<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 10, 1996
REGISTRATION NO. ___________
================================================================================
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
------------------------
RIGGS PREFERRED CAPITAL
(Exact name of Registrant as specified in its governing instruments)
------------------------
5700 RIVERTECH COURT
RIVERDALE, MARYLAND 20737
(301) 887-6000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
LINDA A. MADRID, ESQ.
RIGGS PREFERRED CAPITAL
1503 PENNSYLVANIA AVE., N.W.
WASHINGTON, D.C. 20005
(301) 887-6000
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
ROBERT H. CRAFT, JR. Celia A. Felsher, Esq.
SULLIVAN & CROMWELL Donald B. Brant, Jr., Esq.
1701 PENNSYLVANIA AVE., N.W. Milbank, Tweed, Hadley & McCloy
WASHINGTON, D.C. 20006 One Chase Manhattan Plaza
TEL: (202) 956-7500 New York, New York 10005
Tel: (212) 530-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effectiveness 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.|_|
------------------------
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TITLE OF AMOUNT BEING PROPOSED PROPOSED AMOUNT OF
SECURITIES BEING REGISTERED(1) MAXIMUM MAXIMUM REGISTRATION FEE
REGISTERED OFFERING PRICE AGGREGATE
PER SHARE (1) OFFERING PRICE (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noncumulative 4,600,000 shares $25.00 $115,000,000 $34,849
Preferred Shares,
Series A, par value
$25.00 per share
- ----------------
<FN>
(1) Includes 600,000 shares of Noncumulative Preferred Shares, Series A, par
value $25.00 per share which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) 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.
</FN>
</TABLE>
================================================================================
<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.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1996
4,000,000 SHARES
RIGGS PREFERRED CAPITAL
% NONCUMULATIVE PREFERRED SHARES OF BENEFICIAL INTEREST, SERIES A
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
--------------
Dividends on the % Noncumulative Preferred Shares of Beneficial Interest,
Series A, par value $25.00 per share (the "Series A Preferred Shares"), of Riggs
Preferred Capital, a Maryland real estate investment trust (the "Company"), will
not be cumulative and, when authorized and declared by the Board of Trustees,
commencing December 31, 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
dividends authorized, declared and accrued for the then current quarter. 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 Riggs Bank N.A., a national banking
association organized under the laws of the United States (the "Bank"), or its
affiliates. All of the shares of the Company's Common Shares of Beneficial
Interest, par value $1.00 per share (the "Common Shares"), are owned by RPC
Holding Company, a Delaware corporation ("RPC Holding Co."). All of the capital
stock of RPC Holding Co. is held by the Bank. Riggs National Corporation, a
Delaware corporation and the parent of the Bank ("RNC"), has indicated to the
Company that, so long as any Series A Preferred Shares are outstanding, it
intends to maintain direct or indirect ownership of at least 80% of the
outstanding Common Shares of the Company.
A PURCHASE OF SERIES A PREFERRED SHARES IS A PURCHASE OF SECURITIES ISSUED
BY THE COMPANY AND IS NOT A PURCHASE OF SECURITIES ISSUED BY, OR OTHERWISE AN
INVESTMENT IN, THE BANK OR RNC. NO OBLIGATION OF THE COMPANY IS GUARANTEED BY
THE BANK OR RNC.
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 5.0% of any series of preferred shares of beneficial interest 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 (the "NYSE").
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SERIES A
PREFERRED SHARES OFFERED HEREBY. AMONG THE RISKS THAT PROSPECTIVE INVESTORS
SHOULD CONSIDER ARE THE FOLLOWING:
o No prior operating history of the Company;
o Dependence of the Company on the Bank as Advisor and Servicer;
o Possible conflicts of interest between the Company and the Bank
and its affiliates;
o Possible restrictions on operations of the Company by bank
regulatory authorities;
o Possible adverse effect on the Company's cash flow in the event
of a significant decline in interest rates; and
<PAGE>
o Geographic concentration in the Washington, D.C. metropolitan
area of properties securing the Company's initial residential
mortgage loan portfolio.
--------------------
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.
--------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNTS(1) COMPANY(2)
Per Share............... $25.00 $ $
Total(3)................ $100,000,000 $ $
- ------------
(1) The Company and the Bank have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $_______.
(3) The Company has granted the several Underwriters an option for 30 days
to purchase up to an additional 600,000 Series A Preferred Shares at the
initial public offering price per Series A Preferred Share, less
underwriting discounts, solely to cover over-allotments, if any. If such
option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $ and $ ,
respectively.
--------------------
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
__________ in New York, New York on or about , 1996, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
--------------------
The date of this Prospectus is , 1996.
<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 NYSE, IN
THE OVER THE COUNTER MARKET 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.
2
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................ 4
The Company........................................................ 4
Risk Factors....................................................... 4
The Offering....................................................... 5
The Formation...................................................... 7
Business and Strategy.............................................. 8
Tax Status of the Company.......................................... 11
RISK FACTORS.............................................................. 12
No Operating History............................................... 12
Dependence upon Bank as Advisor and Servicer....................... 12
Relationship with the Bank and its Affiliates;
Conflicts of Interest........................................... 12
Bank Regulatory Restrictions on Operations of the Company.......... 13
Interest Rate Risk................................................. 13
Risks Associated with Mortgage Loans............................... 13
Risk of Future Revisions in Policies and Strategies
by Board of Trustees............................................ 15
Tax Risks.......................................................... 15
Risk Associated with Leverage...................................... 16
No Third-Party Valuation of the Mortgage Loans;
No Arm's-Length Negotiations with Affiliates.................... 16
No Prior Market for Series A Preferred Shares...................... 17
THE COMPANY............................................................... 18
USE OF PROCEEDS........................................................... 18
CAPITALIZATION............................................................ 20
BUSINESS AND STRATEGY..................................................... 21
General............................................................ 21
Dividends ......................................................... 21
Liquidity and Capital Resources.................................... 22
General Description of Mortgage Assets; Investment Policy.......... 22
Acquisition of Initial Portfolio................................... 23
Management Policies and Programs................................... 23
Description of Initial Portfolio................................... 26
Servicing.......................................................... 32
Employees.......................................................... 34
Competition........................................................ 34
Legal Proceedings.................................................. 34
MANAGEMENT................................................................ 35
Trustees and Executive Officers.................................... 35
Independent Trustees............................................... 36
Audit Committee.................................................... 36
Credit Committee................................................... 36
Compensation of Trustees and Officers.............................. 37
Limitation of Liability and Indemnification........................ 37
The Advisor........................................................ 38
CERTAIN TRANSACTIONS CONSTITUTING THE FORMATION........................... 38
The Formation...................................................... 38
Benefits to the Bank and its Affiliates............................ 39
DESCRIPTION OF SERIES A PREFERRED SHARES.................................. 41
General............................................................ 41
Dividends.......................................................... 41
Voting Rights...................................................... 42
Redemption......................................................... 42
Rights upon Liquidation............................................ 43
Independent Trustee Approval....................................... 43
Restrictions on Ownership.......................................... 44
DESCRIPTION OF CAPITAL SHARES............................................. 45
Common Shares...................................................... 45
Preferred Shares................................................... 45
Restrictions on Ownership and Transfer............................. 46
FEDERAL INCOME TAX CONSIDERATIONS......................................... 48
Taxation of the Company............................................ 48
Failure to Qualify................................................. 52
Taxation of United States Shareholders............................. 52
Taxation of Foreign Shareholders................................... 53
Information Reporting Requirements and Backup Withholding Tax...... 55
Other Tax Consequences............................................. 56
ERISA CONSIDERATIONS...................................................... 57
General............................................................ 57
Plan Asset Regulation.............................................. 57
Prohibited Transactions............................................ 58
Unrelated Business Taxable Income.................................. 59
EXPERTS................................................................... 59
RATINGS................................................................... 59
VALIDITY OF SERIES A PREFERRED SHARES..................................... 59
ADDITIONAL INFORMATION.................................................... 59
GLOSSARY.................................................................. 60
INDEX TO FINANCIAL STATEMENT.............................................. F-1
UNDERWRITING.............................................................. U-1
3
<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 60 for the definitions of certain terms used in this Prospectus. The
offering of 4,000,000 shares of % Noncumulative Preferred Shares of Beneficial
Interest, 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 COMPANY
Riggs Preferred Capital (the "Company") is a newly-formed Maryland real
estate investment trust organized on October 9, 1996 and created for the
purpose of acquiring, holding and managing real estate mortgage assets
("Mortgage Assets"). The Company has been formed by RPC Holding Company ("RPC
Holding Co."), a Delaware corporation which was organized by Riggs Bank N.A., a
national banking association organized under the laws of the United States (the
"Bank") to provide the Bank and its parent, Riggs National Corporation, a
Delaware corporation ("RNC"), with a means of raising capital for bank
regulatory purposes. The Series A Preferred Shares will be treated as capital
for regulatory purposes for both the Bank and RNC. The issuance of the Series A
Preferred Shares by the Company is a more cost-effective means of raising
capital for the Bank and RNC than if the Bank or RNC were to issue preferred
stock themselves, because of the Company's ability to deduct for income tax
purposes the dividends payable on the Series A Preferred Shares as a result of
its qualification as a real estate investment trust (a "REIT"). 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 shareholders and maintains
its qualification as a REIT. All of the Company's outstanding common shares of
Beneficial Interest, par value $1.00 per share (the "Common Shares"), are owned
by RPC Holding Co. All of the outstanding shares of capital stock of RPC Holding
Co. are owned by the Bank. RNC, the entity that owns all of the issued and
outstanding shares of capital stock of the Bank, has indicated to the Company
that, for so long as any Series A Preferred Shares are outstanding, it intends
to maintain direct or indirect ownership of at least 80% of the outstanding
Common Shares of the Company.
