of
, 1996 was approximately % per annum. The following table contains
certain additional data with respect to the interest rates of the Residential
Mortgage Loans included in the Initial Portfolio that are ARMs as of
, 1996:
24
<PAGE>
CURRENT INTEREST RATE OF ADJUSTABLE RATE RESIDENTIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PORTFOLIO
BY
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL BALANCE PRINCIPAL
CURRENT INTEREST RATE MORTGAGE LOANS (IN THOUSANDS) BALANCE
- --------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
% to %..............................
% to %..............................
% to %..............................
-------------- -------- --------
Total.......................... $ %
-------------- -------- --------
-------------- -------- --------
</TABLE>
"Gross Margin", with respect to a Residential Mortgage Loan that is an ARM,
means the applicable fixed percentage which, when added to the applicable index,
calculates to the current interest rate paid by the borrower of such Residential
Mortgage Loan (without taking into account any interest rate caps or minimum
interest rates). Gross Margin is inapplicable to fixed rate Residential Mortgage
Loans. As of , 1996, the weighted average Gross Margin of the Residential
Mortgage Loans included in the Initial Portfolio that are ARMs was approximately
%.
The following table sets forth certain additional data with respect to the
Gross Margins of the Residential Mortgage Loans included in the Initial
Portfolio that are ARMs as of , 1996:
GROSS MARGIN
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PORTFOLIO
BY
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL BALANCE PRINCIPAL
GROSS MARGIN MORTGAGE LOANS (IN THOUSANDS) BALANCE
- --------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
% to %..............................
% to %..............................
% to %..............................
-------------- -------- --------
Total.......................... $ %
-------------- -------- --------
-------------- -------- --------
</TABLE>
The interest rate of each type of ARM product included in the Initial
Portfolio adjusts at the times (each, a "Rate Adjustment Date") and in the
manner described below subject to lifetime interest rate caps, to minimum
interest rates and, in the case of most ARMs in the Initial Portfolio, to
maximum annual or semi-annual interest rate increases or decreases, each as
specified in the mortgage note relating to the ARM. Information set forth below
regarding interest rate caps and minimum interest rates applies to the Initial
Portfolio only. Mortgage Loans purchased by the Company after consummation of
the Offering may be subject to different interest rate caps and minimum interest
rates.
Each ARM bears interest at its initial interest rate until its first Rate
Adjustment Date. Effective with each Rate Adjustment Date, the monthly principal
and interest payment on an adjustable rate Mortgage Loan will be adjusted to an
amount that will fully amortize the then-outstanding principal balance of such
Residential Mortgage Loan over its remaining term to stated maturity and that
will be sufficient to pay interest at the adjusted interest rate. Certain of the
types of Residential Mortgage Loan products that are ARMs contain an option,
which may be exercised by the mortgagor, to convert the ARM into a fixed rate
loan for the remainder of the mortgage term. If a Residential Mortgage Loan that
is an ARM is converted into a fixed rate loan, the interest rate will be
determined at the time of conversion as specified in the mortgage note relating
to such Mortgage Loan and will remain fixed at such rate until the stated
maturity of such Residential Mortgage Loan.
25
<PAGE>
Six-Month Prime Rate ARM. The interest rate with respect to each Six-Month
Prime Rate ARM is fixed at an initial rate for the first six monthly payments
and adjusts semi-annually thereafter on the dates specified in the related
mortgage note to a rate equal to the Prime Rate (defined below) on such date
plus the Gross Margin (if any) set forth in such mortgage note, subject to a
lifetime interest rate cap equal to the higher of 10.75% or the initial interest
rate plus 6% and to a minimum interest rate no less than the Gross Margin.
"Prime Rate" for any date means the lowest prime rate as published in the "Money
Rates" table of The Wall Street Journal for that date.
Subject to conditions specified in the mortgage note related to a Six-Month
Prime Rate ARM, a mortgagor may have the option to convert the Six-Month Prime
Rate ARM to a fixed rate loan typically beginning with the second Rate
Adjustment Date and on the first day of each month thereafter until and
including the tenth Rate Adjustment Date. If the conversion option is exercised,
the interest rate will be fixed for the remainder of the term of the mortgage
and will equal the FNMA Required Net Yield (defined below) plus a conversion
margin (the "Six-Month Conversion Margin"), which will vary from loan to loan
depending on the amount of the original loan and the Loan-to-Value Ratio and
which will be set forth in the related mortgage note. The mortgagor must pay a
conversion fee at the time the option is exercised. The mortgagor may also pay
an amount equal to 1% of the outstanding principal balance on the loan to reduce
the Six-Month Conversion Margin. "FNMA Required Net Yield" means (i) with
respect to any Mortgage Loan with an original term of 20, 25 or 30 years, FNMA's
required net yield for 30-year fixed rate mortgages (covered by 60-day mandatory
commitments) that was in effect 45 days prior to the effective date of any
conversion of such Mortgage Loan and (ii) with respect to any Mortgage Loan with
an original term of 15 years, FNMA's required net yield for 15-year fixed rate
mortgages (covered by 60-day mandatory commitments) that was in effect 45 days
prior to the effective date of any conversion of such Mortgage Loan.
Six-Month Treasury Rate ARM. The interest rate with respect to each
Six-Month Treasury Rate ARM is fixed at an initial rate for the first six
monthly payments and adjusts semi-annually thereafter on the dates specified in
the related mortgage note to a rate equal to the then-current Six-Month Treasury
Index (defined below) plus the Gross Margin as set forth in such mortgage note,
subject to a maximum semi-annual interest rate increase or decrease of 1.00%, a
lifetime interest rate cap equal to the initial interest rate with respect to
such Residential Mortgage Loan plus 6% and to a minimum interest rate no less
than the Gross Margin. The sum of the Six-Month Treasury Index and the Gross
Margin is generally rounded to the nearest 0.125%; however, certain mortgage
notes provide for the sum to be rounded upwards to the nearest 0.125%. The
"Six-Month Treasury Index" with respect to each Six-Month Treasury Rate ARM is
the weekly average investment yield of auction rates on six-month U.S. Treasury
securities as published by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") in Statistical Release H.15(519) or any similar
publication or, if not so published, as reported by any Federal Reserve Bank or
by any U.S. Government department or agency and made available to the Advisor.
Should the Six-Month Treasury Index not be published or become otherwise
unavailable, the Advisor will select a comparable alternative index over which
it has no control and which is readily available.
Certain Six-Month Treasury Rate ARMs contain a conversion option similar to
the conversion option described above with respect to the Six-Month Prime Rate
ARMs.
One-Year ARM. The interest rate with respect to each One-Year ARM is fixed
at an initial rate for the first twelve monthly payments and adjusts annually
thereafter on the date specified in the related mortgage note to a rate equal to
the then-current Treasury Index (defined below) plus the Gross Margin set forth
in such mortgage note, subject to a maximum annual interest rate increase or
decrease of 2.00%, a lifetime interest rate cap equal to the initial interest
rate with respect to such Residential Mortgage Loan plus 5% or 6% as specified
in the related mortgage note and to a minimum interest rate no less than the
Gross Margin. The sum of the Treasury Index and the Gross Margin is generally
rounded to the nearest 0.125%; however, certain mortgage notes provide for
26
<PAGE>
the sum to be rounded upwards to the nearest 0.125%. The "Treasury Index" with
respect to each One-Year ARM is the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of one year as published by the
Federal Reserve Board in Statistical Release H.15 (519) or any similar
publication or, if not so published, as reported by any Federal Reserve Bank or
by any U.S. Government department or agency and made available to the Advisor.
Should the Treasury Index not be published or become otherwise unavailable, the
Advisor will select a comparable alternative index over which it has no control
and which is readily available.
Certain One-Year ARMs contain a conversion option which, if exercised, would
convert the One-Year ARM into a fixed rate loan for the remainder of the term of
the mortgage. Subject to conditions specified in the mortgage note related to a
One-Year ARM, a mortgagor may have the right to convert the One-Year ARM to a
fixed rate loan beginning with the first Rate Adjustment Date and on the first
day of each month thereafter until and including the fifth Rate Adjustment Date.
If the conversion option is exercised, the interest rate will be fixed for the
remainder of the term of the mortgage and will equal the sum of a percentage
equal to at least 0.625% and the FNMA Required Net Yield. The mortgagor must pay
a conversion fee at the time the option is exercised.
Three-Year Fixed Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each three-year fixed rate loan with automatic
conversion to a One-Year ARM (a "3/1 ARM") is fixed at an initial rate for the
first 36 monthly payments and adjusts annually thereafter as if the Residential
Mortgage Loan were a One-Year ARM. Certain 3/1 ARMs contain a conversion option
that is substantially the same as the conversion option for the One-Year ARM
except that the option may be exercised during the period beginning with the
24th payment due date and on the first day of each month thereafter until and
including the 60th payment due date.
Five-Year Fixed Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each five-year fixed rate loan with automatic
conversion to a One-Year ARM (a "5/1 ARM") is fixed at an initial rate for the
first 60 monthly payments and adjusts annually thereafter as if the Residential
Mortgage Loan were a One-Year ARM with a lifetime interest rate cap equal to the
initial interest rate with respect to such Residential Mortgage Loan plus 4% or
5%, provided that, with respect to certain 5/1 ARMs, on the first Rate
Adjustment Date the interest rate may be increased by 4% or 5%. There is no
option to convert a 5/1 ARM back to a fixed rate loan after the first Rate
Adjustment Date.
Seven-Year Fixed Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each seven-year fixed rate loan with automatic
conversion to a One-Year ARM (a "7/1 ARM") is fixed at an initial rate for the
first 84 monthly payments and adjusts annually thereafter as if the Residential
Mortgage Loan were a One-Year ARM with a lifetime interest rate cap equal to the
initial interest rate with respect to such Residential Mortgage Loan plus 4% or
5%, provided that, with respect to certain 7/1 ARMs, on the first Rate
Adjustment Date the interest rate may be increased by 4% or 5%. There is no
option to convert a 7/1 ARM back to a fixed rate loan after the first Rate
Adjustment Date.
Ten-Year Fixed Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each ten-year fixed rate loan with automatic
conversion to a One-Year ARM (a "10/1 ARM") is fixed at an initial rate for the
first 120 monthly payments and adjusts annually thereafter as if the Residential
Mortgage Loan were a One-Year ARM with a lifetime interest rate cap equal to the
initial interest rate with respect to such Residential Mortgage Loan plus 4% or
5%, provided that, with respect to certain 10/1 ARMs, on the first Rate
Adjustment Date the interest rate may be increased by 4% or 5%. There is no
option to convert a 10/1 ARM back to a fixed rate loan after the first Rate
Adjustment Date.
Fixed Rate Loans. The fixed rate Residential Mortgage Loans which may be
purchased by the Company will generally have original terms to stated maturity
of 15 or 30 years. The interest rates of these Residential Mortgage loans are
fixed prior to origination. The monthly principal and interest
27
<PAGE>
payment is calculated to fully amortize the initial outstanding principal
balance of such Residential Mortgage Loan to its stated maturity.
COMMERCIAL MORTGAGE LOANS
The Company currently anticipates that the Commercial Mortgage Loans
included in the Initial Portfolio will consist primarily of offices, industrial
warehouses and manufacturing facilities in the New York metropolitan tri-state
area. These commercial real estate properties are at least 70% occupied by the
borrowers or their affiliates. The borrowers of the Commercial Mortgage Loans
included in the Initial Portfolio are primarily customers of the Bank to which
the Bank has extended such Commercial Mortgage Loans in the ordinary course of
its middle market commercial real estate lending activities. Substantially all
of the commercial real estate properties underlying the Commercial Mortgage
Loans included in the Initial Portfolio are at least 70% occupied by the
borrower of the Commercial Mortgage Loan or an affiliate of the borrower. Unlike
most Commercial Mortgage Loans, substantially all of the Commercial Mortgage
Loans included in the Initial Portfolio are guaranteed as to the payment of
principal and interest by either the borrower or an affiliate of the borrower.
The aggregate outstanding principal balance of the Commercial Mortgage Loans
included in the Initial Portfolio as of , 1996 ranged from $20,000 to $10
million.
The following table sets forth certain information with respect to each type
of commercial property underlying each Commercial Mortgage Loan included in the
Initial Portfolio:
TYPE OF COMMERCIAL MORTGAGE LOAN
<TABLE>
<CAPTION>
PERCENTAGE
OF INITIAL
AGGREGATE PORTFOLIO BY WEIGHTED AVERAGE WEIGHTED AVERAGE
TYPE OF PRINCIPAL BALANCE AGGREGATE PRINCIPAL INITIAL LOAN-TO- EXPECTED REMAINING
MORTGAGED PROPERTY1 (IN THOUSANDS) BALANCE VALUE RATIO MATURITY
- --------------------- ----------------- ------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Office...............
Industrial...........
----------------- ---------- ---------------- ----------
Total............ $ %
----------------- ---------- ---------------- ----------
----------------- ---------- ---------------- ----------
</TABLE>
- ------------
1 The categorization of the type of property securing each Commercial Mortgage
Loan is based upon the primary use of such commercial real estate property. An
industrial mortgaged property may include some office space, but its primary
use is as an industrial warehouse or manufacturing facility.
% of the Commercial Mortgage Loans included in the Initial Portfolio are
not fully amortizing and will have significant principal balances or "balloon"
payments due upon maturity. These balloon payments range from $ to
$ . The following table sets forth certain information with respect to
Commercial Mortgage Loans included in the Initial Portfolio that are not fully
amortizing as of , 1996:
28
<PAGE>
COMMERCIAL MORTGAGE LOANS WITH BALLOON PAYMENTS
<TABLE>
<CAPTION>
PERCENTAGE
OF INITIAL WEIGHTED AVERAGE
AGGREGATE PORTFOLIO BY EXPECTED WEIGHTED AVERAGE
TYPE OF MORTGAGED PRINCIPAL BALANCE AGGREGATE PRINCIPAL REMAINING BALLOON PAYMENT
PROPERTY1 (IN THOUSANDS) BALANCE MATURITY UPON MATURITY
- ----------------------- ----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Office.................
Industrial.............
-------- ----- ----- -----
Total.......... $ % $
-------- ----- ----- -----
-------- ----- ----- -----
</TABLE>
- ------------
1 The categorization of the type of property securing each Commercial Mortgage
Loan is based upon the primary use of such commercial real estate property. An
industrial mortgaged property may include some office space, but its primary
use is as an industrial warehouse or manufacturing facility.