A PURCHASE OF SERIES A PREFERRED SHARES IS A PURCHASE OF SECURITIES ISSUED
BY THE COMPANY AND IS NOT A PURCHASE OF SECURITIES ISSUED BY, OR OTHERWISE AN
INVESTMENT IN, THE BANK OR RNC. NO OBLIGATION OF THE COMPANY IS GUARANTEED BY
THE BANK OR RNC.
The principal executive offices of the Company are located at 5700
RiverTech Court, Riverdale, Maryland 20737, telephone number 301-887-6000.
RISK FACTORS
The purchase of the Series A Preferred Shares offered hereby is subject to
certain risks. See "Risk Factors" commencing on page 12. Among such risks are
the following:
o The Company and RPC Holding Co. are newly organized entities with no
operating history.
o The Company will be dependent in virtually every phase of its
operations on the diligence and skill of the officers and employees of
the Bank and its affiliates.
4
<PAGE>
o Because of the relationship between the Company and the Bank and its
affiliates, conflicts of interest may arise between the Bank and its
affiliates and the Company.
o As an indirect subsidiary of the Bank, the Company is subject to the
risk that banking authorities will restrict the ability of the Company
to transfer assets, to make distributions to shareholders, including
dividends to the holders of Series A Preferred Shares, or to redeem
Series A Preferred Shares.
o Because the rate at which dividends are to be paid is fixed, a
significant decline in interest rates might adversely affect the
Company's ability to pay dividends on the Series A Preferred Shares or
to pay the liquidation preference of the Series A Preferred Shares in
the case of a liquidation of the Company.
o Risks associated with mortgage loans generally, and to a certain
extent the geographic concentration of the Company's mortgage loan
portfolio, could adversely affect the value of the Series A Preferred
Shares and the Mortgage Loans (defined below) held by the Company.
o The board of trustees of the Company (the "Board of Trustees") may
revise or change (in certain circumstances subject to the approval
of a majority of the Independent Trustees (defined below) as long as
any Series A Preferred Shares remain outstanding) the policies of the
Company set forth herein, including the Company's policy regarding
incurring indebtedness.
o The Company is subject to risks associated with the failure of the
Company to maintain its status as a REIT, including without limita-
tion reduction in the amount available for distribution to the
Company's shareholders.
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".
ISSUER............................ Riggs Preferred Capital, a newly formed
Maryland real estate investment trust
created for the purpose of acquiring,
holding and managing Mortgage Assets.
SECURITIES OFFERED................ 4,000,000 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 Shares. Additional
preferred shares of beneficial interest, par
value $25.00 per share, of the Company (the
"Preferred Shares") 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 Preferred Shares ranking on a
parity with the Series A Preferred Shares
may not be issued without the approval of a
majority of the Independent Trustees as long
as any Series A Preferred Shares remain
outstanding.
5
<PAGE>
USE OF PROCEEDS................... The net proceeds to the Company from the
Offering, together with proceeds received in
connection with the sale of Common Shares of
the Company to RPC Holding Co., 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 $________ in the
aggregate). See "Use of Proceeds".
DIVIDENDS......................... Dividends on the Series A Preferred Shares
will not be cumulative and will be payable
quarterly when and as authorized by the
Board of Trustees commencing the last
quarter of 1996, at the rate of ___% per
annum of the initial liquidation
preference (an amount equivalent to
$_____ per annum per share). See
"Description of Series A Preferred Shares--
Dividends."
LIQUIDATION PREFERENCE............ The liquidation preference for each Series A
Preferred Share is $25.00, plus dividends
declared and accrued for the then current
quarter but without accumulation of unpaid
dividends for prior dividend periods. 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 dividends
authorized, declared and accrued for the then
current quarter but without accumulation of
unpaid dividends for prior dividend periods.
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 dividends declared and
accrued for the then current quarter but
without accumulation of unpaid dividends for
prior dividend periods. 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. 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 on which the
Series A Preferred Shares may vote (as
expressly provided herein), each Series A
Preferred Share will be entitled to one vote.
See "Description of Series A Preferred
Shares-- Voting Rights".
6
<PAGE>
OWNERSHIP LIMITS.................. Ownership of more than 5.0% of any
outstanding series of Preferred Shares,
including the Series A Preferred Shares
offered hereby, is restricted in order to
preserve the Company's status as a REIT for
federal income tax purposes. See
"Description of Capital Shares--Restrictions
on Ownership and Transfer".
TRADING........................... Application will be made to list the Series
A Preferred Shares on the NYSE.
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 Services. 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.
THE FORMATION
Prior to or simultaneously with the completion of the Offering, the
Company, RPC Holding Co., RNC, the Bank and its affiliates will engage in the
transactions described under "Certain Transactions Constituting the
Formation--The Formation". These transactions are designed (i) to facilitate the
Offering, (ii) to transfer the ownership of the Initial Portfolio (defined
below) 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 following chart outlines the relationship between the Company, RPC
Holding Co., RNC, the Bank and its affiliates relevant to the Offering following
completion of the Offering:
"Chart illustrating the relationship between the Company,
RPC Holding Co., RNC and the Bank and its affiliates
following completion of the Offering. The Chart indicates
that:
1) RNC owns 100% of the Common Stock of the Bank;
2) The Bank owns 100% of the Common Stock of the RPC
Holding Co;
3) RPC Holding Co. owns 100% of the Common Shares of the
Company;
4) Public Preferred Shareholders will own 100% of the
Series A Preferred Shares of the Company; and
5) There will exist an Advisory Agreement and a Servicing
Agreement between the Bank and the Company."
7
<PAGE>
BENEFITS TO THE BANK AND ITS AFFILIATES
RNC and the Bank are required by the Board of Governors of the Federal Reserve
System and the Office of the Comptroller of the Currency to maintain certain
levels of capital for bank regulatory purposes. The Company, the Bank and RNC
expect that the Series A Preferred Shares will be treated as capital of both RNC
and the Bank for regulatory purposes. RNC and the Bank have indicated to the
Company that such treatment, together with the Company's ability to deduct, for
income tax purposes,the dividends payable on the Series A Preferred Shares as a
result of the Company's qualification as a REIT, will provide each of RNC and
the Bank with a more cost-effective means of obtaining capital for regulatory
purposes than if the Bank or RNC were to issue preferred stock themselves.
The Bank will realize certain other benefits from the Offering and the other
transactions constituting the formation of the Company, including (i) receipt by
the Bank of the net proceeds from the sale of the Series A Preferred Shares in
connection with the sale to the Company of the Initial Portfolio and (ii)
receipt of advisory and servicing fees under the Advisory Agreement and the
Servicing Agreement (each as defined herein). It is also expected that RPC
Holding Co., which is a wholly-owned subsidiary of the Bank, will receive
dividends in respect of the Common Shares held by RPC Holding Co. See "Certain
Transactions Constituting the Formation--Benefits to the Bank and its
Affiliates".
BUSINESS AND STRATEGY
The Company's principal business objective is to acquire, hold and manage
Mortgage Assets that will generate net income for distribution to shareholders.
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. The Company may also from
time to time acquire mortgage securities that qualify as real estate assets
under Section 856(c)(6)(B) of the Code, that are rated by at least one
nationally recognized independent rating organization and that represent
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 of or make an additional paid in capital
contribution to RPC Holding Co. in the amount of approximately $100 million. RPC
Holding Co. will purchase Common Shares of the Company for a price of $100
million. The Company will use the aggregate proceeds of $200 million received in
connection with both the Offering and such sale of Common Shares to RPC Holding
Co. 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, RPC Holding Co. will purchase
additional Common Shares 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 Common
Shares to purchase additional Mortgage Loans of the types described in "Business
and Strategy--Description of Initial Portfolio". Simultaneously with the
consummation of the Offering (or upon the exercise by the Underwriters of their
over-allotment option), RPC Holding Co. will also purchase additional Common
Shares 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. See "Use of Proceeds".
8
<PAGE>
On ______, 1996, the Mortgage Loans included in the Initial Portfolio had
an aggregate outstanding principal balance of $____________. The Initial
Portfolio consists of Mortgage Loans secured 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 Initial
Portfolio--Residential Mortgage Loans". The Bank will enter into a servicing
agreement with respect to the Residential Mortgage Loans (the "Servicing
Agreement") pursuant to which it will service the Mortgage Loans included in the
Initial Portfolio and will be entitled to receive fees in connection with the
servicing of such Mortgage Loans. The Bank in its role as servicer under the
Servicing Agreement is hereinafter referred to as the "Servicer". See "Business
and Strategy--Servicing".