% of the Commercial Mortgage Loans in the Initial Portfolio bear
interest at fixed rates. The current interest rates of the fixed rate Commercial
Mortgage Loans included in the Initial Portfolio range from % per annum to
% per annum. The following table contains certain additional data with
respect to the interest rates of the fixed rate Commercial Mortgage Loans
included in the Initial Portfolio:
INTEREST RATE OF FIXED RATE COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PORTFOLIO
AGGREGATE BY
NUMBER OF PRINCIPAL BALANCE AGGREGATE PRINCIPAL
INTEREST RATE MORTGAGE LOANS (IN THOUSANDS) BALANCE
- ------------------------------------- -------------- ----------------- -------------------
<S> <C> <C> <C>
% - %.............................
% - %.............................
% - %.............................
-------------- ----------------- -------------------
Total............................ $
-------------- ----------------- -------------------
-------------- ----------------- -------------------
</TABLE>
% of the Commercial Mortgage Loans included in the Initial Portfolio
bear interest at variable rates which are typically tied to an index (such as
the Prime Rate or LIBOR) and are adjustable periodically. Some of these variable
rate Commercial Mortgage Loans contain an option exercisable by the borrower to
convert the variable rate loan into a fixed rate loan. The current interest
rates borne by the variable rate Commercial Mortgage Loans included in the
Initial Portfolio ranged from % per annum to % per annum as of ,
1996. The following table contains certain additional data with respect to the
interest rates of the variable rate Commercial Mortgage Loans included in the
Initial Portfolio as of , 1996:
CURRENT INTEREST RATE OF VARIABLE RATE COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PORTFOLIO
AGGREGATE BY
NUMBER OF PRINCIPAL BALANCE AGGREGATE PRINCIPAL
CURRENT INTEREST RATE MORTGAGE LOANS (IN THOUSANDS) BALANCE
- ------------------------------------- -------------- ----------------- -------------------
<S> <C> <C> <C>
% - %.............................
% - %.............................
% - %.............................
-------------- ----------------- -------------------
Total............................ $
-------------- ----------------- -------------------
-------------- ----------------- -------------------
</TABLE>
29
<PAGE>
UNDERWRITING STANDARDS
The Bank has represented to the Company that all of the Residential Mortgage
Loans included in the Initial Portfolio (including those which were not actually
originated by CMSI or one of its predecessors in interest) were originated
generally in accordance with the underwriting policies customarily employed by
CMSI or one of its predecessors in interest during the period in which the
Residential Mortgage Loans in the Initial Portfolio were originated. The Bank
has represented to the Company that all of the Commercial Mortgage Loans
included in the Initial Portfolio were originated generally in accordance with
the underwriting policies customarily employed by the Bank during the period in
which the Commercial Mortgage Loans in the Initial Portfolio were originated.
GEOGRAPHIC DISTRIBUTION
The Company currently anticipates that approximately 50% of the residential
real estate properties underlying the Company's Residential Mortgage Loans
included in the Initial Portfolio will be located in California. Consequently,
these Residential Mortgage Loans may be subject to a greater risk of default
than other comparable Residential Mortgage Loans in the event of adverse
economic, political or business developments and natural hazards (earthquakes
and mud slides, for example) in California that may affect the ability of
residential property owners in California to make payments of principal and
interest on the underlying mortgages.
The Company currently anticipates that substantially all of the commercial
mortgaged properties underlying its Commercial Mortgage Loans will be located in
the New York metropolitan tri-state area. Substantially all of these mortgaged
properties are at least 70% occupied by the borrowers or their affiliates.
Consequently, these Commercial Mortgage Loans may be subject to a greater risk
of default than other comparable Commercial Mortgage Loans in the event of
adverse economic, political or business developments in the New York
metropolitan tri-state area that may affect the ability of businesses in that
area to make payments of principal and interest on the underlying mortgages.
LOAN-TO-VALUE RATIOS; INSURANCE
All of the Residential Mortgage Loans having Loan-to-Value Ratios (i.e., the
ratio (expressed as a percentage) of the original principal amount of such
Mortgage Loan to the lesser of (i) the appraised value at origination of the
underlying mortgaged property and (ii) if the Mortgage Loan was made to finance
the acquisition of property, the purchase price of the mortgaged property) of
greater than 85%, and approximately % of the Residential Mortgage Loans
having Loan-to-Value Ratios of greater than 80%, are insured under primary
mortgage insurance policies. Not more than approximately % of the Residential
Mortgage Loans are insured by any one primary mortgage insurance policy issuer.
At the time of origination of the Residential Mortgage Loans, each of the
primary mortgage insurance policy insurers was approved by FNMA or FHLMC. A
standard hazard insurance policy is required to be maintained by the mortgagor
with respect to each Residential Mortgage Loan in an amount equal to the maximum
insurable value of the improvements securing such Residential Mortgage Loan or
the principal balance of such Residential Mortgage Loan, whichever is less. If
the residential real estate property underlying a Residential Mortgage Loan is
located in a flood zone, such Residential Mortgage Loan may also be covered by a
flood insurance policy as required by law. No special hazard insurance policy or
mortgagor bankruptcy insurance will be maintained by the Company with respect to
the Residential Mortgage Loans in the Initial Portfolio, nor will any
Residential Mortgage Loan be insured by the Federal Housing Administration or
guaranteed by the Veterans Administration.
A standard hazard insurance policy is also required to be maintained by the
mortgagor with respect to each of the Commercial Mortgage Loans included in the
Initial Portfolio. If the commercial real estate property securing a Commercial
Mortgage Loan is located in a flood zone, such Commercial Mortgage Loan may be
covered by a flood insurance policy as required by law.
30
<PAGE>
However, as with the Residential Mortgage Loans in the Initial Portfolio, no
special hazard insurance or mortgagor bankruptcy insurance will be maintained by
the Company with respect to the Commercial Mortgage Loans in the Initial
Portfolio.
SERVICING
The Mortgage Loans included in the Initial Portfolio will be sold to the
Company on a servicing retained basis. With respect to the Residential Mortgage
Loans included in the Initial Portfolio, CMSI will retain the right to service
such loans and will service such loans pursuant to the terms of the Residential
Mortgage Loan Servicing Agreement with the Company (the "Residential Mortgage
Servicing Agreement"). With respect to the Commercial Mortgage Loans included in
the Initial Portfolio, the Bank will retain the right to service such loans and
will service such loans pursuant to the terms of the Commercial Mortgage Loan
Servicing Agreement with the Company (the "Commercial Mortgage Servicing
Agreement"). The Residential Mortgage Servicing Agreement and the Commercial
Mortgage Servicing Agreement are hereinafter referred to, collectively, as the
"Servicing Agreements". The servicer receives fees generally ranging from 1/4%
to 1/2% per annum on the principal balances of the loans serviced.
Each Servicing Agreement requires the servicer to service the Company's
Mortgage Loans in a manner generally consistent with accepted secondary market
practices, with any servicing guidelines promulgated by the Company and, in the
case of Residential Mortgage Loans, with FNMA and FHLMC guidelines and
procedures. Each servicer will collect and remit principal and interest
payments, administer mortgage escrow accounts, submit and pursue insurance
claims and initiate and supervise foreclosure proceedings on the Mortgage Loans
it services. Each servicer will also provide accounting and reporting services
required by the Company for such Mortgage Loans. Each servicer will be required
to follow such collection procedures as are customary in the industry. Each
servicer may, in its discretion, arrange with a defaulting borrower a schedule
for the liquidation of delinquencies, provided that, in the case of Residential
Mortgage Loans, any primary mortgage insurance coverage is not adversely
affected. Each servicer may from time to time subcontract all or a portion of
its servicing obligations under the Servicing Agreement to which it is a party
to affiliates of the Bank. If no affiliate of the Bank is engaged in the
business of servicing Mortgage Loans, a servicer may subcontract all or a
portion of its obligations under its respective Servicing Agreement to an
unrelated third party subject to approval of a majority of the Independent
Directors.The Company currently anticipates that Chase Manhattan Mortgage
Corporation, an indirect wholly-owned subsidiary of CMC, will perform the actual
servicing of the Mortgage Loans pursuant to sub-servicing agreements with the
Bank and CMSI. At December 31, 1995, Chase Manhattan Mortgage Corporation and
its affiliates serviced residential mortgage loans having an aggregate principal
balance of approximately $132.1 billion. No servicer will, in connection with
subcontracting any of its obligations under its respective Servicing Agreement,
be discharged or relieved in any respect from its obligation to the Company to
perform its obligations under such Servicing Agreement.
Each servicer will be required to pay all expenses related to the
performance of its duties under its respective Servicing Agreement. Each
servicer will be required to make advances of principal and interest, taxes and
required insurance premiums that are not collected from borrowers with respect
to any Mortgage Loan serviced by it, unless (with respect to advances of
principal and interest) it determines that such advances are nonrecoverable from
the mortgagor, insurance proceeds or other sources with respect to such Mortgage
Loan. If such advances are made, the servicer generally will be reimbursed prior
to the Company out of proceeds related to such Mortgage Loan. Each servicer also
will be entitled to reimbursement by the Company for expenses incurred by it in
connection with the liquidation of defaulted Mortgage Loans serviced by it and
in connection with the restoration of mortgaged property. If claims are not made
or paid under applicable insurance policies or if coverage thereunder has
ceased, the Company will suffer a loss to the extent that the proceeds from
liquidation of the mortgaged property, after reimbursement of
31
<PAGE>
the servicer's expenses in the sale, are less than the outstanding principal
balance of the related Mortgage Loan. Each servicer will be responsible to the
Company for any loss suffered as a result of such servicer's failure to make and
pursue timely claims or as a result of actions taken or omissions made by such
servicer which cause the policies to be cancelled by the insurer. Each servicer
will be required to represent and warrant that the Mortgage Loans it services
will comply with any loan servicing guidelines promulgated by the Company and to
agree to repurchase, at the request of the Company, any Mortgage Loan it
services in the event that it fails to make such representations or warranties
or any such representation or warranty is untrue. The repurchase price for any
such Mortgage Loan will be the outstanding principal amount thereof plus accrued
and unpaid interest thereon at the date of repurchase.
A servicer may institute foreclosure proceedings, exercise any power of sale
contained in any mortgage or deed of trust, obtain a deed in lieu of foreclosure
or otherwise acquire title to a mortgaged property underlying a Mortgage Loan by
operation of law or otherwise in accordance with the terms of its Servicing
Agreement. The Bank, as servicer of the Commercial Mortgage Loans held by the
Company, will not be permitted under the terms of its Servicing Agreement to
acquire title to any commercial real estate property underlying a Commercial
Mortgage Loan or take any action that would cause the Company to be an "owner"
or an "operator" within the meaning of certain federal environmental laws,
unless the servicer has also previously determined, subject to the approval of
the Advisor, based on a report prepared by an independent person who regularly
conducts environmental assessments, that (i) there is no indication that the
mortgaged property is not in compliance with applicable environmental laws or,
if there is such an indication, that it would be in the best interests of the
Company to take such actions as are necessary to cause the mortgaged property to
comply therewith and (ii) there are no circumstances present at the mortgaged
property relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes or petroleum-based materials
for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation, or, if any such materials are present for which such action could be
required, that it would be in the best interest of the Company to take on such
actions with respect to the mortgaged property.
The Company may terminate a Servicing Agreement with any servicer upon the
happening of one or more events specified in the Servicing Agreement. Such
events relate generally to the servicer's proper and timely performance of its
duties and obligations under the Servicing Agreement. In addition, the Company
may also terminate any Servicing Agreement without cause upon 30 days' notice
and payment of a termination fee that is competitive with that which is
generally payable in the industry. The termination fee will be based on the
aggregate outstanding principal amount of the loans then serviced under the
applicable Servicing Agreement. As long as any Series A Preferred Shares remain
outstanding, the Company may not terminate, or elect not to renew, any Servicing
Agreement without the approval of a majority of the Independent Directors.
As is customary in the mortgage loan servicing industry, a servicer will be
entitled to retain any late payment charges, prepayment fees, penalties and
assumption fees collected in connection with the Mortgage Loans serviced by it.
Each servicer will receive any benefit derived from interest earned on collected
principal and interest payments between the date of collection and the date of
remittance to the Company and from interest earned on tax and insurance impound
funds with respect to Mortgage Loans serviced by it. Each servicer will be
required to remit to the Company no later than the 20th day of each month all
principal and interest due from borrowers of Mortgage Loans serviced by it
(unless deemed nonrecoverable by the servicer) on the first day of such month.
When any mortgaged property underlying a Mortgage Loan is conveyed by a
mortgagor, the servicer generally will enforce any "due-on-sale" clause
contained in the Mortgage Loan, to the extent permitted under applicable law and
governmental regulations. The terms of a particular
32
<PAGE>
Mortgage Loan or applicable law, however, may provide that the servicer is
prohibited from exercising the "due-on-sale" clause under certain circumstances
related to the security underlying the Mortgage Loan and the buyer's ability to
fulfill the obligations under the related mortgage note. Upon any assumption of
a Mortgage Loan by a transferee, a fee equal to a specified percentage of the
outstanding principal balance of the Mortgage Loan is typically required, which
sum will be retained by the servicer as additional servicing compensation.
EMPLOYEES
The Company has four officers, each of whom is described further below under
"Management". The Company does not anticipate that it will require any
additional employees because it has retained the Advisor to perform certain
functions pursuant to the Advisory Agreement described below under
"Management--The Advisor". It is currently anticipated that all of the officers
of the Company will also be officers or employees of CMC, the Bank or their
affiliates. The Company will maintain corporate records and audited financial
statements that are separate from those of the Bank or any of its affiliates.
None of the officers, employees or directors of the Company will have any direct
or indirect pecuniary interest in any Mortgage Asset to be acquired or disposed
of by the Company or in any transaction in which the Company has an interest or
will engage in acquiring, holding and managing Mortgage Assets.
COMPETITION
The Company does not anticipate that it will engage in the business of
originating Mortgage Loans. It does anticipate that it will purchase Mortgage
Loans in addition to those in the Initial Portfolio and that substantially all
of these Mortgage Loans will be purchased from the Bank or affiliates of the
Bank. The Company does not expect to compete with mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and loan
associations, finance companies, mortgage bankers or insurance companies in
acquiring its Mortgage Loans.
LEGAL PROCEEDINGS
The Company is not the subject of any material litigation. None of the
Company, the Advisor, the Bank or any of its affiliates is currently involved in
nor, to the Company's knowledge, currently threatened with any material
litigation with respect to the Mortgage Loans to be included in the Initial
Portfolio, other than routine litigation arising in the ordinary course of
business, most of which is expected to be covered by liability insurance.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors will initially be composed of seven
members, two of whom will be Independent Directors. An "Independent Director" is
a director who is not a current officer or employee of the Company, CMC, the
Bank or any affiliate of the Bank. Pursuant to the Certificate of Designation
establishing the Series A Preferred Shares, the Independent Directors are
required to take into account the interests of the holders of both the Series A
Preferred Shares and the Common Stock in assessing the benefit to the Company of
any proposed action requiring their consent. The Company currently has four
officers. The Company has no other employees and does not anticipate that it
will require additional employees. See "Business and Strategy--Employees."