The Company and the Bank believe that the fair value of the Initial
Portfolio will equal the amount (approximately $200 million) 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 "Risk Factors--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 (ii) advising the Company with respect to the acquisition,
management, financing and disposition of the Company's Mortgage Assets and (iii)
holding documents related to the Mortgage Assets as custodian on behalf of the
Company. 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 Trustees, as well as a majority
of the Independent Trustees as long as any Series A Preferred Shares remain
outstanding, 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 one year. The Board of
Trustees will vote annually to determine whether to renew the Advisory Agreement
for additional one-year periods unless notice of nonrenewal is delivered to the
Advisor by the Company. If the Company decides to renew the Advisory Agreement,
the Bank has agreed that it will automatically renew the Advisory Agreement as
well. The Advisory Agreement may be terminated by the Company at any time upon
90 days' prior notice. Any decision by the Company either to renew or to
terminate the Advisory Agreement must be approved by a majority of the Board of
Trustees. The Advisor will be entitled to receive an annual advisory fee equal
to $______. See "Management--The Advisor".
See "Certain Transactions Constituting the Formation--Benefits to the Bank
and its Affiliates" for information regarding the aggregate amounts payable to
the Bank and its affiliates in connection with the Offering and the transactions
to be entered into in connection with the Offering.
The Company's Board of Trustees will be composed of seven members, two of
whom will be Independent Trustees. An "Independent Trustee" is a trustee who is
not a current officer or employee of the Company, RPC Holding Co., RNC, the Bank
or any affiliate of the Bank. Certain actions by the Company require the prior
approval of a majority of Independent Trustees as long as any Series A Preferred
Shares remain outstanding. So long as there are only two Independent Trustees,
any action that requires the approval of a majority of the Independent Trustees
must be approved by both Independent Trustees. Pursuant to the Articles
Supplementary establishing the
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Series A Preferred Shares (the "Articles Supplementary") the Independent
Trustees are required to take into account the interests of the holders of both
the Series A Preferred Shares and the Common Shares 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 Common
Shares and Preferred Shares. Additional Preferred Shares 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 Preferred Shares 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 Independent Trustees as long as any Series A Preferred Shares remain
outstanding. See "Description of Series A Preferred Shares--Voting Rights" and
"--Independent Trustee Approval". The Company does not currently intend to issue
any additional Preferred Shares unless it simultaneously issues additional
Common Shares to RPC Holding Co., and the aggregate proceeds to be received from
such issuance of Common Shares approximately equals the sum of the aggregate
offering price of such additional Preferred Shares and the Company's expenses
(including any underwriting discounts or placement fees) incurred in connection
with the issuance of such additional Preferred Shares. It is currently
anticipated that the Company will issue additional shares of Preferred Shares if
such issuance would provide the Bank and RNC with the most cost-effective means
of raising capital for bank regulatory purposes at the time. See "Certain
Transactions Constituting the Formation-- Benefits to the Bank and its
Affiliates".
The Company currently anticipates that the majority of the Mortgage Loans
that it may acquire in the future will be purchased from the Bank and affiliates
of the Bank. No arrangements are currently in place regarding the acquisition by
the Company of Mortgage Loans from unaffiliated third parties. The Company
expects that any such Mortgage Loans will be whole 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 a
significant portion of its portfolio of Mortgage Assets in Residential Mortgage
Loans. 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 (as defined herein), (b) in
Nonaccrual Status (as defined herein), 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 Mortgage Loans acquired by the
Company in the future will be serviced by the Bank or an affiliate of the Bank.
Loans that are in Nonaccrual Status are generally loans that are past due 90
days or more in principal or interest and Classified loans are troubled loans
which are deemed substandard and the collectibility of which is doubtful.
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 shareholder's equity and
no indebtedness. Immediately after the issuance by the Company of the Series A
Preferred Shares to the public and the Common Shares to RPC Holding Co. 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
$____ in aggregate offering and organizational expenses) will have $200
million in Mortgage Assets, $100 million of stated capital attributable to the
Series A Preferred Shares, $100 million of stated capital attributable to the
Common Shares. See "Capitalization".
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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 Shares
and Preferred Shares, 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
shareholders 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 "Risk Factors--Tax Risks" and "Federal Income Tax
Considerations".
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RISK FACTORS
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
The Company and its parent, RPC Holding Co., are newly organized entities
with no operating history and no revenues to date.
DEPENDENCE UPON BANK AS ADVISOR AND SERVICER
The Company will be dependent for the selection, structuring and
monitoring of its Mortgage Assets on the diligence and skill of its officers
(all of whom are also officers of the Bank or its affiliates) and the officers
and employees of the Bank, as Advisor. See "Management". In addition, the
Company will be dependent upon the expertise of the Bank, as Servicer, for the
servicing of its Mortgage Loans. The Advisor may subcontract all or a portion of
its obligations under the Advisory Agreement, and the Servicer may subcontract
all or a portion of its obligations under the Servicing Agreement to one or more
affiliates, and under certain conditions to non-affiliates, involved in the
business of managing or servicing, as the case may be, Mortgage Assets. In the
event the Advisor or the Servicer subcontracts its obligations in such a manner,
the Company will be dependent upon the subcontractor to provide any such
services. See "Management--The Advisor" and "Business and Strategy--Servicing".
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 operations. The Bank is the sole holder of the common stock of RPC
Holding Co., which in turn is the sole holder of the Common Shares of the
Company. The Bank administers the day-to-day activities of the Company in its
role as Advisor under the Advisory Agreement. The Bank also services the
Company's Mortgage Loans in its role as Servicer under the Servicing Agreement.
In addition, other than the Independent Trustees, all of the officers and
trustees of the Company are also officers and trustees of the Bank or its
affiliates. As the indirect holder of all of the outstanding voting shares of
RPC Holding Co. and thus, the Company, the Bank will have the right to elect all
trustees of the Company, including the Independent Trustees.
The Bank and its affiliates may have interests that 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; servicing of Mortgage Loans, particularly with respect to Mortgage
Loans that become Classified or placed in Nonaccrual Status or which have been,
more than once during the preceding 12 months, more than 30 days past due in the
payment of principal and interest; and the modification of the Advisory
Agreement or the Servicing Agreement.
It is the intention of the Company and the Bank that any agreements and
transactions between the Company, on the one hand, and the Bank or its
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 or in connection with the servicing of such Mortgage Loans. The
requirement in the Articles Supplementary establishing the Series A Preferred
Shares that certain actions of the Company be approved by a majority of the
Independent Trustees as long as any Series A Preferred Shares remain outstanding
is also intended to ensure fair dealings between the Company and 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".
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BANK REGULATORY RESTRICTIONS ON OPERATIONS OF THE COMPANY
Because the Company is an indirect 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 orders that
could restrict the ability of the Company to transfer assets, to make
distributions to its shareholders (including dividends to the holders of Series
A Preferred Shares) or to redeem Preferred Shares. Such actions could
potentially result in the Company failing to qualify as a REIT. See "--Tax
Risks".
INTEREST RATE RISK
The Company's income will consist primarily of interest payments on the
Mortgage Loans held by it. The Company anticipates that a portion 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 shareholders. In such an interest rate
environment, the Company may experience an increase in prepayments in its
Residential Mortgage Loans and may find it more difficult to purchase additional
Mortgage Loans bearing rates sufficient to support payment of the dividends on
the Series A Preferred Shares. In addition, certain Residential Mortgage Loan
products which the Company may 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 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
GENERAL RISKS OF MORTGAGE LOANS
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 are placed on Nonaccrual Status, 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:
GEOGRAPHIC CONCENTRATION
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. Approximately ___% of the residential properties underlying the
Company's Residential Mortgage Loans included in the Initial Portfolio are
located in the Washington, D.C. metropolitan area and its surrounding
communities. 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 the region and the
ability of property owners in the region to make payments of principal and
interest on the underlying mortgages. The Company will not maintain any special
hazard insurance, such as hurricane and earthquake insurance, that could
mitigate any damages caused by natural disasters which may occur in the regions.
In the event of any such natural disaster, the Company's ability to pay
dividends on the Series A Preferred Shares could be adversely affected. 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.
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NO CREDIT ENHANCEMENT OR SPECIAL HAZARD INSURANCE
As described in "--Geographic Concentration" above, 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
hurricanes and earthquakes). 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, and (ii)
the amount owing on the Mortgage Loan.
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 and (ii) interest rate
levels and the availability of credit to refinance such loans at or prior to
maturity. 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.
DELAYS IN LIQUIDATING DEFAULTED MORTGAGE LOANS
Even assuming that the mortgaged properties underlying the Mortgage 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 Servicer 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
that could exceed the value of the real property. Although the Company intends
to exercise due diligence to discover potential environmental liabilities prior
to the
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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 that the Company has acquired in
foreclosure or otherwise, the Company may be required to remove those substances
and clean up the property. There can be no assurances that in such a case 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. 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 TRUSTEES
The Board of Trustees 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 revised or
changed from time to time at the discretion of the Board of Trustees (in certain
circumstances subject to the approval of a majority of the Independent Trustees
as long as any Series A Preferred Shares remain outstanding) without a vote of
the Company's shareholders, 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".
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 Sullivan & Cromwell, counsel to the Company, 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 Sullivan & Cromwell, 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.
The Company is relying on the opinion of Sullivan & Cromwell, 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 shareholders 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
shareholders 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
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determine that it is in the best interests of the Company and the holders of its
Common Shares and Preferred Shares to revoke the REIT election. As long as any
Preferred Shares are outstanding, any such determination by the Company may not
be made without the approval of a majority of the Independent Trustees. 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 SHAREHOLDER 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
shareholders 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". Upon the occurrence of a Tax Event, should the
Company not redeem the Series A Preferred Shares, the Company's ability to pay
dividends on the Series A Preferred Shares may be adversely affected.
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 Shares and Common Shares may not be incurred without the approval of a
majority of the Independent Trustees of the Company as long as any Series A
Preferred Shares remain outstanding). 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.
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 $200 million) 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 anticipated that third-party valuations will
not 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, RPC Holding Co., the Bank and RNC
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, RNC 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.
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NO PRIOR MARKET FOR SERIES A PREFERRED SHARES
Prior to the Offering, there has been no 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.
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THE COMPANY
The Company is a Maryland real estate investment trust formed on October
9, 1996, under Title 8 of the Corporations and Associations Article of the
Associated Code of Maryland (the "Maryland REIT Law") for the purpose of
acquiring, holding and managing Mortgage Assets that will generate net income
for distribution to shareholders. The Company anticipates that almost all of its
portfolio of Mortgage Assets will represent interests in residential mortgage
loans. The Company has been formed by RPC Holding Co., which itself has been
formed by the Bank, to provide the Bank and RNC with a means of raising capital
for bank regulatory purposes. The Series A Preferred Shares will be treated as
capital for both RNC and the Bank for regulatory purposes. The issuance of the
Series A Preferred Shares by the Company is a more cost-effective means of
raising capital for the Bank and RNC than if the Bank or RNC were to issue
preferred stock themselves, because of the Company's ability to deduct for
income tax purposes the dividends payable on the Series A Preferred Shares as a
result of the Company's qualification as a REIT. RPC Holding Co. is a holding
company with no active business and no employees currently.
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 shareholders and maintains its
qualification as a REIT.
All of the Common Shares of the Company are owned by RPC Holding Co. All
of the common stock of RPC Holding Co. is owned by the Bank, and all of the
common stock of the Bank is owned by RNC. RNC is a Washington, D.C. based bank
holding company organized under the laws of Delaware in 1980 and registered
under the Bank Holding Company Act of 1956, as amended. RNC has banking
subsidiaries in the Washington, D.C. metropolitan area, the United Kingdom and
France. The Bank is a national banking association founded in 1836 and
incorporated under the national banking laws of the United States in 1896. RNC
has indicated to the Company that, for so long as any Series A Preferred Shares
are outstanding, it intends to maintain direct or indirect ownership of at least
80% of the outstanding Common Shares of the Company.
A PURCHASE OF SERIES A PREFERRED SHARES IS A PURCHASE OF SECURITIES ISSUED
BY THE COMPANY AND IS NOT A PURCHASE OF SECURITIES ISSUED BY, OR OTHERWISE AN
INVESTMENT IN, THE BANK OR RNC. NO OBLIGATION OF THE COMPANY IS GUARANTEED BY
THE BANK OR RNC.
For a further description of the operations of the Company, see "Business
and Strategy", "Management", "Risk Factors" 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 $100,000,000 (assuming the Underwriters'
over-allotment option is not exercised). Simultaneously with the consummation of
the Offering, RPC Holding Co. will purchase Common Shares for a price of
$100,000,000. The Bank will purchase common stock of RPC Holding Co. for a price
of $100,000,000. The Company will use the aggregate proceeds of $200,000,000
received in connection with both the Offering and the sale of Common Shares to
RPC Holding Co. 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, RPC Holding Co. will
purchase additional Common Shares for a price equal to the aggregate initial
public offering price of such additional Series A Preferred Shares. The Bank
will make an additional purchase of common stock of RPC Holding Co. equal to the
additional purchase by RPC Holding Co. of the Common Shares. The Company will
use the additional proceeds from any such additional sales of Series A Preferred
Shares and Common Shares 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 Residential Mortgage
Loans within six months from the exercise by the Underwriters of their
over-allotment option. Pending such purchase,
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the Company will invest such additional proceeds in Mortgage-Backed Securities
or short-term money market investments.
Simultaneously with the consummation of the Offering, RPC Holding Co. will
also purchase additional Common Shares 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 and the offering of the Series A Preferred Shares (currently
estimated by the Company to be approximately $___ million in the aggregate) in
order to provide the Company with funds sufficient to pay such 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, RPC Holding Co. will also purchase additional Common
Shares for a price equal to the aggregate amount of underwriting discounts and
expenses incurred by the Company in connection with the exercise of such
over-allotment option in order to provide the Company with funds sufficient to
pay such expenses. The Bank will make an additional purchase of common stock in
RPC Holding Co. equal to the additional purchases of the Company's Common Shares
by RPC Holding Co.
Neither the Bank nor any of its affiliates will receive any transaction
fees upon completion of the Offering, including any advance payment in respect
of servicing or advisory fees.
The following table illustrates the use of proceeds by the Company from
the sale of the Series A Preferred Shares offered hereby (assuming the
Underwriters' over-allotment option is not exercised) and the sale of Common
Shares to RPC Holding Co. described above.
Gross proceeds from the offering of
Series A Preferred Shares.............................. $ 100,000,000
Gross proceeds from the issuance of Common Shares to
RPC Holding Co. ....................................... $ ___________1
Public Offering Expenses:
Underwriting discounts.............................
Other expenses of the formation and Offering....... 1
Net proceeds to be applied to the purchase of Mortgage
Assets to be acquired from the Bank................ $ ===========
1 Assumes that expenses incurred by the Company in connection with its
formation and the Offering of the Series A Preferred Shares, other than
underwriting discounts, are $ . If such expenses are in excess of $ , RPC
Holding Co. will purchase additional Common Shares for a purchase price
equal to such excess, and in turn the Bank will purchase additional common
stock of RPC Holding Co. equal to the Common Shares purchased by RPC
Holding Co.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
_______, 1996 (the date of the most recent audited financial statement of the
Company) 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".
______ 1996
----------------------------
ACTUAL AS ADJUSTED
---------- --------------
(IN THOUSANDS)
DEBT
Total long-term debt......................... $ -- $ --
SHAREHOLDERS' EQUITY
Preferred Shares, par value $25.00 per share; --
none authorized, none issued and outstanding,
actual; and __,000,000 shares authorized,
__,000,000 shares issued and outstanding, as
adjusted..................................... --
Common Shares, par value $1.00 per share(1);
1,000 shares authorized, 1,000 shares issued and
outstanding, actual; and _,000,000 shares
authorized, ______ shares issued and
outstanding, as adjusted.....................
Additional paid-in capital................... _______ _______
Total shareholders' equity......... $_______ $_______
TOTAL CAPITALIZATION......................... $_______ $_______
- ---------------
(1) The Company was formed with an initial capitalization of $1,000. Prior to
consummation of the Offering, the Declaration of Trust of the Company will
be amended to increase the authorized shares of beneficial interest of the
Company and to increase the par value of the Common Shares to $______ per
share. Since the par value per share of the Preferred Shares equals the
issue price of a Series A Preferred Share, the full $100 million raised in
the Offering will represent Preferred Share capital. The par value of the
Common Shares will equal ___% of its purchase price of $____ per share
and, accordingly, RPC Holding Co. will be acquiring _____ shares of Common
Shares upon the consummation of the Offering for an aggregate purchase
price of $___ million (such number of shares of Common Shares includes
Common Shares acquired by RPC Holding Co. in order to provide sufficient
funds to pay aggregate offering and organization expenses, currently
estimated by the Company to be approximately $___ million). As a result of
these issuances of Common Shares, the Common Share amount, upon
consummation of the Offering, will equal $ million.
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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 shareholders.
The Company will acquire the Initial Portfolio of Mortgage Loans from the Bank
for an aggregate purchase price of approximately $200,000,000. 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".
DIVIDENDS
The Company currently expects to pay an aggregate amount of dividends with
respect to its outstanding capital shares 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 shareholders. The Company
anticipates that none of the dividends on the Series A Preferred Shares and none
or no material portion of the dividends on the Common Shares will constitute
non-taxable returns of capital.
Dividends will be authorized and declared at the discretion of the Board
of Trustees after considering the Company's distributable funds, financial
requirements, tax considerations and other factors. Because (i) the Mortgage
Assets are interest bearing, (ii) the Series A Preferred Shares represent only
approximately 50% of the Company's capitalization and (iii) the Company does not
anticipate incurring any indebtedness, the Company currently expects that both
its cash available for distribution and its "REIT taxable income" will be in
excess of amounts needed to pay accrued dividends on the Series A Preferred
Shares, even in the event of a significant drop in interest rate levels.