The persons who are directors and executive officers of the Company are as
follows:
NAME AGE POSITION AND OFFICES HELD
- ------------------------------------ --- -------------------------------
Richard J. Boyle.................... 52 Director
Deborah L. Duncan................... 41 President and Director
Thomas Jacob........................ 58 Director
William C. Langley.................. 57 Director
Neila B. Radin...................... 43 Secretary
Robert S. Strong.................... 47 Chairman and Director
Don B. Taggart...................... 49 Treasurer and Director
Peter J. Tobin...................... 52 Director
The following is a summary of the experience of the executive officers and
directors of the Company:
RICHARD J. BOYLE retired as Vice Chairman of the Board of Old Chase and The
Chase Manhattan Bank, N.A. upon consummation of the merger of Old Chase into
Chemical Banking Corporation. Mr. Boyle served in such positions since 1987.
DEBORAH L. DUNCAN is an Executive Vice President of CMC and the Bank and
treasurer of CMC. Prior to the merger of Old Chase into Chemical Banking
Corporation, Ms. Duncan was co-head of Old Chase's Global Markets business, with
responsibility for trading activities worldwide. Ms. Duncan joined Old Chase's
Corporate Controller unit in 1979 and served in various positions at Old Chase,
including Corporate treasurer, Western Hemisphere treasurer, treasurer of
Individual Banking, treasurer of Chase Tokyo, manager of Derivative
Products-Asia, Asian treasury coordinator and financial analyst for the Europe
area and the Asia area.
THOMAS JACOB is the Chairman and Chief Executive Officer of Chase Manhattan
Mortgage Corporation, the mortgage subsidiary of CMC. Mr. Jacob is also the
Chairman of Chase Manhattan Bank USA, N.A., and a director of Chemical Insurance
Agency. For the six years prior to the merger of Old Chase and Chemical Banking
Corporation, Mr. Jacob was the executive responsible for the residential retail
mortgage business of Chemical Banking Corporation.
WILLIAM C. LANGLEY retired as an Executive Vice President and Chief Credit
and Risk Policy Officer of Chemical Banking Corporation and Chemical Bank,
effective July 31, 1996. Prior to becoming an Executive Vice President of
Chemical Banking Corporation and Chemical Bank in 1991, Mr. Langley had served
as an Executive Vice President since 1983, and the Chief Credit Officer since
1990, of Manufacturers Hanover Corporation. Mr. Langley is a director of Robert
Morris Associates.
NEILA B. RADIN is a Senior Vice President and Associate General Counsel of
the Bank.
34
<PAGE>
ROBERT S. STRONG is an Executive Vice President and the Chief Credit Officer
of CMC and the Bank. Mr. Strong joined Old Chase in 1971 and served in various
positions at Old Chase, including as executive in charge of the Global Portfolio
Management Group, the Real Estate Finance Group, the Transportation and Defense
Group, the Diversified Industries Group and the Public Utilities Group.
DON B. TAGGART is a Senior Vice President of CMC and the Bank. Mr. Taggart
joined Old Chase in 1989. Immediately prior to the merger of Old Chase into
Chemical Banking Corporation, Mr. Taggart was responsible for funding/liquidity,
short-term interest rate risk management and worldwide Treasury relationships
and products at Old Chase.
PETER J. TOBIN is Chief Financial Officer of CMC and the Bank. As a member
of CMC's Policy Council, Mr. Tobin has responsibility for corporate treasury,
controllership, corporate taxes, financial management information systems,
insurance, planning and investor relations. Prior to the merger of Old Chase
into Chemical Banking Corporation, Mr. Tobin held the same positions at Chemical
Banking Corporation and Chemical Bank, and had similar responsibilities at
Manufacturers Hanover Corporation before its merger with Chemical Banking
Corporation on December 31, 1991.
INDEPENDENT DIRECTORS
The Company's Certificate of Designation establishing the Series A Preferred
Shares requires that, so long as any Series A Preferred Shares are outstanding,
certain actions by the Company be approved by a majority of the Independent
Directors of the Company. See "Description of Series A Preferred
Shares--Independent Director Approval". Richard J. Boyle and William C. Langley
are the Company's initial Independent Directors.
If at the time of any annual meeting of the Company's stockholders the
aggregate amount of accrued and unpaid dividends on the Series A Preferred
Shares equals or exceeds an amount equal to four quarterly dividend payments on
such Series A Preferred Shares, the number of directors then constituting the
Board of Directors of the Company will be increased by two, and the holders of
Series A Preferred Shares, voting together with the holders of any other
outstanding series of Preferred Stock as a single class, will be entitled to
elect two additional directors to serve on the Company's Board of Directors. Any
member of the Board of Directors elected by holders of the Company's Preferred
Stock will be deemed to be an Independent Director for purposes of the actions
requiring the approval of a majority of the Independent Directors. See
"Description of Series A Preferred Shares--Voting Rights".
AUDIT COMMITTEE
Upon consummation of the Offering, the Company will establish an audit
committee which will review the engagement of independent accountants and review
the independence of its auditors. The audit committee will also review the
adequacy of the Company's internal accounting controls. The audit committee will
be comprised of Mr. Boyle, Ms. Duncan, Mr. Langley and Mr. Tobin.
COMPENSATION OF DIRECTORS AND OFFICERS
The Company intends to pay the Independent Directors of the Company fees for
their services as directors. The Independent Directors will receive annual
compensation of $10,000 plus a fee of $750 for attendance (in person or by
telephone) at each meeting of the Board of Directors.
The Company will not pay any compensation to its officers or employees or to
directors who are not Independent Directors.
35
<PAGE>
LIMITATIONS OR LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation eliminates, to the fullest extent
permitted by the Delaware General Corporation Law, the personal liability of a
director to the Company or its stockholders for monetary damages for breach of
such director's fiduciary duty. The Company's Certificate of Incorporation
empowers the Company to indemnify, to the fullest extent permitted by the
Delaware General Corporation Law, any director or officer of the Company. The
Company's Certificate of Incorporation also empowers the Company to purchase and
maintain insurance to protect any director or officer against any liability
asserted against him or her, or incurred by him or her, arising out of his or
her status as such.
The by-laws of the Company (the "By-laws") require indemnification of the
Company's directors and officers and specify that the right to indemnification
is a contract right, setting forth certain procedural and evidentiary standards
applicable to the enforcement of a claim under the By-laws. The By-laws also
entitle any director or officer to be reimbursed for the expenses of prosecuting
any claim against him or her arising out of his or her status as such. The
By-laws of the Company also provide that the Company may enter into contracts
with any director or officer in furtherance of the indemnification provisions
contained in the By-laws and allow the Company to create a trust fund to ensure
payment of amounts indemnified.
THE ADVISOR
In connection with the consummation of the Offering and the formation of the
Company as described herein, the Company will enter into the Advisory Agreement
with the Bank to administer the day-to-day operations of the Company. The Bank
in its role as advisor under the terms of the Advisory Agreement is herein
referred to as the "Advisor". The Advisor will be responsible for (i) monitoring
the credit quality of the Mortgage Assets held by the Company and (ii) advising
the Company with respect to the acquisition, management, financing and
disposition of the Company's Mortgage Assets. The Advisor may from time to time
subcontract all or a portion of its obligations under the Advisory Agreement to
one or more of its affiliates involved in the business of managing Mortgage
Assets. If no affiliate of the Advisor is engaged in the business of managing
Mortgage Assets, the Advisor may, with the approval of a majority of the Board
of Directors as well as a majority of the Independent Directors, subcontract all
or a portion of its obligations under the Advisory Agreement to unrelated third
parties. The Advisor will not, in connection with the subcontracting of any of
its obligations under the Advisory Agreement, be discharged or relieved in any
respect from its obligations under the Advisory Agreement.
The Advisor and its affiliates have substantial experience in the mortgage
lending industry, both in the origination and in the servicing of mortgage
loans. At December 31, 1995, the Advisor and its affiliates held approximately
$34.1 billion of Residential Mortgage Loans and approximately $5.5 billion of
commercial mortgage loans. In their residential mortgage loan business, the
Advisor and its affiliates originate and purchase residential mortgage loans and
then sell such loans to investors, primarily in the secondary market, while
generally retaining the rights to service such loans. The Advisor and its
affiliates also purchase servicing rights on residential mortgage loans. At
December 31, 1995, the Advisor and its affiliates, including Chase Manhattan
Mortgage Corporation, serviced residential mortgage loans having an aggregate
principal balance of approximately $132.1 billion. In their commercial mortgage
loan business, the Advisor and its affiliates typically service the commercial
mortgage loans in their portfolio.
The Advisory Agreement has an initial term of five years, and will be
renewed automatically for additional five-year periods unless notice of
nonrenewal is delivered to the Advisor by the Company. The Advisory Agreement
may be terminated by the Company at any time upon 90 days' prior notice. As long
as any Series A Preferred Shares remain outstanding, any decision by the Company
either not to renew the Advisory Agreement or to terminate the Advisory
Agreement must be approved by a majority of the Board of Directors, as well as
by a majority of the Independent Directors. The Advisor will be entitled to
receive an advisory fee equal to with respect to the advisory and
management services provided by it to the Company.
36
<PAGE>
CERTAIN TRANSACTIONS CONSTITUTING THE FORMATION
Prior to or simultaneously with the completion of the Offering, the Company,
CMC, the Bank and its affiliates will engage in the transactions described below
which are designed (i) to facilitate the Offering, (ii) to transfer the
ownership of the Initial Portfolio to the Company and (iii) to enable the
Company to qualify as a REIT for federal income tax purposes commencing with its
taxable year ending December 31, 1996.
The transactions constituting the formation of the Company will include the
following:
. The Certificate of Incorporation of the Company will be amended to
provide for authorized shares of Common Stock and
authorized shares of Preferred Stock, and the Company will file a
Certificate of Designation with the Secretary of State of the State of
Delaware establishing the terms of the Series A Preferred Shares.
. The Company will sell to the public 20,000,000 Series A Preferred
Shares in the Offering (assuming the Underwriters' over-allotment
option is not exercised).
. The Bank will acquire 500,000 shares of Common Stock for a purchase
price equal to $500,000,000. In addition, the Bank will acquire
additional shares of Common Stock for a purchase price equal to the
aggregate amount of underwriting discounts and expenses of the Offering
and the Formation.
. The Bank will sell the Initial Portfolio to the Company for an
aggregate purchase price equal to approximately $1 billion pursuant to
the terms of the Residential Mortgage Purchase Agreement and the
Commercial Mortgage Purchase Agreement.
. The Company will enter into the Advisory Agreement with the Advisor
pursuant to which the Advisor will manage the Mortgage Assets held by
the Company and administer the day-to-day operations of the Company.
See "Management--The Advisor".
. CMSI will enter into the Residential Mortgage Servicing Agreement
pursuant to which it will service the Residential Mortgage Loans
included in the Initial Portfolio. The Bank will enter into the
Commercial Mortgage Servicing Agreement pursuant to which it will
service the Commericial Mortgage Loans included in Initial Portfolio.
See "Business and Strategy--Servicing".
The Bank currently owns, and following the completion of the Offering will
continue to own, all of the issued and outstanding shares of Common Stock of the
Company. CMC, which owns all of the issued and outstanding shares of capital
stock of the Bank, has agreed that, so long as any Series A Preferred Shares are
outstanding, it will maintain direct or indirect ownership of at least 80% of
the outstanding Common Stock.
In addition to its ownership of 100% of the Common Stock of the Company, the
Bank will also have responsibility for the day-to-day management of the
Company's assets, in its capacity as Advisor under the Advisory Agreement. See
"Management--The Advisor" and "Special Considerations--Relationship with the
Bank and its Affiliates; Conflicts of Interest".
The Company and the Bank intend that the fair value of the Initial Portfolio
will equal the amount (approximately $1 billion) that the Company will pay for
the Initial Portfolio. However, no third party valuations of the Mortgage Loans
constituting the Initial Portfolio have been or will be obtained for purposes of
the Offering, and there can be no assurance that the fair value of the Initial
Portfolio will not differ from the purchase price to be paid by the Company. See
"Special Considerations--No Third Party Valuation of the Mortgage Loans; No
Arm's-Length Negotiations with Affiliates" and "-- Relationship with the Bank
and its Affiliates; Conflicts of Interest".
37
<PAGE>
DESCRIPTION OF SERIES A PREFERRED SHARES
The following summary sets forth the material terms and provisions of the
Series A Preferred Shares, and is qualified in its entirety by reference to the
terms and provisions of the Certificate of Designation establishing the Series A
Preferred Shares and the Company's Certificate of Incorporation, the forms of
which have been filed with the Commission as exhibits to the Registration
Statement of which this Prospectus forms a part. See "Description of Capital
Stock" below.
GENERAL
The Series A Preferred Shares form a series of the Preferred Stock of the
Company, which Preferred Stock may be issued from time to time in one or more
series with such rights, preferences and limitations as are determined by the
Company's Board of Directors or, if then constituted, a duly authorized
committee thereof. The Board of Directors has authorized the Company to issue
the Series A Preferred Shares.
When issued, the Series A Preferred Shares will be validly issued, fully
paid and nonassessable. The holders of the Series A Preferred Shares will have
no preemptive rights with respect to any shares of the capital stock of the
Company or any other securities of the Company convertible into or carrying
rights or options to purchase any such shares. The Series A Preferred Shares
will not be convertible into shares of Common Stock or any other class or series
of capital stock of the Company and will not be subject to any sinking fund or
other obligation of the Company for its repurchase or retirement.
The transfer agent, registrar and dividend disbursement agent for the
Preferred Stock will be ChaseMellon Shareholders Services, L.L.C. The registrar
for shares of Preferred Stock will send notices to shareholders of any meetings
at which holders of the Preferred Stock have the right to elect directors of the
Company or to vote on any other matter.
DIVIDENDS
Holders of Series A Preferred Shares will be entitled to receive, when and
as declared by the Board of Directors of the Company out of assets of the
Company legally available therefor, cash dividends at the rate of % per annum
of the initial liquidation preference (equivalent to $ per share per
annum). Dividends on the Series A Preferred Shares will be payable quarterly on
March 31, June 30, September 30 and December 31 of each year, at such annual
rate, commencing on , 1996. Each such dividend will be payable to
holders of record as they appear on the stock register of the Company on such
record dates, not exceeding 45 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors of the Company. Dividends will be
cumulative from the date of original issue. Dividends payable on the Series A
Preferred Shares for any period greater or less than a full dividend period
shall be computed on the basis of twelve 30-day months, a 360-day year and the
actual number of days elapsed in the period. Dividends payable on the Series A
Preferred Shares for each full dividend period shall be computed by annualizing
the dividend rate and dividing by four.