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 Shares. Assuming (i) the Mortgage Loans included
in the Initial Portfolio are held for the 12-month period following completion
of the Offering, (ii) principal repayments are reinvested in additional Mortgage
Loans with characteristics similar to those of the Mortgage Loans included in
the Initial Portfolio and (iii) interest rates remain constant during such
12-month period, the Company anticipates that the Initial Portfolio will
generate interest income of approximately $__ million, after payment of
servicing and advisory fees, during such 12-month period. Since the aggregate
annual dividend payment on the Series A Preferred Shares is $__ million based on
the foregoing, the Company anticipates that $ __ million would be available for
payment of dividends on the Common Shares held by RPC Holding Co. during such
12-month period.
There are several limitations which restrict the Company's ability to pay
dividends on the Common Shares (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 anticipated dividend policy, the Company may not make any
distribution in respect of the Common Shares 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 Shares
and Common Shares 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 Shares may not be modified without the
approval of a majority of the Independent Trustees as long as any Series A
Preferred Shares remain outstanding. Second, no cash or property dividends may
be paid on the Common Shares unless all declared and unpaid dividends on the
Series A Preferred Shares and on all other shares of the Company ranking
senior to the Common Shares, have been paid.
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
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have the authority to issue an order that restricts the ability of the Company
to make dividend payments to its shareholders.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity need will be to fund the acquisition of
additional Mortgage Loans as Mortgage Loans held by the Company are repaid. The
acquisition of such additional Mortgage Loans will be funded with the proceeds
of principal repayments on its portfolio of Mortgage Loans. The Company does not
anticipate that it will have any other material capital expenditures. The
Company believes that cash generated from the payment of interest and principal
on its Mortgage Loan portfolio will provide sufficient funds to meet both
operating requirements and payment of dividends by the Company in accordance
with the REIT Provisions for the foreseeable future.
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 (including ___
of those included in the Initial Portfolio) will be nonconforming. Conforming
Residential Mortgage Loans comply with the requirements for inclusion in a loan
guarantee program sponsored by the Federal National Mortgage Association
("FNMA"). Under current regulations, the maximum principal balance allowed on
conforming Residential Mortgage Loans is $207,000 for one-unit residential loans
($310,500 for such residential loans secured by mortgaged properties located in
either Alaska or Hawaii). Nonconforming Residential Mortgage Loans are
Residential Mortgage Loans that do not qualify in one or more respects for
purchase by FNMA. The Company expects that a majority of the nonconforming
Residential Mortgage Loans it purchases (including ___ of those included in the
Initial Portfolio) will be nonconforming because they have original principal
balances that exceed the requirements for 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. Of the
types of Residential Mortgage Loans included in the Initial Portfolio (see
"--Description of Initial Portfolio"; "--Description of Types of Residential
Mortgage Loans"), the only Residential Mortgage Loans that bear interest on a
basis consistent with such standard requirements are the One-Year Adjustable
Rate Mortgages (as defined herein), and the 30-year fixed rate loans. 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. Residential real estate properties underlying Residential Mortgage
Loans consist of individual dwelling units, individual condominium units,
planned unit developments and townhouses. The Company currently expects that
most of the Residential Mortgage Loans to be acquired by it will be comprised of
both adjustable and fixed rate loans.
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. It is not currently anticipated that the
Company will hold a significant amount of Mortgage-Backed Securities. The
Company intends to acquire Mortgage-Backed Securities only in connection with
the temporary investment of funds prior to the distribution of dividends and the
acquisition of additional Mortgage Loans. The Company intends to acquire
Mortgage-Backed Securities only if they are investment grade. The Company does
not intend to acquire any interest-only, principal-only or high-risk
Mortgage-Backed Securities. The Company will not be precluded from investing in
Mortgage-Backed Securities where the Bank or one of its affiliates is the
sponsor or issuer.
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ACQUISITION OF INITIAL PORTFOLIO
Simultaneously with the consummation of the Offering, the Company will
acquire the Initial Portfolio pursuant to the terms of a residential mortgage
loan purchase and warranty agreement with the Bank, dated as of , 1996 (the
"Residential Mortgage Purchase Agreement") to be entered into simultaneously
with the consummation of the Offering. The Residential Mortgage Loans in the
Initial Portfolio will be assigned to the Company pursuant to the Residential
Mortgage Purchase Agreement. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Mortgage Purchase Agreement (the "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, the maturity
date, the mortgagor, the type of 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.
Although the Company will have the right to record the assignments of the
mortgages at any time, it does not currently anticipate doing so. The Company
believes that maintaining record title of the Mortgage Loans in the name of the
Servicer will facilitate the servicing of the Mortgage Loans. Once the
assignments of the mortgages are recorded, the Company's lien on the mortgaged
properties will date back to the date of the original mortgages and rank ahead
of any intervening mortgages granted by the borrowers. However, if the Bank, in
violation of the Advisory Agreement and the Servicing Agreement, sells any of
the Company's Mortgage Loans to a third party who records its assignment of the
mortgages before the Company records its assignment of the mortgages with
respect to such Mortgage Loans, the Company may lose its ownership interest in
such Mortgage Loans. See "--Servicing" and "--Description of Initial
Portfolio--General".
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,
unless the Bank elects to substitute a qualified Mortgage Loan for such Mortgage
Loan. The Bank will also indemnify the Company for damages or costs resulting
from any such breach. In addition, under the terms of the Mortgage Purchase
Agreement, the Company will acquire, in addition to the Mortgage Loans included
in the Initial Portfolio, (i) all amounts, including payments of principal and
interest (other than payments of principal and interest due on or before _____,
1996), held in one or more accounts maintained for the benefit of or in the name
of the Company pursuant to the Servicing Agreement (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 Trustees, however, anticipates that it will
adopt 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 Trustees (in certain circumstances subject to the
approval of a majority of the Independent Trustees as long as any Series A
Preferred Shares remain outstanding) without a vote of the Company's
shareholders, including holders of the Series A Preferred Shares. See also
"--Dividends".
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
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 Common
Shares and Preferred
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Shares. The Company anticipates that additional Mortgage Loans purchased from
the Bank or its affiliates will be purchased on terms that are substantially
similar to those that could be obtained by the Company if such additional
Mortgage Loans were purchased from third parties unaffiliated with the Company.
No arrangements or procedures are currently in place regarding the purchase of
additional Mortgage Loans from unaffiliated third parties. 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 additional
Mortgage Loans. The Company anticipates that any servicing arrangement that it
enters into in the future with the Bank will contain fees and other terms that
would be substantially similar to those that would be contained in servicing
arrangements entered into with third parties unaffiliated with the Company.
The Company currently intends to maintain a majority of its portfolio of
Mortgage Assets in Residential Mortgage Loans. In addition, the Company
anticipates that it will adopt a policy that 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 for more than 30 days in the payment of principal or
interest at the time of the 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.
The Company may choose, at any time subsequent to its acquisition of any
Mortgage Loan, at any time during the servicing process, to require the Servicer
of the Mortgage Loan to dispose of any Mortgage Loan which becomes nonaccruing
or classified or which has been, more than once during the preceding 12 months,
more than 30 days past due in the payment of principal or interest. The Bank has
indicated to the Company that it will not purchase any Mortgage Loan of the
Company that the Company chooses to dispose of for the foregoing reasons;
accordingly, the Company currently anticipates that any such Mortgage Loan would
be sold at its then current fair value by the Company only to a non-bank
subsidiary of the Bank or an unrelated third party.
CAPITAL AND LEVERAGE POLICIES
To the extent that the Board of Trustees 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 at least 95% of
its "REIT 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, that the
Company might incur. Notwithstanding the foregoing, the Company may not, without
the approval of a majority of the Independent Trustees, 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
Shares and Common Shares of the Company as long as any Series A Preferred Shares
remain outstanding. Any such debt incurred may include intercompany advances
made by the Bank to the Company.
The Company may also issue additional series of Preferred Shares. However,
the Articles Supplementary provide that the Company may not issue additional
shares of Preferred Shares senior to the Series A Preferred Shares without the
consent of holders of at least 66 2/3% of the outstanding shares of Preferred
Shares at that time, including the Series A Preferred Shares, and the Company
may not issue additional shares of Preferred Shares on a parity with the Series
A Preferred Shares without
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<PAGE>
the approval of a majority of the Company's Independent Trustees as long as any
Series A Preferred Shares remain outstanding. The Company does not currently
intend to issue any additional series of Preferred Shares unless it
simultaneously issues additional Common Shares to RPC Holding Co. and the
proceeds to be received from the issuance of the Common Shares are approximately
equal to the aggregate offering price of such additional Preferred Shares plus
the Company's expenses (including underwriting discounts or placement fees) in
connection with the issuance of such additional Preferred Shares. It is
currently anticipated that any determination by the Company to issue additional
Preferred Shares will take into account the Bank's and RNC's regulatory capital
requirements and the cost of raising and maintaining such capital at the time.