If any Series A Preferred Shares are outstanding, no full dividends shall be
declared or paid or set apart for payment on any series of capital stock of the
Company ranking, as to dividends, on a parity with or junior to the Series A
Preferred Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof is set apart for such payments on the Series A Preferred
Shares, for all past dividend periods and the then current dividend period. When
dividends are not paid in full (or a sum sufficient for such full payment is not
set apart) upon the Series A Preferred Shares and the shares of any other series
of capital stock ranking on parity as to dividends with the Series A Preferred
38
<PAGE>
Shares, all dividends declared upon Series A Preferred Shares and any other
series of capital stock ranking on a parity as to dividends with the Series A
Preferred Shares shall be declared pro rata so that the amount of dividends
declared per share on the Series A Preferred Shares and such other series of
capital stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the Series A Preferred Shares and such other series of
capital stock bear to each other.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof has been set apart for payment for all past dividend periods, no
dividends (other than in Common Stock or other capital stock ranking junior to
the Series A Preferred Shares as to dividends and upon liquidation) shall be
declared or paid or set aside for payment and no other distribution shall be
declared or made upon the Common Stock or any other capital stock of the Company
ranking junior to or on a parity with the Series A Preferred Shares as to
dividends or amounts upon liquidation, nor shall any Common Stock or any other
capital stock of the Company ranking junior to or on a parity with the Series A
Preferred Shares as to dividends or amounts upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys to be paid
to or made available for a sinking fund for the redemption of any such stock) by
the Company (except by conversion into or exchange for other capital stock of
the Company ranking junior to the Series A Preferred Shares as to dividends and
amounts upon liquidation).
For a discussion of the tax treatment of distributions to stockholders, see
"Federal Income Tax Considerations--Taxation of United States Stockholders" and
"--Taxation of Foreign Stockholders".
VOTING RIGHTS
Except as expressly required by applicable law, or except as indicated
below, the holders of the Series A Preferred Shares will not be entitled to
vote. In the event the holders of Series A Preferred Shares are entitled to vote
as indicated below, each Series A Preferred Share will be entitled to one vote
on matters on which holders of the Series A Preferred Shares are entitled to
vote.
If at the time of any annual meeting of the Company's stockholders the
aggregate amount of accrued and unpaid dividends on any series of Preferred
Stock of the Company, including the Series A Preferred Shares, equals or exceeds
an amount equal to four quarterly dividend payments on such series of Preferred
Stock, the number of directors then constituting the Board of Directors of the
Company will be increased by two, and the holders of the Series A Preferred
Shares, voting together with the holders of all other series of Preferred Stock
as a single class, will be entitled to elect such two additional directors to
serve on the Company's Board of Directors at each such annual meeting. Each
director elected by the holders of shares of the Preferred Stock shall continue
to serve as such director for the full term for which he or she shall have been
elected, notwithstanding that prior to the end of such term such default shall
cease to exist.
The affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding shares of each series of Preferred Stock of the Company, including
the Series A Preferred Shares, voting as a single class without regard to
series, will be required (a) to create any class or series of stock which shall
have preference as to dividends or distribution of assets over any outstanding
series of Preferred Stock of the Company other than a series which shall not
have any right to object to such creation or (b) alter or change the provisions
of the Company's Certificate of Incorporation (including the Certificate of
Designation establishing the Series A Preferred Shares) so as to adversely
affect the voting powers, preferences or special rights of the holders of a
series of
39
<PAGE>
Preferred Stock of the Company; provided that if such amendment shall not
adversely affect all series of Preferred Stock of the Company, such amendment
need only be approved by at least 66 2/3% of the holders of shares of all series
of Preferred Stock adversely affected thereby.
REDEMPTION
The Series A Preferred Shares will not be redeemable prior to , 2001
(except upon the occurrence of a Tax Event). On or after such date, the Series A
Preferred Shares will be redeemable at the option of the Company, in whole or in
part, at any time or from time to time on not less than 30 nor more than 60
days' notice by mail, at a redemption price of $25.00 per share, plus accrued
and unpaid dividends to the date of redemption, if any, thereon. Any such
redemption may only be effected with the prior approval of the Federal Reserve
Board and the New York State Banking Board (unless at such time such approvals
are not required). Under current policies of the Federal Reserve Board and the
New York State Banking Board, such approval would be granted only if the
redemption were to be made out of the proceeds of the issuance of another
capital instrument or if such regulators determine that the condition and
circumstances of CMC and the Bank warrant the reduction of a source of permanent
capital. If dividends on any Series A Preferred Shares are in arrears, no Series
A Preferred Shares shall be redeemed unless all outstanding Series A Preferred
Shares are redeemed and the Company shall not purchase or otherwise acquire any
Series A Preferred Shares, provided, however, that the Company may purchase or
acquire Series A Preferred Shares pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding Series A Preferred Shares.
The Company will also have the right at any time, upon the occurrence of a
Tax Event, to redeem the Series A Preferred Shares, in whole (but not in part)
at a redemption price of $25.00 per share, plus accrued and unpaid dividends to
the date of redemption, if any, thereon. "Tax Event" means the receipt by the
Company of an opinion of a nationally recognized law firm experienced in such
matters to the effect that, as a result of (i) any amendment to, clarification
of, or change (including any announced prospective change) in, the laws or
treaties (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, (ii) any
judicial decision, official administrative pronouncement, published or private
ruling, regulatory procedure, notice or announcement (including any notice or
announcement of intent to adopt such procedures or regulations) ("Administrative
Action") or (iii) any amendment to, clarification of, or change in the official
position or the interpretation of such Administrative Action or any
interpretation or pronouncement that provides for a position with respect to
such Administrative Action that differs from the theretofore generally accepted
position, in each case, by any legislative body, court, governmental authority
or regulatory body, irrespective of the manner in which such amendment,
clarification or change is made known, which amendment, clarification, or change
is effective or such pronouncement or decision is announced on or after the date
of issuance of the Series A Preferred Shares, there is more than an
insubstantial risk that (a) dividends paid or to be paid by the Company with
respect to the capital stock of the Company are not, or will not be, fully
deductible by the Company for United States federal income tax purposes or (b)
the Company is, or will be, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred Shares at the
time outstanding will be entitled to receive out of assets of the Company
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any other class of stock ranking junior
40
<PAGE>
to the Series A Preferred Shares upon liquidation, liquidating distributions in
the amount of $25 per share, plus accrued and unpaid dividends thereon, if any,
to the date of liquidation.
After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of Series A Preferred Shares will have no right
or claim to any of the remaining assets of the Company. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidation distributions on all outstanding Series A Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Series A Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of the affairs of the Company, then the holders of the Series A
Preferred Shares and such other classes or series of capital stock shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
For such purposes, the consolidation or merger of the Company with or into
any other entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
INDEPENDENT DIRECTOR APPROVAL
The Certificate of Designation establishing the Series A Preferred Shares
requires that, so long as any Series A Preferred Shares are outstanding, certain
actions by the Company be approved by a majority of the Independent Directors.
Richard J. Boyle and William C. Langley are the Company's initial Independent
Directors. See "Management--Independent Directors". In order to be considered
"independent", a director must not be a current employee of the Company, CMC,
the Bank or any affiliate of the Bank. In addition, any members of the Board of
Directors of the Company elected by holders of Preferred Stock, including the
Series A Preferred Shares, will be deemed to be Independent Directors for
purposes of approving actions requiring the approval of a majority of the
Independent Directors. The actions which require approval of a majority of the
Independent Directors include (i) the issuance of additional Preferred Stock
ranking on a parity with the Series A Preferred Shares, (ii) the incurrence of
debt for borrowed money in excess of 20% of the aggregate amount of net proceeds
received in connection with the issuance of Preferred Stock and Common Stock,
(iii) the modification of the general distribution policy or the declaration of
any distribution in respect of Common Stock for any year if, after taking into
account any such proposed distribution, total distributions on the Series A
Preferred Shares and the Common Stock would exceed an amount equal to the sum of
105% of the Company's "REIT taxable income" (excluding capital gains) for such
year plus net capital gains of the Company for that year, (iv) the acquisition
of real estate assets other than Mortgage Loans or Mortgage-Backed Securities,
(v) the redemption of any shares of Common Stock, (vi) the termination or
modification of, or the election not to renew, the Advisory Agreement or any
Servicing Agreement or the subcontracting of any duties under the Servicing
Agreements to third parties unaffiliated with the Bank and (vii) the
determination to revoke the Company's REIT status. The Certificate of
Incorporation requires that, in assessing the benefits to the Company of any
proposed action requiring their consent, the Independent Directors take into
account the interests of holders of both the Common Stock and the Preferred
Stock, including, without limitation, holders of the Series A Preferred Shares.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the Series A
Preferred Shares, see "Description of Capital Stock--Restrictions on Ownership
and Transfer".
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the capital stock of the Company does
not purport to be complete and is subject in all respects to the applicable
provisions of the Delaware General Corporation Law and the Certificate of
Incorporation of the Company.
COMMON STOCK
GENERAL
The Company is authorized to issue up to ,000,000 shares of Common Stock.
Upon consummation of the Offering and the transactions described in
"Transactions Constituting the Formation", the Company will have outstanding
shares of Common Stock, all of which will be held by the Bank. In
addition, CMC has agreed that, so long as any Series A Preferred Shares are
outstanding, it will maintain direct or indirect ownership of at least 80% of
the outstanding Common Stock of the Company.
DIVIDENDS
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor,
provided that, so long as any shares of Preferred Stock are outstanding, no
dividends or other distributions (including redemptions and purchases) may be
made with respect to the Common Stock unless full dividends on the shares of all
series of Preferred Stock, including accumulations in the case of cumulative
Preferred Stock, have been paid. In order to remain qualified as a REIT, the
Company must distribute annually at least 95% of its annual "REIT taxable
income" (not including capital gains) to stockholders.
VOTING RIGHTS
Subject to the rights, if any, of the holders of any class or series of
Preferred Stock, all voting rights are vested in the Common Stock. The holders
of Common Stock are entitled to one vote per share. All of the issued and
outstanding shares of Common Stock are currently held by the Bank.
RIGHTS UPON LIQUIDATION
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after there have been paid or set aside for
the holders of all series of Preferred Stock the full preferential amounts to
which such holders are entitled, the holders of Common Stock will be entitled to
share equally and ratably in any assets remaining after the payment of all debts
and liabilities.
PREFERRED STOCK
Subject to limitations prescribed by Delaware law and the Company's
Certificate of Incorporation, the Board of Directors or, if then constituted, a
duly authorized committee thereof is authorized to issue, from the authorized
but unissued shares of capital stock of the Company, Preferred Stock in such
classes or series as the Board of Directors may determine and to establish, from
time to time, the number of shares of Preferred Stock to be included in any such
class or series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of any such
class or series, and such other subjects or matters as may be fixed by
resolution of the Board of Directors.
42
<PAGE>
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Certificate of Designation relating to that class or series.
A Certificate of Designation relating to each class or series of Preferred
Stock will set forth the preferences and other terms of such class or series,
including without limitation the following: (1) the title and stated value of
such class or series; (2) the number of shares of such class or series offered
and the liquidation preference per share of such class or series; (3) the
dividend rate(s), period(s), and/or payment date(s) or method(s) of calculation
thereof applicable to such class or series; (4) whether such class or series of
Preferred Stock is cumulative or not and, if cumulative, the date from which
dividends on such class or series shall accumulate; (5) the provision for a
sinking fund, if any, for such class or series; (6) the provision for
redemption, if applicable, of such class or series; (7) any limitations on
direct or beneficial ownership and restrictions on transfer, in each case as may
be appropriate to preserve the status of the Company as a REIT; (8) the relative
ranking and preferences of such class or series as to dividend rights and rights
upon liquidation, dissolution or winding up of the affairs of the Company; (9)
any limitations on issuance of any class or series of Preferred Stock ranking
senior to or on a parity with such class or series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; (10) any other specific terms, preferences, rights,
limitations or restrictions of such class or series; and (11) any voting rights
of such class or series.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Company's Certificate of Incorporation contains certain restrictions on
the number of shares of Common Stock and Preferred Stock that individual
stockholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in number or value of its outstanding shares of capital stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year (the "One Hundred
Persons Test"). The ownership by the Bank of 100% of the shares of Common Stock
of the REIT will not adversely affect the Company's REIT qualification because
each stockholder of CMC (the sole stockholder of the Bank) counts as a separate
beneficial owner for purposes of the Five or Fewer Test and the capital stock of
CMC is widely held. Further, the Certificate of Incorporation of the Company
contains restrictions on the acquisition of Preferred Stock intended to ensure
compliance with the One Hundred Persons Test. Such provisions include a
restriction that if any transfer of shares of capital stock of the Company would
cause the Company to be beneficially owned by fewer than 100 persons, such
transfer shall be null and void and the intended transferee will acquire no
rights to the stock.
Subject to certain exceptions specified in the Company's Certificate of
Incorporation, no holder of Preferred Stock is permitted to own (including
shares deemed to be owned by virtue of the attribution provisions of the Code),
more than 9.9% (the "Ownership Limit") of any issued and outstanding class or
series of Preferred Stock. The Board of Directors may (but in no event will be
required to), upon receipt of a ruling from the IRS or an opinion of counsel
satisfactory to it, waive the Ownership Limit with respect to a holder if such
holder's ownership will not then or in the future jeopardize the Company's
status as a REIT.
The Certificate of Incorporation provides that shares of any class or series
of Preferred Stock owned, or deemed to be owned, by or transferred to a
stockholder in excess of the Ownership Limit (the "Excess Shares") will
automatically be transferred, by operation of law, to a trustee as a trustee of
a trust for the exclusive benefit of a charity to be named by the Company as of
the day
43
<PAGE>
prior to the day the prohibited transfer took place. Any distributions paid
prior to the discovery of the prohibited transfer are to be repaid by the
original transferee to the Company and by the Company to the trustee; any vote
of the shares while the shares were held by the original transferee prior to the
Company's discovery thereof shall be void ab initio and the original transferee
shall be deemed to have given its proxy to the trustee. Any unpaid distributions
with respect to the original transferee will be rescinded as void ab initio. In
liquidation, the original transferee stockholder's ratable share of the
Company's assets would be limited to the price paid by the original transferee
for the Excess Shares or, if no value was given, the price per share equal to
the closing market price on the date of the purported transfer. The trustee of
the trust shall promptly sell the shares to any person whose ownership is not
prohibited, whereupon the interest of the trust shall terminate. Proceeds of the
sale shall be paid to the original transferee up to its purchase price (or, if
the original transferee did not purchase the shares, the value on its date of
acquisition) and any remaining proceeds shall be paid to a charity to be named
by the Company.