It is currently anticipated that the Company will issue additional Preferred
Shares if such issuance would provide the Bank and RNC with the most
cost-effective means of raising capital for bank regulatory purposes at the
time. See "Certain Transactions Constituting the Formation--Benefits to the Bank
and its Affiliates".
CREDIT RISK MANAGEMENT POLICIES
The Company expects that each Mortgage Loan acquired from the Bank or one
of its affiliates in the future will be a whole loan, 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 that originated the Mortgage Loan. See
"--Description of Initial Portfolio--Underwriting Standards". The Company also
expects that all Mortgage Loans held by the Company will be serviced pursuant to
the Servicing Agreement, which requires servicing in conformity with accepted
secondary market standards, with any servicing guidelines promulgated by the
Company and in conformity with FNMA guidelines and procedures. The Company may
also choose, at any time subsequent to its acquisition of any Mortgage for any
reason, including as a result of such Mortgage Loan becoming Classified or being
placed in Nonaccrual Status or having to require the Servicer of such Mortgage
Loans to dispose of any Mortgage Loan that becomes nonaccruing or classified or
which has been, more than once during the preceding 12 months, more than 30 days
past due in the payment of principal and interest.
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
certain transactions, including, without limitation, the Company's acquisition
of Mortgage Loans from, or disposition of Mortgage Loans to, the Bank or its
affiliates, foreclosure on defaulted Mortgage Loans and the modification of the
Advisory Agreement or the Servicing Agreement. It is the Company's policy that
the terms of any financial dealings with the Bank and its affiliates will be
consistent with those available from third parties in the mortgage lending
industry. 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 a
mortgagor under a Mortgage Loan. 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 and the Bank that any agreements and transactions
between the Company, on the one hand, and the Bank or its affiliates, on the
other hand, including without limitation the Mortgage Purchase Agreement and the
Servicing Agreement, are fair to all parties and are consistent with market
terms for such types of transactions. The Servicing Agreement provides that (i)
foreclosures and dispositions of the Mortgage Loans are performed with a view to
maximizing the recovery by the Company as owner of the Mortgage Loans and (ii)
the Servicer shall service the Mortgage Loans solely with a view toward the
interests of the Company, and without regard to the interests of the Bank or its
affiliates. The requirement in the Articles Supplementary establishing the
Series A Preferred Shares that certain actions of the Company be approved by a
majority of the Independent Trustees as long as any Series A Preferred Shares
remain outstanding is also intended to ensure fair dealings between the Company
and the Bank and its 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 organizational documents limiting
any officer, trustee, 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
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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 trustees 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, trustees or other affiliates of the Company. The Company may, under
certain circumstances, purchase the Series A Preferred Shares and other of its
capital shares in the open market or otherwise, provided, however, that the
Company will not redeem or repurchase any of its Common Shares for so long as
any Series A Preferred Shares are outstanding without the approval of a majority
of the Independent Trustees. The Company has no present intention of causing the
Company to repurchase any of its shares, and any such action would be taken only
in conformity with applicable federal and state laws and regulations and the
requirements for qualifying as a REIT.
The Company intends to publish and distribute to shareholders, in
accordance with NYSE rules, annual reports containing financial statements
prepared in accordance with generally accepted accounting principles and
certified by the Company's independent public accountants. The Articles
Supplementary establishing the Series A Preferred Shares provides that the
Company shall maintain its status as a reporting company under the Securities
Exchange Act of 1934 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 REIT Provisions of
the Code to qualify as a REIT. However, future economic, market, legal, tax or
other considerations may cause the Board of Trustees, subject to approval by a
majority of Independent Trustees as long as any Series A Preferred Shares remain
outstanding, to determine that it is in the best interests of the Company and
its shareholders to revoke its REIT status.
DESCRIPTION OF INITIAL PORTFOLIO
Information with respect to the Mortgage Loans in the Initial Portfolio is
presented as of __________, 1996. The composition of the Initial Portfolio
actually purchased by the Company contemporaneously with the consummation of the
Offering will differ from the Initial Portfolio as described in this Prospectus
only to the extent it is discovered prior to the consummation of the Offering
that a Mortgage Loan included in the Initial Portfolio described herein (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. In such event a Mortgage Loan similar in
aggregate outstanding principal balance and product type will be substituted for
such non-purchased Mortgage Loan.
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 and the Company's portfolio
of Mortgage Assets in the future may or may not have the characteristics
described below.
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GENERAL
The Initial Portfolio contains ____[#] Residential Mortgage Loans,
representing all 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 the Bank or one of its affiliates, one of
its predecessors in interest, or a small, select group of correspondent lenders
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 to supervision and examination by federal and state
authorities and then sold to the Bank or one of its affiliates. All of the
Residential Mortgage Loans included in the Initial Portfolio were originated
generally in accordance with the underwriting standards customarily employed by
the Bank or its affiliates at the time at which such Mortgage Loans were
originated.
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, or 30, years. Approximately __% of the Residential
Mortgage Loans in the Initial Portfolio have original principal balances in
excess of $207,000. The average outstanding principal balance of a Residential
Mortgage Loan is $____. Approximately ____% of the Residential Mortgage Loans
included in the Initial Portfolio were originated by the Bank or one of its
affiliates and approximately ____% were purchased by the Bank or one of its
affiliates. 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. The weighted average Loan-to-Value
Ratio (defined below) of the Residential Mortgage Loans included in the Initial
Portfolio is _____%; however, _____% of the Residential Mortgage Loans have
Loan-to-Value Ratios of greater than _____%. Of the Residential Mortgage Loans
with Loan-to-Value Ratios of greater than _____%, approximately _____% were
originated in 1996 and approximately _____% were originated in 1995.
"Loan-to-Value Ratio" means the ratio (expressed as a percentage) of the
original principal amount of such Mortgage Loan to the lesser of either (i) the
appraised value at origination of the underlying mortgaged property or (ii) if
the Mortgage Loan was made to finance the acquisition of property, the purchase
price of the mortgaged property.
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. Certain mortgages included in
the Initial Portfolio contain "due-on-sale" provisions, which prevent the
assumption of the mortgages by a proposed transferee and accelerate the payment
of the outstanding principal balance of the Mortgage Loans. "Due-on-sale"
provisions in mortgages with respect to adjustable rate Mortgage Loans may be
applicable in the period prior to the first Rate Adjustment Date (as defined
herein). All fixed rate Residential Mortgage Loans included in the Initial
Portfolio have mortgages which contain "due-on-sale" provisions.
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 following types of Residential Mortgage Loan products, each of which
is more fully described below will be included in the Initial Portfolio:
One-Year adjustable rate mortgage ("ARM"),
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<PAGE>
3/1 ARM, 3/3 ARM, 7/1 ARM, 15-year fixed rate Residential Mortgage Loan, 20-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:
TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>
PERCENTAGE
OF INITIAL
AGGREGATE PORTFOLIO BY WEIGHTED WEIGHTED AVERAGE
NUMBER OF PRINCIPAL AGGREGATE AVERAGE EXPECTED MONTHS
MORTGAGE BALANCE PRINCIPAL INITIAL LOAN-TO- REMAINING TO
TYPE LOANS (IN THOUSANDS) BALANCE VALUE RATIO MATURITY
- ---- --------- -------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
One-Year ARM........................... $ ____% _____%
3/1 ARM................................
3/3 ARM................................
7/1 ARM................................
15-Year Fixed Rate.....................
20-Year Fixed Rate.....................
30-Year Fixed Rate.....................
Total................... $ . % . % .
======== ===== ===== ====
</TABLE>
Of the Residential Mortgage Loans included in the Initial Portfolio,
_____% bear interest at fixed rates. The interest rates of the fixed rate
Residential Mortgage Loans range from _____% per annum to _____% per annum. The
weighted average interest rate of the fixed rate Residential Mortgage Loans is
approximately _____% per annum. The following table contains certain additional
data with respect to the interest rates of the fixed rate Residential Mortgage
Loans Portfolio:
INTEREST RATE OF FIXED RATE RESIDENTIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE INITIAL PORTFOLIO BY
NUMBER OF PRINCIPAL BALANCE AGGREGATE PRINCIPAL
INTEREST RATE MORTGAGE LOANS (IN THOUSANDS) BALANCE
- ------------------------------------ ------------------ --------------------- ---------------------
<S> <C> <C> <C>
7.00% to 7.499% $ . %
7.50% to 7.999% .
8.00% to 8.499% .
8.50% to 8.999% .