The constructive ownership rules of the Code are complex and may cause
Preferred Stock owned, directly or indirectly, by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.9% of a class or series of
issued and outstanding Preferred Stock (or the acquisition of an interest in an
entity that owns shares of such series of Preferred Stock) by an individual or
entity could cause that individual or entity (or another individual or entity)
to own constructively in excess of 9.9% of such class or series of Preferred
Stock, and thus subject such stock to the Ownership Limit. Direct or
constructive ownership in excess of the Ownership Limit would cause ownership of
the shares in excess of the limit to be transferred to the trustee.
All certificates representing shares of Preferred Stock will bear a legend
referring to the restrictions described above.
The Ownership Limit provisions will not be automatically removed even if the
REIT Provisions (as defined herein) are changed so as to eliminate any ownership
concentration limitation or if the ownership concentration limitation is
increased.
The Certificate of Incorporation requires that any person who beneficially
owns 1% (or such lower percentage as may be required by the Code or the Treasury
Regulations) of the outstanding shares of any class or series of Preferred Stock
of the Company must provide certain information to the Company within 30 days of
June 30 and December 31 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership on the Company's status as a
REIT and to ensure compliance with the Ownership Limit.
44
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Offering is based upon current law, is for general information
only and is not tax advice. The information set forth below, to the extent that
it constitutes summaries of legal matters or legal conclusions, has been
reviewed by Milbank, Tweed, Hadley & McCloy, and it is their opinion that such
information is accurate in all material respects. The discussion below is based
on existing federal income tax law, which is subject to change, with possible
retroactive effect. The discussion below does not address all aspects of
taxation that may be relevant in the particular circumstances of each
stockholder or to certain types of stockholders (including insurance companies,
tax-exempt entities, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States,
except to the extent discussed) subject to special treatment under the federal
income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND SALE OF
THE SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL
The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Code and the applicable Treasury Regulations (the "REIT Requirements" or
the "REIT Provisions"), which are the requirements for qualifying as a REIT,
commencing with its taxable year ending December 31, 1996. The Company believes
that, commencing with its taxable year ending December 31, 1996, it will be
owned and organized and will operate in such a manner as to qualify for taxation
as a REIT under the Code, and the Company intends to continue to operate in such
a manner, but no assurance can be given that it will operate in a manner so as
to qualify or remain qualified.
The REIT Requirements are technical and complex. The following discussion
sets forth only the material aspects of those requirements. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
In the opinion of Milbank, Tweed, Hadley & McCloy, commencing with the
Company's taxable year ending December 31, 1996, the Company will be organized
in conformity with the requirements for qualification as a REIT, and its
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on certain factual assumptions relating to the
organization and operation of the Company and is conditioned upon certain
representations made by the Company as to factual matters, such as the
organization and expected manner of operation of the Company. In addition, this
opinion is based upon the factual representations of the Company concerning its
business and Mortgage Assets set forth in this Prospectus. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Milbank, Tweed,
Hadley & McCloy on a continuing basis. No assurance can be given that the actual
results of the Company's operation for any one taxable year will satisfy such
requirements. See "--Failure to Qualify".
45
<PAGE>
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. Such treatment
substantially eliminates the federal "double taxation" on earnings (at the
corporate and the stockholder levels) that generally results from investment in
a corporation.
Despite the REIT election, the Company may be subject to federal income and
excise tax as follows:
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on certain of its items of tax preferences, if
any.
Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other
than sales of foreclosure property and sales that qualify for a statutory
safe harbor), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualifications as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% test, multiplied by a fraction intended to reflect the Company's
profitability.
Sixth, if the Company should fail to distribute, or fail to be treated
as having distributed, with respect to each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed.
The Company does not now intend to acquire any appreciated assets from a
corporation generally subject to full corporate-level tax in a transaction in
which any gain on the transfer is not fully recognized. However, in the event of
such an acquisition, the Company could, under certain circumstances, be subject
to tax upon disposition of such assets.
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for the REIT Requirements; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
at any time during the last half of each taxable year; and (vii) meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (i) through (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
46
<PAGE>
taxable year of less than 12 months. Conditions (v) and (vi) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (vi), certain tax-exempt entities are
generally treated as individuals, and the beneficiaries of a pension trust that
qualifies under Section 401(a) of the Code and that holds shares of a REIT will
be treated as holding shares of the REIT in proportion to their actuarial
interests in the pension trust. See "-- Taxation of United States
Stockholders--Treatment of Tax-Exempt Stockholders".
The Company believes that it will issue sufficient shares pursuant to the
Offering to allow it to satisfy conditions (v) and (vi) above. In addition, the
Company's Certificate of Incorporation includes certain restrictions regarding
transfer of its shares, which restrictions are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (v) and (vi)
above. Such transfer and ownership restrictions are described under "Description
of Capital Stock--Restrictions on Ownership and Transfer".
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company satisfies this requirement.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of the REIT Requirements, including satisfying
the gross income tests and the assets test.
INCOME TESTS
In order to maintain qualification as a REIT, the Company must annually
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (as interest on obligations secured
by mortgages on real property, certain "rents from real property" or as gain on
the sale or exchange of such property and certain fees with respect to
agreements to make or acquire mortgage loans), from certain types of temporary
investments or certain other types of gross income. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments as
aforesaid and from dividends, interest, and gain from the sale or other
disposition of stock or securities and certain other types of gross income (or
from any combination of the foregoing). Third, short-term gain from the sale or
other disposition of stock or securities, gain from prohibited transactions, and
gain on the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
from the date of acquisition must represent less than 30% of the Company's gross
income (including gross income from prohibited transactions) for each taxable
year.
For interest to qualify as "interest on obligations secured by mortgages on
real property or on interests in real property," the obligation must be secured
by real property having a fair market value at the time of acquisition at least
equal to the principal amount of the loan. The term "interest" includes only an
amount that constitutes compensation for the use or forbearance of money. For
example, a fee received or accrued by a lender which is in fact a charge for
services performed for a borrower rather than a charge for the use of borrowed
money is not includible as interest; amounts earned as consideration for
entering into agreements to make loans secured by real property, although not
interest, are otherwise treated as within the 75% and 95% classes of gross
income so long as the determination of those amounts does not depend on the
income or profits of any person. By statute, the term interest does not include
any amount based on income or
47
<PAGE>
profits except that the Code provides that (i) interest "based on a fixed
percentage or percentages of receipts or sales" is not excluded and (ii) when
the REIT makes a loan that provides for interest based on the borrower's
receipts or sales and the borrower leases under one or more leases based on
income or profits, only a portion of the contingent interest paid by the
borrower will be disqualified as interest.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if certain statutory conditions are met that limit
rental income essentially to rentals on investment-type properties. In the event
that a REIT acquires by foreclosure property that generates income that does not
qualify as "rents from real property," such income will be treated as qualifying
for two years following foreclosure (which period may be extended by the IRS so
long as (i) all leases entered into after foreclosure generate only qualifying
rent, (ii) only limited construction takes place and (iii) within 90 days of
foreclosure, any trade or business in which the property is used is conducted by
an independent contractor from which the REIT derives no income). In the event
the special foreclosure property rule applies to qualify otherwise unqualified
income, the net income that qualifies only under the special rate for
foreclosure property will be subject to tax, as described above.
RELIEF PROVISIONS
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "--Taxation of the Company--General," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
ASSET TESTS
At the close of each quarter of its taxable year, the Company must satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by real estate assets
(including stock or debt instruments held for not more than one year that were
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company), cash, cash items, and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT if it fails to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such action
within 30 days after the close of any quarter as may be required to cure any
noncompliance but no assurance can be given that such asset tests will be met.
48
<PAGE>
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be treated as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the Company's net
capital gain) plus (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (B) the
sum of certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute (or is not treated as having distributed)
all of its net capital gain or distributes (or is treated as having distributed)
at least 95%, but less than 100% of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gains corporate
tax rates. The Code permits a stockholder to elect to be treated for tax
purposes as having (i) received a distribution in the amount specified in the
election and (ii) contributed the amount thereof to the capital of the Company.
In the event the Company fails to distribute 100% of its income and capital
gains, the Bank may elect to be so treated. Furthermore, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company intends to make
timely distributions sufficient to satisfy the annual distribution requirement.
"REIT taxable income" is the taxable income of a REIT, which generally is
computed in the same fashion as the taxable income of any corporation, except
that (i) certain deductions are not available, such as the deduction for
dividends received, (ii) it may deduct dividends paid (or deemed paid) during
the taxable year, (iii) net capital gains and losses are excluded, and (iv)
certain other adjustments are made.
It is possible that, from time to time, the Company may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in calculating the taxable income of the Company. In the event
that such an insufficiency or such timing differences occur, in order to meet
the 95% distribution requirement the Company may find it necessary to arrange
for borrowings or to pay dividends in the form of taxable stock dividends if it
is practicable to do so.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions described above do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary
49
<PAGE>
income, and subject to certain limitations of the Code, corporate distributees
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost, and will not be permitted to requalify unless it
distributes any earnings and profits attributable to the period when it failed
to qualify. In addition, it would be subject to tax on any built-in gains on
property held during the period during which it did not qualify if it sold such
property within 10 years of requalification. It is not possible to state whether
in all circumstances the Company would be entitled to such statutory relief.
TAXATION OF UNITED STATES STOCKHOLDERS
As used herein, the term "United States Stockholder" means a holder of
Series A Preferred Shares that is for United States federal income tax purposes
(i) a citizen or resident or the United States, (ii) a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, or (iii) an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.
Distributions Generally. As long as the Company qualifies as a REIT,
distributions to a United States Stockholder up to the amount of the Company's
current or accumulated earnings and profits (and not designated as capital gains
dividends) will be taken into account as ordinary income and will not be
eligible for the dividends-received deduction for corporations. Distributions
that are designated by the Company as capital gains dividends will be treated as
long-term capital gain (to the extent they do not exceed the Company's actual
net capital gain) for the taxable year without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gains dividends as ordinary
income, pursuant to Section 291(d) of the Code. A distribution in excess of
current or accumulated earnings and profits will first be treated as a tax-free
return of capital, reducing the tax basis in the United States Stockholder's
Series A Preferred Shares, and a distribution in excess of the United States
Stockholder's tax basis in its Series A Preferred Shares will be taxable gain
realized from the sale of such shares. Dividends declared by the Company in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not claim the benefit of any tax losses of the
Company on their own income tax returns.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed under
"--Taxation of the Company--General" and "--Taxation of the Company--Annual
Distribution Requirements" above. As a result, stockholders may be required to
treat as taxable dividends certain distributions that would otherwise result in
a tax-free return of capital. Moreover, any "deficiency dividend" will be
treated as a "dividend" (an ordinary dividend or a capital gain dividend, as the
case may be), regardless of the Company's earnings and profits.
Losses incurred on the sale or exchange of Series A Preferred Shares held
for less than six months will be deemed a long-term capital loss to the extent
of any capital gain dividends received by the selling stockholder with respect
to such stock.
50
<PAGE>
Treatment of Tax-Exempt Stockholders. Distributions from the Company to a
tax-exempt employee's pension trust or other domestic tax-exempt stockholder
will not constitute "unrelated business taxable income" unless the stockholder
has borrowed to acquire or carry its shares of the Company. A tax-exempt
employee's pension trust that holds more than 10% of the shares of the capital
stock of the Company may under certain circumstances be required to treat a
certain percentage of dividends as unrelated business taxable income if the
Company is "predominantly held" by qualified trusts. For these purposes, a
qualified trust is any trust defined under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code. As a consequence of the look-through
provisions of Code Section 856(h)(3), which generally affects ownership by
pension trusts of shares of REITs, any qualified pension trust that owns more
than 10% of the shares of the capital stock of the Company might be required to
treat a certain portion of the dividends paid as unrelated business taxable
income, if the conditions set forth in Code Section 856(h)(3) are satisfied.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates holding Series A Preferred Shares (collectively, "Foreign Stockholders")
are complex, and no attempt will be made herein to provide more than a summary
of such rules. A Foreign Stockholder should consult with its own tax advisor to
determine the effect of federal, state, and local and country of tax residence
income tax laws on an investment in the Company, including any reporting
requirements.
In general, a Foreign Stockholder will be subject to regular United States
income tax to the same extent as a United States Stockholder with respect to
income or gain derived from its investment in the Company if under all facts and
circumstances such income or gain is "effectively connected" with such
stockholder's conduct of a trade or business in the United States. See "--
Taxation of United States Stockholders". A corporate Foreign Stockholder that
receives income that is effectively connected with a United States trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to the regular United States corporate income
tax. The following discussion will apply to a Foreign Stockholder whose income
or gain derived from investment in the Company is not so effectively connected
in light of the facts and circumstances.
The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")
significantly affects the federal income tax treatment of the sale or exchange
of shares in REITs held by a Foreign Stockholder. Under FIRPTA, gain or loss
realized on the sale or exchange of a "United States real property interest"
("USRPI") by a foreign taxpayer is treated by statute as effectively connected
with a U.S. trade or business as a matter of law, without regard to the
particular facts and circumstances. Shares of a corporation are treated as a
USRPI only if the fair market value of USRPIs owned by the corporation equals or
exceeds 50% of the fair market value of its total assets. If at no time within
the five years preceding the sale or exchange of shares in the Company the
shares constituted a USRPI, gain or loss on the sale or exchange will not be
treated as effectively connected with a U.S. trade or business by reason of
FIRPTA. While ownership of real property within the U.S. (including ownership of
interests in certain entities) is always a USRPI, a loan secured by a mortgage
on U.S. real property constitutes a USRPI only if the amounts payable by the
borrower are contingent on the income or receipts of the borrower or the
property or otherwise based on the property. Because such contingent interest is
not likely to be present in the home mortgage loans to be owned by the Company
that are expected to represent approximately 90% of the assets of the Company
(although such interest is fairly common in commercial loans) the Company
believes it is unlikely that its shares will be USRPIs or that it will derive
significant gain from the sale or exchange of USRPIs, although whether its
shares are a USRPI or it derives income from USRPIs will depend upon the facts
as they ultimately develop. A distribution of cash to
51
<PAGE>
a Foreign Stockholder that is not attributable to gain from sales or exchanges
by the Company of USRPIs and not designated by the Company as capital gain
dividend are not subject to FIRPTA but generally will be subject to the
withholding of United States federal income tax at a rate of 30%, unless (i) a
lower treaty rate applies or (ii) the Foreign Stockholder files an IRS Form 4224
with the withholding agent certifying that the investment to which the
distribution relates is effectively connected to a United States trade or
business of such Foreign Stockholder. A Foreign Stockholder who receives a
distribution that has been subject to such withholding tax may file a claim for
refund to the extent the withholding has been imposed on a portion of such
distributions representing amounts in excess of current and accumulated earnings
and profits. Under FIRPTA, distributions of proceeds attributable to gain from
the Company's sale or exchange of a USRPI are subject to income tax at the
normal capital gains rates applicable to United States stockholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of a nonresident alien individual). Also, these distributions may be
subject to a 30% branch profits tax in the hands of a corporate Foreign
Stockholder not entitled to a treaty exemption or reduced rate of tax. Treasury
Regulations require the withholding of 35% of any distribution that could be
designated by the Company as a capital gain dividend. This amount is creditable
against the Foreign Stockholder's tax liability. It should be noted that the 35%
withholding tax rate on capital gain dividends is higher than the 28% maximum
rate on capital gains of individuals. Capital gains dividends not attributable
to gain on the sale or exchange of USRPIs are not subject to United States
taxation if there is no requirement of withholding.
If the shares of the Company do constitute a USRPI (or did so constitute
within the previous five years), gain or loss on the sale or exchange of the
shares will be treated as effectively connected with the conduct of a U.S. trade
or business unless one or more special rules apply to preclude U.S. taxation.
If the Company is a "domestically-controlled REIT," a sale of Series A
Preferred Shares by a Foreign Stockholder generally will not be subject to
United States taxation. A domestically controlled REIT is a REIT in which,
at all times during a specified testing period, less than 50% in value of
its shares is held directly or indirectly, under Code attribution rules, by
Foreign Stockholders. Because the Series A Preferred Shares will be publicly
traded, no assurance can be given that the Company will constitute a
domestically-controlled REIT or that it will be possible to ascertain
whether or not it is domestically-controlled.
If the Company is not a domestically-controlled REIT, a sale of Series A
Preferred Shares would be subject to tax under FIRPTA as a sale of a USRPI
and gain or loss would be effectively connected with a United States trade
or business if either (i) the Series A Preferred Shares were not "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the New York Stock Exchange, on which the Series A
Preferred Shares will be listed) during the quarter in which the Series A
Preferred Shares were sold or (ii) even if the Series A Preferred Shares
were "regularly traded", the selling stockholder held, directly or
indirectly, more than 5% of the Series A Preferred Shares during the
five-year period ending on the date of disposition. The applicable Treasury
Regulations that define "regularly traded" for this purpose provide that a
security will not be "regularly traded" for any calendar quarter during
which 100 or fewer persons (treating related persons as one person) in the
aggregate own 50% or more of such security or the quarterly trading volume
is less than 7.5% of the average number of the issued and outstanding shares
of such security (2.5% if there are 2,500 or more stockholders of record).
In the event that the Series A Preferred Shares were not "regularly traded"
and the Company did not at that time constitute a domestically-controlled
REIT, a Foreign Stockholder (without regard to its ownership percentage of
Series A Preferred Shares) must treat as effectively connected with a United
States trade or business any gain or loss on any sale or other disposition
of Series A Preferred
52
<PAGE>
Shares that occurs within a calendar quarter during which the Series A
Preferred Shares were not "regularly traded" and the shares were a USRPI.
If the gain on the sale of the Company's Series A Preferred Shares were
subject to taxation under FIRPTA, the Foreign Stockholder would be subject to
the same treatment as a United States Stockholder with respect to such gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of a nonresident alien individuals). Notwithstanding the
foregoing, capital gain from sale of shares of a REIT not subject to FIRPTA will
nonetheless be taxable to a Foreign Stockholder who is an individual (under
rules generally applicable to United States Stockholders) if such person is in
the United States for 183 days or more during the taxable year of disposition
and certain other conditions apply. In any event, a purchaser of Series A
Preferred Shares from a Foreign Stockholder will not be required under FIRPTA to
withhold on the purchase price if the purchased Series A Preferred Shares are
"regularly traded" on an established securities market or if the Company is a
domestically-controlled REIT. Otherwise, under FIRPTA the purchaser of Series A
Preferred Shares may be required to withhold 10% of the purchase price and remit
such amount to the IRS.
Shares of the Company owned by a nonresident alien decedent are subject to
United States federal estate tax (which is imposed at rates up to 55%) unless an
estate tax treaty binding upon the United States provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company will report to its stockholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.
United States Stockholders. Under certain circumstances, a United States
Stockholder of Series A Preferred Shares may be subject to backup withholding at
a rate of 31% on payments made with respect to, or cash proceeds of a sale or
exchange of, Series A Preferred Shares. Backup withholding will apply only if
the holder (i) fails to furnish the person required to withhold with its
Taxpayer Identification Number ("TIN") which, for an individual, would be his or
her Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified
by the IRS that it has failed properly to report payments of interest and
dividends, or (iv) under certain circumstances, fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations and tax-exempt
organizations. A United States Stockholder should consult with a tax advisor
regarding qualification for exemption from backup withholding and the procedure
for obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
United States Stockholder will be allowed as a credit against such United States
Stockholder's United States federal income tax liability and may entitle such
United States Stockholder to a refund, provided that the required information is
furnished to the IRS.
Foreign Stockholders. Additional issues may arise pertaining to information
reporting and backup withholding with respect to Foreign Stockholders, and a
Foreign Stockholder should consult with a tax advisor with respect to any such
information reporting and backup withholding requirements. Backup withholding
with respect to a Foreign Stockholder is not an additional tax. Rather, the
amount of any backup withholding with respect to a payment to a Foreign
Stockholder will be allowed as a credit against any United States federal income
tax liability of such Foreign Stockholder. If withholding results in an
overpayment of taxes, a refund may be obtained provided that the required
information is furnished to the IRS.
53
<PAGE>
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
ERISA CONSIDERATIONS
GENERAL
In evaluating the purchase of Series A Preferred Shares, a fiduciary of a
qualified profit-sharing, pension or stock bonus plan, including a plan for
self-employed individuals and their employees or any other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), a collective investment fund or separate account in which such plans
invest and any other investor using assets that are treated as the assets of an
employee benefit plan subject to ERISA (each, a "Plan" and collectively,
"Plans") should consider (a) whether the ownership of Series A Preferred Shares
is in accordance with the documents and instruments governing such Plan; (b)
whether the ownership of Series A Preferred Shares is solely in the interest of
Plan participants and beneficiaries and otherwise consistent with the
fiduciary's responsibilities and in compliance with the requirements of Part 4
of Title I of ERISA, including, in particular, the diversification, prudence and
liquidity requirements of Section 404 of ERISA and the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code; (c) whether the
Company's assets are treated as assets of the Plan; and (d) the need to value
the assets of the Plan annually. In addition, the fiduciary of an individual
retirement arrangement under Section 408 of the Code (an "IRA") considering the
purchase of Series A Preferred Shares should consider whether the ownership of
Series A Preferred Shares would result in a non-exempt prohibited transaction
under Section 4975 of the Code.
The fiduciary investment considerations summarized below provide a general
discussion that does not include all of the fiduciary investment considerations
relevant to Plans and, where indicated, IRAs. This summary is based on the
current provisions of ERISA and the Code and regulations and rulings thereunder,
and may be changed (perhaps adversely and with retroactive effect) by future
legislative, administrative or judicial actions. PLANS AND IRAS THAT ARE
PROSPECTIVE PURCHASERS OF SERIES A PREFERRED SHARES SHOULD CONSULT WITH AND RELY
UPON THEIR OWN ADVISORS IN EVALUATING THESE MATTERS IN LIGHT OF THEIR OWN
PARTICULAR CIRCUMSTANCES.
PLAN ASSET REGULATION
Under Department of Labor regulations governing what constitutes the assets
of a Plan or IRA ("Plan Assets") for purposes of ERISA and the related
prohibited transaction provisions of the Code (the "Plan Asset Regulation", 29
C.F.R. Sec.Sec.2510.3-101), when a Plan or IRA makes an equity investment in
another entity, the underlying assets of the entity will not be considered Plan
Assets if the equity interest is a "publicly-offered security".
For purposes of the Plan Asset Regulation, a "publicly-offered security" is
a security that is (a) "freely transferable", (b) part of a class of securities
that is "widely held," and (c) sold to the Plan or IRA as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and part of a class of securities that is registered under
the Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public
54
<PAGE>
occurred. The Series A Preferred Shares will be registered under the Securities
Act and the Exchange Act within the time periods specified in the Plan Asset
Regulation.
The Plan Asset Regulation provides that a security is "widely held" only if
it is a part of the class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the control of
the issuer. The Company expects the Series A Preferred Shares to be "widely
held" upon the completion of the Offering.
The Plan Asset Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The Plan Asset Regulation further provides
that when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with the Offering, certain restrictions
ordinarily will not, alone or in combination, affect the finding that such
securities are "freely transferable". The Company believes that any restrictions
imposed on the transfer of the Series A Preferred Shares are limited to the
restrictions on transfer generally permitted under the Plan Asset Regulation and
are not likely to result in the failure of the Series A Preferred Shares to be
"freely transferable".
A Plan should not acquire or hold the Series A Preferred Shares if the
Company's underlying assets will be treated as the assets of such Plan. However,
the Company believes that under the Plan Asset Regulation the Series A Preferred
Shares should be treated as "publicly-offered securities" and, accordingly, the
underlying assets of the Company should not be considered to be assets of any
Plan or IRA investing in the Series A Preferred Shares.
EFFECT OF PLAN ASSET STATUS
ERISA generally requires that the assets of a Plan be held in trust and that
the trustee, or an investment manager (within the meaning of Section 3(38) of
ERISA), have exclusive authority and discretion to manage and control the assets
of the Plan. As discussed above, the assets of the Company under current law do
not appear likely to be assets of the Plans receiving Series A Preferred Shares
as a result of the Offering. However, if the assets of the Company were deemed
to be assets of the Plans under ERISA, certain directors and officers of the
Company might be deemed fiduciaries with respect to the Plans that invest in the
Company and the prudence and other fiduciary standards set forth in ERISA would
apply to them and to all investments.
If the assets of the Company were deemed to be Plan Assets, transactions
between the Company and parties in interest or disqualified persons with respect
to the investing Plan or IRA could be prohibited transactions unless a statutory
or administrative exemption is available. In addition, investment authority
would also have been improperly delegated to such fiduciaries, and, under
certain circumstances, Plan fiduciaries who make the decision to invest in the
Series A Preferred Shares could be liable as co-fiduciaries for actions taken by
the Company that do not conform to the ERISA standards for investments under
Part 4 of Title I of ERISA.
PROHIBITED TRANSACTIONS
Section 406 of ERISA provides that Plan fiduciaries are prohibited from
causing the Plan to engage in certain types of transactions. Section 406(a)
prohibits a fiduciary from knowingly causing a Plan to engage directly or
indirectly in, among other things: (a) a sale or exchange, or leasing, of
property with a party in interest; (b) a loan or other extension of credit with
a party in interest; (c) a transaction involving the furnishing of goods,
services or facilities with a party in interest; or (d) a transaction involving
the transfer of Plan assets to, or use of Plan assets by or for the benefit of,
a party in interest. Additionally, Section 406 prohibits a Plan fiduciary from
dealing with Plan assets in
55
<PAGE>
its own interest or for its own account, from acting in any capacity in any
transaction involving the Plan on behalf of a party (or representing a party)
whose interests are adverse to the interests of the Plan, and from receiving any
consideration for its own account from any party dealing with the Plan in
connection with a transaction involving Plan assets. Similar provisions in
Section 4975 of the Code apply to transactions between disqualified persons and
Plans and IRAs and result in the imposition of excise taxes on such disqualified
persons.
If a prohibited transaction has occurred, Plan fiduciaries involved in the
transaction could be required to (a) undo the transaction, (b) restore to the
Plan any profit realized on the transaction and (c) make good to the Plan any
loss suffered by it as a result of the transaction. In addition, parties in
interest or disqualified persons would be required to pay excise taxes or
penalties.
If the investment constituted a prohibited transaction under Section
408(e)(2) of the Code by reason of the Company engaging in a prohibited
transaction with the individual who established an IRA or his beneficiary, the
IRA would lose its tax-exempt status. The other penalties for prohibited
transactions would not apply.
Thus, the acquisition of the Series A Preferred Shares by a Plan could
result in a prohibited transaction if an Underwriter, the Company, the Bank, CMC
or any of their affiliates is a party in interest or disqualified person with
respect to the Plan. Any such prohibited transaction could be treated as exempt
under ERISA and the Code if the Series A Preferred Shares were acquired pursuant
to and in accordance with one or more "class exemptions" issued by the
Department of Labor, such as Prohibited Transaction Class Exemption ("PTCE")
75-1 (an exemption for certain transactions involving employee benefit plans and
broker-dealers (such as the Underwriters), reporting dealers, and banks), PTCE
84-14 (as exemption for certain transactions determined by an independent
qualified professional asset manager), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTCE 95-60 (an exemption for certain transactions involving an insurance
company's general account) and PTCE 96-23 (an exemption for certain transactions
determined by a qualifying in-house asset manager).
A Plan should not acquire the Series A Preferred Shares pursuant to the
Offering if such acquisition will constitute a non-exempt prohibited
transaction.
UNRELATED BUSINESS TAXABLE INCOME
Plan fiduciaries should also consider the consequences of holding more than
10% of the Series A Preferred Shares if the Company is "predominantly held" by
qualified trusts. See "Federal Income Tax Considerations--Taxation of United
States Stockholders--Treatment of Tax-Exempt Stockholders".
56
<PAGE>
EXPERTS
The financial statement as of July 11, 1996 included in this Prospectus has
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
RATINGS
It is expected that the Series A Preferred Shares will be rated by
Moody's Investors Service, Inc. and by Standard and Poor's Ratings Group. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the assigning rating
organization. No person is obligated to maintain any rating on the Series A
Preferred Shares, and, accordingly, there can be no assurance that the ratings
assigned to the Series A Preferred Shares upon initial issuance will not be
lowered or withdrawn by the assigning rating organization at any time
thereafter.
CERTAIN LEGAL MATTERS
The validity of the Series A Preferred Shares offered hereby and certain tax
matters described under "Federal Income Tax Considerations" will be passed upon
for the Company by Milbank, Tweed, Hadley & McCloy, New York, New York. The
validity of the Series A Preferred Shares will be passed upon for the
Underwriters by Sullivan & Cromwell, New York, New York.