Total ............... $ . %
======= ======= ======
</TABLE>
Of the Residential Mortgage Loans included in the Initial Portfolio,
_____% bear interest at adjustable rates. The interest rate on an ARM is
typically tied to an index (such as the weekly average yield on United States
Treasury securities) and is adjustable periodically. ARMs are typically subject
to limitations on lifetime interest rates as well as periodic interest rate
adjustments. The current interest rates of the Residential Mortgage Loans
included that are ARMs ranged from _____% per annum to _____% per annum as of
_____, 1996. The weighted-average current interest rate of the Residential
Mortgage Loans in the Initial Portfolio that are ARMs as of _____, 1996 was
approximately _____% per
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<PAGE>
annum. The following table contains certain additional data as of _____, 1996
with respect to the interest rates of the Residential Mortgage Loans included
in the Initial Portfolio that are ARMs:
CURRENT INTEREST RATE OF ADJUSTABLE RATE RESIDENTIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE INITIAL PORTFOLIO BY
NUMBER OF PRINCIPAL BALANCE AGGREGATE 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 as of _____, 1996
with respect to the Gross Margins of the Residential Mortgage Loans included in
the Initial Portfolio that are ARMs:
GROSS MARGIN
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE INITIAL PORTFOLIO BY
NUMBER OF PRINCIPAL BALANCE AGGREGATE PRINCIPAL
GROSS MARGIN MORTGAGE LOANS (IN THOUSANDS) BALANCE
- ------------------------------------ ------------------ --------------------- ---------------------
<S> <C> <C> <C>
.25% to 0.999% $ . %
1.0% to 1.999% .
2.0% to 2.999% .
------ ------- ------
Total..................... $ . %
====== ======= ======
</TABLE>
DESCRIPTION OF TYPES OF RESIDENTIAL MORTGAGE LOANS
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 interest rate increases or decreases, each as specified in the
mortgage 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 most of the adjustable rate Mortgage Loans included in
the Initial Portfolio 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. All of the Mortgage Loans included in the Initial
Portfolio allow the mortgagor to prepay at any time some or all of the
outstanding principal balance of the Mortgage Loan without fee or penalty.
29
<PAGE>
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 ____%, a lifetime interest rate cap equal to the initial interest
rate with respect to such Residential Mortgage Loan plus __% or __% 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 ____%; however, certain mortgage notes provide for the
sum to be rounded upwards to the nearest ____%. 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.
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 was a One-Year ARM with a lifetime interest rate cap equal to the
initial interest rate with respect to such Residential Mortgage Loan plus __% or
__%, provided that, with respect to certain 3/1 ARMs, on the first Rate
Adjustment Date the interest rate may be increased by __% or __%.
Three-Year ARM. The interest rate with respect to each Three-Year ARM is
fixed at an initial rate for the first 36 monthly payments and adjusts each
three year period 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 _____%, a lifetime interest rate cap equal
to the initial interest rate with respect to such Residential Mortgage Loan plus
__% or __% 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 ___%; however, certain mortgage notes
provide for the sum to be rounded upwards to the nearest ___%. The "Treasury
Index" with respect to each Three-Year ARM is the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of three years 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.
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 was a One-Year ARM with a lifetime interest rate cap equal to the
initial interest rate with respect to such Residential Mortgage Loan plus __% or
__%, provided that, with respect to certain 7/1 ARMs, on the first Rate
Adjustment Date the interest rate may be increased by __% or __%. There is no
option to convert a 7/1 ARM back to a fixed rate loan after the first Rate
Adjustment Date.
Fixed Rate Loans. The fixed rate Residential Mortgage Loans which are
included in the Initial Portfolio or may be purchased by the Company will
generally have original terms to stated maturity of 15, 20 or 30 years. The
interest rates of these Residential Mortgage loans are fixed prior to
origination. The monthly principal and interest payment is calculated to fully
amortize the initial outstanding principal balance of such Residential Mortgage
Loan to its stated maturity.
UNDERWRITING STANDARDS
The Bank has represented to the Company that all of the Residential
Mortgage Loans included in the Initial Portfolio were originated generally in
accordance with the underwriting policy customarily
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<PAGE>
employed by the Bank or one of its predecessors in interest at the time at
which the Mortgage Loans in the Initial Portfolio were originated.
The underwriting standards applied at origination of the Mortgage Loans
were intended to evaluate the borrower's credit standing and repayment ability,
and the value and adequacy of the underlying mortgaged property as collateral.
Initially, each prospective borrower was required to provide a current balance
sheet describing assets and liabilities and a statement of income and expenses,
as well as, to the extent required by applicable state law, an authorization to
apply for a credit report which summarized the borrower's credit history with
merchants and lenders and any record of bankruptcy. While a credit report was
always required for a prospective borrower, the extent of the report and other
documentation requested varied among different origination programs.
For any prospective borrower, an employment verification was obtained from
the borrower's employer wherein the employer reported the length of employment
with the employer, the employee's current salary, the borrower submitted such
other evidence of employment (such as pay stubs) satisfactory to the Bank (or
its predecessor). For a self-employed prospective borrower, the borrower was
generally required to submit copies of personal and business federal income tax
returns for the previous two years. For any prospective borrower, the borrower
authorized verification of all deposits at all financial institutions at which
the borrower had demand or savings accounts.
Once the credit report and the employment and deposit verifications were
received by the underwriting officer considering the loan application, a
determination was made as to whether the prospective borrower had sufficient
monthly income available (i) to meet the borrower's monthly obligations on the
proposed Mortgage Loan (determined on the basis of the monthly payments due in
the year of origination) and other expenses related to the home (such as
property taxes and hazard insurance) and (ii) to meet other financial
obligations and monthly living expenses. In all instances, the Bank's and its
predecessors' underwriting policies (including those applied in originating the
Mortgage Loans in the Initial Portfolio) may be varied in cases deemed
appropriate by its underwriting officers.
In determining the adequacy of the property as collateral, an independent
appraisal was made of each property considered for financing. Each appraiser was
selected in accordance with predetermined guidelines established for appraisers.
The appraiser was required to inspect the property and verify that it was in
good condition and that construction, if new, had been completed. If the
appraiser reported any exceptions to the verification, the Bank (or its
predecessor) or its agent determined that such property had been substantially
completed to its satisfaction. The appraisal was based on the appraiser's
judgment of value giving appropriate weight to both the market value of
comparable properties and the cost of replacing the property and other factors
as appropriate. The Bank's or its predecessors' underwriting standards also
required a search of the public records relating to a mortgaged property for
liens and judgments against such mortgaged property, as well as customary title
insurance, except that title insurance was not required in connection with co-op
loans. In connection with co-op loans, a recognition agreement in customary form
was generally required from the related cooperative corporation.
GEOGRAPHIC DISTRIBUTION
Approximately ___% of the residential real estate properties underlying
the Company's Residential Mortgage Loans included in the Initial Portfolio are
located in the Washington, D.C. metropolitan area and its surrounding
communities. 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 in the Washington,
D.C. metropolitan area that may affect the ability of residential property
owners in the Washington, D.C. metropolitan area to make payments of principal
and interest on the underlying mortgages. Standard hazard insurance required to
be maintained with respect to Residential Mortgage Loans held by the Company
does not protect the Company against losses occurring from natural disasters.
Consequently, in the event of a hurricane, an earthquake or other natural
disaster, the Company's ability to pay dividends on the Series A Preferred
Shares could be adversely affected as the Company will not maintain special
hazard insurance to protect against such losses.
31
<PAGE>
LOAN-TO-VALUE RATIOS; INSURANCE
All of the Residential Mortgage Loans having Loan-to-Value Ratios of
greater than ___%, and approximately ___% of the Residential Mortgage Loans
having Loan-to-Value Ratios of greater than ___% but less than ___%, are insured
under primary mortgage guaranty 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. 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
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. The Company will not maintain any
special hazard insurance policy with respect to any Residential Mortgage Loan
which could mitigate damages caused by any hurricane, earthquake or other
natural disaster. In addition, the standard hazard insurance required to be
maintained with respect to Residential Mortgage Loans does not protect the
Company against losses occurring from natural disasters. In the event of any
such natural disaster, the Company's ability to pay dividends on the Series A
Preferred Shares could be adversely affected.
SERVICING
The Mortgage Loans included in the Initial Portfolio will be sold to the
Company by the Bank on a servicing retained basis. The Bank will service the
Mortgage Loans included in the Initial Portfolio pursuant to the terms of the
Servicing Agreement. The Bank in its role as servicer under the terms of the
Servicing Agreement is herein referred to as the "Servicer". The Servicer will
receive an annual servicing fee with respect to each Mortgage Loan held by the
Company which shall for a period of one full month equal a one-twelfth of 3/8%
multiplied by the outstanding principal balance of such Mortgage Loan (a) if
such mortgage loan is an ARM; or (b) one-twelfth of 1/4% multiplied by the
outstanding principal balance of such Mortgage Loan if such Mortgage Loan is a
fixed rate Mortgage Loan.
The 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 FNMA
guidelines and procedures. The Servicing Agreement requires the Servicer to
service the Mortgage Loans solely with a view toward the interests of the
Company, and without regard to the interests of the Bank or its affiliates. The
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. The
Servicer will also provide accounting and reporting services required by the
Company for such Mortgage Loans. Each Servicing Agreement requires the Servicer
to follow such collection procedures as are customary in the industry, including
contacting delinquent borrowers and supervising foreclosures and property
dispositions in the event of unremedied defaults in accordance with servicing
guidelines promulgated by the Company. The Servicer may, in its discretion,
arrange with a defaulting borrower a schedule for the liquidation of
delinquencies, provided that no primary mortgage insurance coverage is adversely
affected. The Servicer may also be directed by the Company, at any time during
the servicing process, to dispose of any Mortgage Loan which becomes Classified,
placed in Nonaccrual Status or which has been, more than once during the
preceding 12 months, more than 30 days past due in the payment of principal and
interest.