57
<PAGE>
GLOSSARY
"Advisor" means the Bank in its role as advisor under the Advisory
Agreement.
"Advisory Agreement" means the agreement between the Bank and the Company
pursuant to which the Bank will (i) administer the day-to-day operations of the
Company, (ii) monitor the credit quality of the Mortgage Assets held by the
Company and (iii) advise the Company with respect to the acquisition,
management, financing and disposition of the Company's Mortgage Assets.
"ARM" or "adjustable rate mortgage" means a Mortgage Loan that features
adjustments of the underlying interest rate at predetermined times based on an
agreed margin to an established index. An ARM is usually subject to periodic
interest rate and/or payment caps and a lifetime interest rate cap.
"Bank" means The Chase Manhattan Bank, a banking corporation organized under
the laws of the State of New York, and the parent of the Company.
"Board of Directors" means the board of directors of the Company.
"By-laws" means the by-laws of the Company.
"Certificate of Incorporation" means the Amended and Restated Certificate of
Incorporation of the Company.
"CMC" means The Chase Manhattan Corporation, a Delaware corporation and the
parent of the Bank.
"CMSI" means Chase Mortgage Services, Inc., an indirect wholly-owned
subsidiary of the Bank.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Mortgage Loan" means a whole loan secured by a first mortgage or
deed of trust on a commercial real estate property.
"Commercial Mortgage Purchase Agreement" means the Commercial Mortgage Loan
Purchase and Warranties Agreement between the Company and the Bank.
"Commercial Mortgage Servicing Agreement" means the Commercial Mortgage Loan
Servicing Agreement between the Company and the Bank.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the common stock, par value $300.00 per share, of the
Company.
"Company" means Chase Preferred Capital Corporation, a Delaware corporation.
"DOL" means the United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Shares" means the shares of any class or series of Preferred Stock
owned, or deemed to be owned, by or transferred to a stockholder in excess of
the Ownership Limit.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"5/1 ARM" means a fixed rate Residential Mortgage Loan that automatically
converts to a one-year non-convertible ARM in the month in which the 60th
monthly payment is due.
58
<PAGE>
"Five or Fewer Test" means the Code requirement that not more than 50% in
value of the Company's outstanding stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code).
"FNMA" means the Federal National Mortgage Association.
"FNMA Required Net Yield" means (i) with respect to any Mortgage Loan with
an original term of 20, 25 or 30 years, FNMA's required net yield for 30-year
fixed rate mortgages (covered by 60-day mandatory commitments) that was in
effect 45 days prior to the effective date of any conversion of such Mortgage
Loan and (ii) with respect to any Mortgage Loan with an original term of 15
years, FNMA's required net yield for 15-year fixed rate mortgages (covered by
60-day mandatory commitments) that was in effect 45 days prior to the effective
date of any conversion of such Mortgage Loan.
"Foreign Stockholders" means holders of Series A Preferred Shares that are
for United States federal income tax purposes (i) non-resident alien
individuals, (ii) foreign corporations and foreign partnerships or (iii) foreign
trusts and estates.
"Gross Margin" means, with respect to a Residential Mortgage Loan that is an
ARM, the applicable fixed percentage which, when added to the applicable index,
calculates to the current interest rate paid by the borrower of the adjustable
rate Mortgage Loan (without taking into account any interest rate caps or
minimum interest rates). Gross Margin is inapplicable to fixed rate loans.
"Independent Directors" means the members of the Board of Directors who are
not current officers or employees of the Company, CMC, the Bank or any affiliate
of the Bank.
"Initial Portfolio" means the initial portfolio of Mortgage Loans purchased
by the Company from the Bank.
"IRA" means an individual retirement arrangement under Section 408 of the
Code.
"IRS" means the United States Internal Revenue Service.
"LIBOR" means the London Inter-Bank Offered Rate.
"Lifetime interest rate cap" means, with respect to Mortgage Loans that are
ARMs, the maximum interest rate that may accrue during any period over the term
of such Mortgage Loan as stated in the governing instruments evidencing such
Mortgage Loan.
"Loan-to-Value Ratio" means, with respect to any Mortgage Loan, the ratio
(expressed as a percentage) of the original principal amount of such Mortgage
Loan to the lesser of (i) the appraised value at origination of the mortgaged
property underlying such Mortgage Loan and (ii) if the Mortgage Loan was made to
finance the acquisition of property, the purchase price of the mortgaged
property.
"Mortgage Assets" means real estate mortgage assets.
"Mortgage-Backed Securities" means securities rated by at least one
nationally recognized independent rating organization and representing interests
in or obligations backed by pools of Mortgage Loans.
"Mortgage Loans" means whole loans secured by single-family (one- to
four-unit) residential real estate properties or by commercial real estate
properties.
"Offering" means the offering of Series A Preferred Shares pursuant to the
Prospectus.
"Old Chase" means The Chase Manhattan Corporation prior to its merger with
and into Chemical Banking Corporation.
59
<PAGE>
"One Hundred Persons Test" means the Code requirement that the capital stock
of the Company be owned by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year.
"One-Year ARM" means an ARM that adjusts annually beginning in the month in
which the 12th monthly payment is due.
"Ownership Limit" means the provision in the Company's Certificate of
Incorporation limiting any person from owning (including shares deemed to be
owned by the attribution provisions of the Code) more than 9.9% of any issued
and outstanding class or series of Preferred Stock.
"Periodic interest rate cap" means, with respect to ARMs, the maximum change
in the coupon rate permissible under the terms of the loan at each coupon
adjustment date. Periodic interest rate caps limit both the speed by which the
coupon rate can adjust upwards in a rising interest rate environment and the
speed by which the coupon rate can adjust downwards in a falling rate
environment.
"Plan" means a pension, profit-sharing, retirement or other employee benefit
plan.
"Plan Asset Regulation" means the DOL regulations determining the assets of
a Plan for purposes of ERISA and the related prohibited transaction excise tax
provisions of the Code.
"Preferred Stock" means preferred stock, par value $25.00 per share, of the
Company.
"Prime Rate" for any date means the lowest prime rate as published in the
"Money Rates" table of The Wall Street Journal for that date.
"Prospectus" means this prospectus, as the same may be amended.
"Rate Adjustment Date" means, with respect to any ARM, a date on which the
interest rate on such ARM adjusts.
"Registration Statement" means the registration statement filed by the
Company with the Commission on Form S-11 with respect to the Series A Preferred
Shares.
"REIT" means a real estate investment trust as defined pursuant to the REIT
Provisions, or any successor provisions thereof.
"REIT Provisions" and "REIT Requirements" means Sections 856 through 860 of
the Code and the applicable Treasury Regulations.
"REIT taxable income" shall have the meaning set forth in "Federal Income
Tax Considerations--Taxation of the Company--Annual Distribution Requirements".
"Residential Mortgage Loan" means a whole loan secured by a first mortgage
or deed of trust on a single family (one-to four-unit) residential real estate
property.
"Residential Mortgage Purchase Agreement" means the Residential Mortgage
Loan Purchase and Warranties Agreement between the Company and the Bank.
"Residential Mortgage Servicing Agreement" means the Residential Mortgage
Loan Servicing Agreement between the Company and CMSI.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Shares" means the shares of Preferred Stock of the
Company offered hereby.
"7/1 ARM" means a fixed rate Residential Mortgage Loan that automatically
converts to a one-year non-convertible ARM in the month in which the 84th
monthly payment is due.
"Six-Month Conversion Margin" with respect to any Six-Month ARM, means the
conversion margin set forth in the mortgage note relating to such Six-Month ARM.
60
<PAGE>
"Six-Month Prime Rate ARM" means an ARM the interest rate of which adjusts
semi-annually beginning in the month in which the sixth monthly payment is due
to equal the Prime Rate on each such Rate Adjustment Date.
"Six-Month Treasury Rate ARM" means an ARM the interest rate of which
adjusts semi-annually beginning in the month in which the sixth monthly payment
is due to equal the applicable Gross Margin plus the Six-Month Treasury Index on
such Rate Adjustment Date.
"Six-Month Treasury Index" means the weekly average investment yield of
auction rates on six-month U.S. Treasury securities as published by the Federal
Reserve Board in Statistical Release H.15 (519) or any similar publication or,
if not so published, as reported by any Federal Reserve Bank or by any U.S.
Government department or agency.
"Servicing Agreements" means, collectively, the Residential Mortgage
Servicing Agreement and the Commercial Mortgage Servicing Agreement.
"Tax Event" means the receipt by the Company of an opinion of a nationally
recognized law firm experienced in such matters to the effect that, as a result
of (i) any amendment to, clarification of, or change (including any announced
prospective change) in, the laws or treaties (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (ii) any judicial decision, official administrative
pronouncement, ruling, regulatory procedure, notice or announcement (including
any notice or announcement of intent to adopt such procedures or regulations)
("Administrative Action") or (iii) any amendment to, clarification of, or change
in the official position or the interpretation of such Administrative Action or
judicial decision or any interpretation or pronouncement that provides for a
position with respect to such Administrative Action or judicial decision that
differs from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such amendment, clarification or change is made known,
which amendment, clarification, or change is effective or such pronouncement or
decision is announced on or after the date of issuance of the Series A Preferred
Shares, there is more than an insubstantial risk that (a) dividends payable by
the Company with respect to the capital stock of the Company are not, or will
not be, fully deductible for United States federal income tax purposes or (b)
the Company is, or will be, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"10/1 ARM" means a fixed rate Residential Mortgage Loan that automatically
converts to a one-year non-convertible ARM in the month in which the 120th
monthly payment is due.
"3/1 ARM" means a fixed rate Residential Mortgage Loan that automatically
converts to a One-Year ARM in the month in which the 36th monthly payment is
due.
"TIN" means Taxpayer Identification Number.
"Treasury Index" means the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year as published by the Federal Reserve
Board in Statistical Release H.15 (519) or any similar publication or, if not so
published, as reported by any Federal Reserve Bank or by any U.S. Government
department or agency.
"Treasury Regulations" means the income tax regulations promulgated under
the Code.
"Underwriters" means those underwriters to which the Company will sell the
Series A Preferred Shares pursuant to the terms of the Underwriting Agreement.
"Underwriting Agreement" means the underwriting agreement by and among the
Company, the Bank and the Underwriters.
"United States Stockholders" means holders of Series A Preferred Shares that
are for United States federal income tax purposes (i) citizens or residents of
the United States, (ii) corporations, partnerships, or other entities created or
organized in or under the laws of the United States or of any political
subdivisions thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
"USRPI" means United States real property interest.
61
<PAGE>
INDEX TO FINANCIAL STATEMENT
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.................................................... F-2
Balance Sheet of Chase Preferred Capital Corporation as of July 11, 1996............. F-3
Note to Financial Statement.......................................................... F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Chase Preferred Capital Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Chase Preferred Capital Corporation
(the "Company") at July 11, 1996 in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
July 11, 1996
F-2
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
BALANCE SHEET
JULY 11, 1996
<TABLE>
<S> <C>
ASSETS
Cash......................................................................... $1,000
------------
STOCKHOLDER'S EQUITY
Common Stock, par value $1.00 per share, 1000 shares authorized; 1000 shares
issued and outstanding...................................................... $1,000
------------
</TABLE>
The Note to Financial Statement is an integral part of this Statement.
F-3
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
NOTE TO FINANCIAL STATEMENT
1. ORGANIZATION
Chase Preferred Capital Corporation (the "Company"), a wholly-owned
subsidiary of Chemical Bank, was incorporated on June 28, 1996 in the State of
Delaware. It is currently anticipated that on July 14, 1996, The Chase Manhattan
Bank, N.A. will merge into Chemical Bank and that Chemical Bank, as the
surviving corporation in the merger, will change its name to The Chase Manhattan
Bank (the "Bank").
The Company intends to invest in mortgage-related assets financed by common
and preferred stock offerings and expects to generate income for distribution to
its future preferred and common stockholders primarily from the net interest
income derived from its investments in mortgage-related assets. The Company
intends to operate in a manner that permits it to elect, and it intends to
elect, to be subject to tax as a real estate investment trust for federal income
tax purposes. The Company has not had any operations as of July 11, 1996.
The Company intends to sell preferred stock in an underwritten public
offering. The cost of this public offering will be paid by the Company out of
proceeds from a sale of common stock to the Bank. If the public offering is not
consummated, the Bank will pay any offering costs.
F-4
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 1996 among the Company, the Bank and the Underwriters named below
(the "Underwriting Agreement"), the Company has agreed that the Company will
sell to each of the underwriters named below (the "Underwriters"), and each of
such Underwriters for which Goldman, Sachs & Co. are acting as representatives
has severally agreed to purchase from the Company, the respective number of
Series A Preferred Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES A
UNDERWRITER PREFERRED STOCK
- ---------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co.......................................
----------------
Total............................................. 20,000,000
----------------
----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Series A Preferred Shares
offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Shares in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $0. per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0. per share to
certain brokers and dealers. After the Series A Preferred Shares are released
for sale to the pubic, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 2,000,000
additional Series A Preferred Shares solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Series A Preferred Shares to be
purchased by each of them, as shown in the foregoing table, bears to the
20,000,000 Series A Preferred Shares offered hereby.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 90 days after the date
of this Prospectus, it will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company which are substantially similar to the
Series A Preferred Shares or which are convertible or exchangeable into
securities which are substantially similar to the Series A Preferred Shares
without the prior written consent of the representative, except for the Series A
Preferred Shares offered in connection with the Offering.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Series A Preferred Shares offered by them.
Prior to the Offering, there has been no public market for the shares.
The Series A Preferred Shares will be listed on the New York Stock Exchange.
In order to meet one of the requirements for listing the Series A Preferred
Shares on the New York Stock Exchange, the Underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial holders.
The Company and the Bank have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to affiliates of the Company, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
U-1
<PAGE>
======================================== =====================================
- ---------------------------------------- -------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS 20,000,000 SHARES
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A CHASE PREFERRED
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES CAPITAL
OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR CORPORATION
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS CORPORATION NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO % CUMULATIVE
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO PREFERRED STOCK, SERIES A
ITS DATE.
-------------------
TABLE OF CONTENTS -------------------
[LOGO] CHASE
-------------------
PAGE
----
Additional Information................ 2
Prospectus Summary.................... 3
The Company........................... 8
Use of Proceeds....................... 8
---
Capitalization........................ 9
Special Considerations................ 10
Business and Strategy................. 16
Management............................ 34
Certain Transactions Constituting The
Formation........................... 37
Description of Series A Preferred
Shares.............................. 38
Description of Capital Stock.......... 42
Federal Income Tax Considerations..... 45
ERISA Considerations.................. 54
Experts............................... 57
Certain Legal Matters................. 57
Glossary.............................. 58
Index to Financial Statement.......... F-1
Underwriting.......................... U-1
GOLDMAN, SACHS & CO.
THROUGH AND INCLUDING , 1996 (THE
25TH DAY AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS
IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
GOLDMAN, SACHS & CO.
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================== =====================================
- ---------------------------------------- -------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fee............................................. $189,655.18
NASD Fee..................................................... $ *
NYSE Listing Fee............................................. $ *
Printing and Engraving Expenses.............................. $ *
Legal Fees and Expenses...................................... $ *
Accounting Fees and Expenses................................. $ *
Blue Sky Fees and Expenses................................... $ *
Financial Advisory Fee....................................... $ *
Miscellaneous................................................ $ *
-----------
Total........................................................ $ *
-----------
-----------
- ------------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
See response to Item 32 below.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Company, the Company issued 1000
shares of Common Stock, par value $1.00 per share, to The Chase Manhattan Bank.
Prior to the consummation of the Offering, the Company will amend its
Certificate of Incorporation to change the par value of its Common Stock to
$[0.30] per share. Simultaneously with the consummation of the Offering, the
Company will issue an aggregate of shares of Common Stock to The Chase
Manhattan Bank. The description of these transactions in the Prospectus under
the heading "Certain Transactions Constituting The Formation" is incorporated
herein by reference. These shares of Common Stock will be issued in reliance
upon the exemption from registration under Section 4(2) of the Securities Act.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the Delaware General Corporation Law ("DGCL"), a corporation may
indemnify any person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than a derivative action by or in the right of such
corporation) who is or was a director, officer, employee or agent of such
corporation, or serving at the request of such corporation in such capacity for
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The DGCL also permits indemnification by a corporation under similar
circumstances for expenses (including attorneys' fees) actually and reasonably
incurred by such persons in connection with the defense or settlement of a
derivative action, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to such corporation unless the Court of Chancery or the court in which
such action or suit
II-1
<PAGE>
was brought shall determine upon application that such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
The DGCL provides that the indemnification described above shall not be
deemed exclusive of other indemnification that may be granted by a corporation
pursuant to its By-laws, disinterested directors' vote, stockholders' vote,
agreement or otherwise. The DGCL also provides corporations with the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in a similar capacity for another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her in any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability as described above.
The Amended and Restated Certificate of Incorporation of Chase Preferred
Capital Corporation (the "Registrant") provides that, to the fullest extent that
the DGCL as from time to time in effect permits the limitation or elimination of
the liability of directors, no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director.
The Amended and Restated Certificate of Incorporation empowers the
Registrant to indemnify any director, officer, employee or agent of the
Registrant or any other person who is serving at the Registrant's request in any
such capacity with another corporation, partnership, joint venture, trust or
other enterprise (including, without limitation, an employee benefit plan) to
the fullest extent permitted under the DGCL as from time to time in effect, and
any such indemnification may continue as to any person who has ceased to be a
director, officer, employee or agent and may inure to the benefit of the heirs,
executors and administrators of such a person.
The Amended and Restated Certificate of Incorporation also empowers the
Registrant by action of its Board of Directors, notwithstanding any interest of
the directors in the action, to purchase and maintain insurance in such amounts
as the Board of Directors deems appropriate to protect any director, officer,
employee or agent of the Registrant or any other person who is serving at the
Registrant's request in any such capacity with another corporation, partnership,
joint venture, trust or other enterprise (including, without limitation, an
employee benefit plan) against any liability asserted against such individual or
incurred by such individual in any such capacity arising out of such
individual's status as such (including, without limitation, expenses, judgments,
fines (including any excise taxes assessed on a person with respect to any
employee benefit plan) and amounts paid in settlement) to the fullest extent
permitted under the DGCL as from time to time in effect, whether or not the
Registrant would have the power or be required to indemnify any such individual
under the terms of any agreement or by-law or the DGCL.
In addition, the Registrant's By-laws require indemnification to the fullest
extent permitted under applicable law, as from time to time in effect. The
By-laws provide a clear and unconditional right to indemnification for expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by any person in connection with any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, administrative or investigative (including, to the
extent permitted by law, any derivative action) by reason of the fact that such
person is or was serving as a director, officer, employee or agent of the
Registrant or, at the request of the Registrant, of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, an employee benefit plan). The By-laws specify that the right to
indemnification so provided is a contract right, set forth certain procedural
and evidentiary standards applicable to the enforcement of a claim under the
By-laws, entitle the persons to be indemnified to be reimbursed for the expenses
of prosecuting any such claim against the Registrant and entitle them to have
all expenses incurred in advance of the final disposition of a proceeding
II-2
<PAGE>
paid by the Registrant. Such provisions, however, are intended to be in
furtherance and not in limitation of the general right to indemnification
provided in the By-laws, which right of indemnification and of advancement of
expenses is not exclusive.
The Registrant's By-laws also provide that the Registrant may enter into
contracts with any director, officer, employee or agent of the Registrant in
furtherance of the indemnification provisions in the By-laws, as well as create
a trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure payment of amounts indemnified.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
See F-1 of the Prospectus for a list of the financial statements
included as part of the Prospectus.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<S> <C>
1* --Form of Underwriting Agreement between the Company, the Bank and the
Underwriters
3(a)(i) --Certificate of Incorporation of the Company
3(a)(ii)* --Form of Certificate of Designation establishing the Series A Preferred
Shares
3(b) --By-laws of the Company
4* --Specimen of certificate representing Series A Preferred Shares
5* --Opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Company,
relating to Series A Preferred Shares
8* --Opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Company,
relating to certain tax matters
10(a)* --Form of Residential Mortgage Loan Purchase and Warranties Agreement between
the Company and the Bank
10(b)* --Form of Commercial Mortgage Loan Purchase and Warranties Agreement between
the Company and the Bank
10(c)* --Form of Residential Mortgage Loan Servicing Agreement between the Company
and Chase Mortgage Services, Inc.
10(d)* --Form of Commercial Mortgage Loan Servicing Agreement between the Company
and the Bank
10(e)* --Form of Advisory Agreement between the Company and the Bank
23(a) --Consent of Price Waterhouse LLP
23(b)* --Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5)
24 --Powers of Attorney
</TABLE>
- ------------
* To be filed by amendment
II-3
<PAGE>
ITEM 36. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 33
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding), is asserted by such director, officer, or controlling
person in connection with the securities registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or(4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York, on the 12th day of July, 1996.
CHASE PREFERRED CAPITAL CORPORATION
By NEILA B. RADIN
...................................
Neila B. Radin
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- --------------
<S> <C> <C>
* Chairman and Director July 12, 1996
..................................... (Principal Executive Officer)
Robert S. Strong
* President and Director July 12, 1996
.....................................
Deborah L. Duncan
* Treasurer and Director July 12, 1996
..................................... (Principal financial and accounting
Don B. Taggart officer)
* Director July 12, 1996
.....................................
Richard J. Boyle
* Director July 12, 1996
.....................................
Thomas Jacob
* Director July 12, 1996
.....................................
William C. Langley
* Director July 12, 1996
.....................................
Peter J. Tobin
*By: NEILA B. RADIN
.................................
Neila B. Radin
(as attorney-in-fact)
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
1* --Form of Underwriting Agreement between the Company, the Bank and the
Underwriters
3(a)(i) --Certificate of Incorporation of the Company
3(a)(ii)* --Form of Certificate of Designation establishing the Series A Preferred Shares
3(b) --By-laws of the Company
4* --Specimen of certificate representing Series A Preferred Shares
5* --Opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Company, relating to
Series A Preferred Shares
8* --Opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Company, relating to
certain tax matters
10(a)* --Form of Residential Mortgage Loan Purchase and Warranties Agreement between the
Company and the Bank
10(b)* --Form of Commercial Mortgage Loan Purchase and Warranties Agreement between the
Company and the Bank
10(c)* --Form of Residential Mortgage Loan Servicing Agreement between the Company and
Chase Mortgage Services, Inc.
10(d)* --Form of Commercial Mortgage Loan Servicing Agreement between the Company and the
Bank
10(e)* --Form of Advisory Agreement between the Company and the Bank
23(a) --Consent of Price Waterhouse LLP
23(b)* --Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5)
24 --Powers of Attorney
</TABLE>
- ------------
* To be filed by amendment.
Exhibit 3(a)(i)
CERTIFICATE OF INCORPORATION
OF
CHASE PREFERRED CAPITAL CORPORATION
*****
1. The name of the corporation is:
Chase Preferred Capital Corporation
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares be One Dollar ($1.00) amounting in the aggregate to One Thousand Dollars
($1,000.00).
5. The name and mailing address of the incorporator is:
Robert C. Carroll
Chemical Bank
270 Park Avenue, 35th Floor
New York, New York 10017
6. The Board of Directors is authorized to make, alter or repeal the By-
Laws of the corporation. Election of directors need not be by written ballot.
7. No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 28th day of June, 1996.
/s/ ROBERT C. CARROLL
--------------------------------
Robert C. Carroll
270 Park Avenue
New York, New York 10017
Exhibit 3(b)
CHASE PREFERRED CAPITAL CORPORATION
* * * * *
BY-LAWS
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Wilmington, State of Delaware, at such
place as may be fixed from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1997, shall be held on the last business day of March if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
11:00 A.M., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meetings, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
<PAGE>
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than one nor more than thirty days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or the secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than one nor more than thirty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
-2-
<PAGE>
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any questions brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provisions shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action
-3-
<PAGE>
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be not less than one nor more than ten. The first board shall
consist of three (3) directors. Thereafter, within the limits above specified,
the number of directors shall be determined by resolution of the board of
directors or by the stockholders at the annual meeting. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director, and the directors so chosen shall hold office until the
next annual election or until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, than an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time
-4-
<PAGE>
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two day's notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors unless
the board consists of only one director; in which case special meetings shall be
called
-5-
<PAGE>
by the president or secretary in like manner and on like notice on the written
request of the sole director.
Section 8. At all meetings of the board, a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be represented at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of
-6-
<PAGE>
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend; or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their
expenses, if any, for attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary
-7-
<PAGE>
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a treasurer and a secretary. The
board of directors may also choose a Chairman, one or more vice-presidents, one
or more assistant secretaries, and one or more assistant
-8-
<PAGE>
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer and a
secretary.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN
Section 6. The chairman of the board of directors, if one is
elected, shall participate in the formulation of policy and strategic planning
of the corporation and shall preside at all meetings of the stockholders and the
board of directors.
THE PRESIDENT
Section 7. The president shall have general and active management
of the business of the corporation and shall see that all orders and resolutions
of the board of directors are carried into effect.
Section 8. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed
-9-
<PAGE>
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
THE VICE-PRESIDENTS
Section 9. The executive vice president, if any, or, if there
shall be more than one, the executive vice presidents in the order determined by
the board of directors, shall, in the absence or disability of the president,
perform the duties and exercise the powers of the president and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe. The senior vice president, if any, or, if there shall
be more than one, the senior vice presidents in the order determined by the
board of directors, shall, in the absence or disability of the president and all
executive vice presidents, perform the duties and exercise the powers of the
president and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe. The vice president, if any,
or if there shall be more than one, the vice presidents in the order determined
by the board of directors, shall, in the absence or disability of the president
and all executive vice presidents and senior vice presidents, perform the duties
and exercise the powers of the president and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
-10-
<PAGE>
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 11. The assistant secretary, or, if there be more than one,
the assistant secretaries in the order determined by the board of directors, or,
if there be no such determination, then in the order of their election, shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 13. He shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the board of directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in the case of his death, resignation, retirement or removal
from office,
-11-
<PAGE>
of all books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 15. The assistant treasurer, or, if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors, or, if there be no such determination, then in the order of their
election, shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman of the board of directors, or the president or a vice president, or
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the
-12-
<PAGE>
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences or rights,
or both.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed, or both.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the persons entitled
thereto, cancel the old certificate and record the transaction upon its books.
-13-
<PAGE>
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owners, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any
-14-
<PAGE>
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock subject to the provisions of the
certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the
name of the corporation, and the words, ``Corporate Seal, Delaware.'' The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers,
directors, employees and agents to the extent permitted by the General
Corporation Law of Delaware.
-15-
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or
new by-laws may be adopted by the stockholders or by the board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors, if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
-16-
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-11 of our report dated July 11, 1996 relating
to the financial statement of Chase Preferred Capital Corporation, which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
- -------------------------
PRICE WATERHOUSE LLP
New York, New York
July 11, 1996
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Peter J. Tobin
------------------
Peter J. Tobin
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ William C. Langley
----------------------
William C. Langley
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Thomas Jacob
----------------
Thomas Jacob
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Richard J. Boyle
--------------------
Richard J. Boyle
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Robert S. Strong
--------------------
Robert S. Strong
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Don B. Taggart
-------------------
Don B. Taggart
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her
capacity as an officer or director of CHASE PREFERRED CAPITAL CORPORATION, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints, PETER
J. TOBIN, DEBORAH L. DUNCAN, DON B. TAGGART, NEILA B. RADIN and ANTHONY J.
HORAN, and each of them severally, his or her true and lawful attorneys-in-fact
and agents, with full power to act with or without the others and with full
power of substitution and resubstitution for and on behalf of him or her and in
his or her name, place and stead, in any and all capacities, to perform any and
all acts and do all things and to execute any and all instruments which said
attorneys-in-fact and agents and each of them may deem necessary or desirable to
enable the Corporation to comply with the Securities Act of 1933, as amended
(the "Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission (the "SEC") thereunder in connection with the filing of the
accompanying registration statement under the Act for the registration of shares
of Series A Preferred Stock, ("Preferred Stock"), of the Corporation on Form S-
11 or such other Form or Forms as are then appropriate for the registration of
Preferred Stock of the Corporation including without limiting the generality of
the foregoing, power and authority to sign such registration statement, and any
and all amendments, including post-effective amendments, supplements and
exhibits thereto (collectively, the "Registration Statement") to be filed with
the SEC, and to sign any and all instruments or documents to be filed as a part
of or in connection with such Registration Statement, whether such instruments
or documents are filed before or after the effective date of such Registration
Statement, to file such Registration Statement so signed, together with any and
all instruments or documents to be filed as a part of or in connection with such
Registration Statement, with the SEC, and to appear before the SEC in connection
with any matter relating thereto, hereby granting to such attorneys-in-fact and
agents, and each of them, full power to do and perform any and all acts and
things requisite and necessary to be done in connection therewith as the
undersigned might or could do in person, and hereby ratifying and confirming all
that said attorneys-in-fact and agents and each of them may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of July 11, 1996.
/s/ Deborah L. Duncan
---------------------
Deborah L. Duncan