The Servicer may from time to time subcontract all or a portion of its
servicing obligations under the Servicing Agreement to one or more of its
affiliates. If none of its affiliates is engaged in the business of servicing
Mortgage Loans, the Servicer may subcontract all or a portion of its obligations
under the Servicing Agreement to an unrelated third party subject to approval of
a majority of the Independent Trustees as long as any Series A Preferred Shares
remain outstanding. The Servicer will not, in connection with subcontracting any
of its obligations under the Servicing Agreement, be
32
<PAGE>
discharged or relieved in any respect from its obligation to the Company to
perform its obligations under the Servicing Agreement.
The Servicing Agreement requires the Servicer to pay all expenses related
to the performance of its duties under such Servicing Agreement. In addition,
the Servicer will be required to make advances of principal and interest and
certain taxes and required insurance premiums that are due from mortgagors,
unless (with respect to advances of principal and interest) it determines that
such advances are nonrecoverable. If such advances are made, the Servicer
generally will be reimbursed out of proceeds related to such Mortgage Loan prior
to the Company. The 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 the Servicer's expenses in the sale, are less than the
outstanding principal balance of the related Mortgage Loan. The Servicer will be
responsible to the Company for any loss suffered as a result of its failure to
make and pursue timely claims or as a result of actions taken or omissions made
by it which cause the policies to be cancelled by the insurer.
In connection with any foreclosure proceedings that the Servicer may
institute, the Servicer may 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 the relevant Servicing Agreement.
The Company may terminate the Servicing Agreement 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 the 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 equal to 2% of the aggregate
outstanding principal amount of the loans then serviced under the Servicing
Agreement. As long as any Series A Preferred Shares remain outstanding, the
Company may not terminate, or elect not to renew, the Servicing Agreement
without the approval of a majority of the Independent Trustees.
As is customary in the mortgage loan servicing industry, the 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.
In addition, the 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. The
Servicing Agreement requires the Servicer 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 on the first day of such month (unless deemed
nonrecoverable by the Servicer).
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 Mortgage Loan or applicable
law, however, may provide that the exercise of the "due-on-sale" clause is
prohibited 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.
As a result of the relationship between the Servicer and the Company,
certain conflicts of interest may arise. See "Risk Factors--Relationship with
the Bank and Its Affiliates; Conflicts of Interest".
33
<PAGE>
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 RNC, 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 trustees 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 anticipates that it will not 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
Neither the Company nor RPC Holding Co. is the subject of any material
litigation. The Company, RPC Holding Co., the Advisor, the Bank or any of its
affiliates are not 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.
34
<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Company's Board of Trustees is composed of seven members, two of whom
are Independent Trustees. These Trustees will serve until the first annual
meeting of shareholders and until their successors are duly elected and
qualify. There is no current intention to alter the number of trustees
comprising the Board of Trustees. Pursuant to the Articles Supplementary
establishing the Series A Preferred Shares, the Independent Trustees are
required to take into account the interests of the holders of both the Series A
Preferred Shares and the Common Shares in assessing the benefit to the Company
of any proposed action requiring their consent. In considering the interests of
the holders of the Series A Preferred Shares, the Independent Trustees shall owe
the same duties which the Independent Trustees owe to holders of Common Shares.
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 trustees and executive officers of the
Company are as follows:
NAME AGE POSITION AND OFFICES HELD
Joseph W. Barr............................ 47 President and Trustee
Timothy C. Coughlin....................... 55 Trustee
John L. Davis............................. 55 Chief Financial Officer and
Treasurer
Timothy A. Lex............................ 38 Chairman of the Board
Linda A. Madrid........................... 37 Secretary
F. Anderson Morse......................... 39 Trustee
David W. Scott............................ 34 Trustee
Robert L. Sloan........................... 50 Trustee
William B. Snyder......................... 67 Trustee
The following is a summary of the experience of the executive officers and
trustees of the Company:
JOSEPH W. BARR has served as an Executive Vice President of the Bank in
charge of Community Banking since July 1993. He served as Executive Vice
President in charge of Retail Banking at First American Metro Corp. from 1992 to
June 1993 and as Executive Vice President in charge of Community Banking at
Perpetual Savings Bank, F.S.B. from 1989 to 1992.
TIMOTHY C. COUGHLIN has served as President of RNC since 1992. He served
as President and Chief Operating Officer of the Bank from 1983 to 1992. He has
been a Director of RNC since 1988 and a Director of the Bank since 1983.
JOHN L. DAVIS has served as Chief Financial Officer of RNC and Executive
Vice President and Chief Financial Officer of the Bank since June 1993. Mr.
Davis served as Senior Vice President and Controller of First Florida Bank, N.A.
from 1990-1992 and as Senior Vice President and Chief Financial Officer of First
Union National Bank of Georgia from 1987 to 1990.
TIMOTHY A. LEX, Executive Vice President of the Bank, was recently
appointed Chief Operating Officer of the Bank, in charge of Relationship,
Community, International and Embassy Banking as well as the Bank's Information
Technology and Human Resources operating areas. Mr. Lex has served in various
management positions during the past 12 years, including such positions as
Managing Director of Riggs AP Bank and President and Chief Executive Officer of
the Riggs National Bank of Virginia.
LINDA A. MADRID, Senior Vice President of the Bank, was recently appointed
Managing Director of Legal Affairs and Corporate Secretary of RNC and the Bank.
Ms. Madrid had served as Litigation Manager for the Bank since September 1993.
Ms. Madrid has practiced law both in private practice and as in-house counsel
during the past 12 years.
35
<PAGE>
F. ANDERSON MORSE has served as Senior Vice President of the Bank in
charge of Community Sales since November 1995. Mr. Morse served a Senior Vice
President in charge of the Residential Real Estate Division from 1988-1995. From
1980 through 1988, Mr. Morse served in various management positions, primarily
in the areas of corporate and commercial real estate lending.
DAVID W. SCOTT, a Senior Vice President of the Bank, was recently
appointed Chief Credit Officer of the Bank. Mr. Scott has served in various
management positions during the past 10 years, including such positions as Head
of Loan Review and Chief Credit Officer of Riggs AP Bank.
ROBERT L. SLOAN serves as the Vice Chairman of the Board of Directors of
RNC and has served on the RNC Board of Directors since 1993 and on the Board of
Directors of the Bank since 1990. He is the Chief Executive Officer, Sibley
Memorial Hospital in Washington, D.C., serving in that position since 1985. He
has served as Chairman, District of Columbia Hospital Association and as the
Chairman, Potomac Home Health Care Agency. He is also a director of Community of
Hope, Inc.
WILLIAM B. SNYDER is currently Chairman of Southern Heritage Insurance
Company and Merastar Insurance Company and their parent companies, Southern
Heritage Corporation and Merastar Corporation. Mr. Snyder served as Chairman of
GEICO Corporation from 1985-1993. Mr. Snyder joined GEICO in 1977 as Senior Vice
President and was named President of GEICO in 1980 and of GEICO Corporation in
1981.
INDEPENDENT TRUSTEES
The Company's Articles Supplementary establishing the Series A Preferred
Shares requires that, so long as any Series A Preferred Shares are outstanding,
certain actions by the Company must be approved by a majority of the Independent
Trustees of the Company. See "Description of Series A Preferred
Shares--Independent Trustee Approval". William B. Snyder and Robert L. Sloan
are the Company's initial Independent Trustees. For so long as there are only
two Independent Trustees, any action that requires the approval of a majority of
Independent Trustees must be approved by both Independent Trustees.
If at the time of any annual meeting of the Company's shareholders for the
election of Trustees the aggregate amount of accrued and unpaid dividends on any
series of Preferred Shares of the Company, other than the Series A Preferred
Shares, equals or exceeds an amount equal to four quarterly dividend payments on
such series of Preferred Shares, or if no dividends have been paid on the Series
A Preferred Shares for four quarterly dividend payments, the number of trustees
then constituting the Board of Trustees of the Company will be increased by two
(if not already increased by two due to a default in preference dividends), and
the holders of Series A Preferred Shares, voting together with the holders of
any other outstanding series of Preferred Shares as a single class, will be
entitled to elect two additional trustees to serve on the Company's Board of
Trustees. Any member of the Board of Trustees elected by holders of the
Company's Preferred Shares will be deemed to be an Independent Trustee for
purposes of the actions requiring the approval of a majority of the Independent
Trustees. 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 William B. Snyder, Robert L. Sloan and John L. Davis.
CREDIT COMMITTEE
Upon consummation of the Offering, the Company will establish a credit
committee which will review and approve the acquisition of any additional
Mortgage Loans by the Company, review the status of all Mortgage Loans which
have become Classified or have been placed in Nonaccrual Status, and review the
terms and conditions upon which any such Loans are modified or disposed of by
the Company. The credit committee will initially be comprised of David W. Scott,
Timothy A. Lex and F. Anderson Morse.
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COMPENSATION OF TRUSTEES AND OFFICERS
The Company intends to pay the Independent Trustees of the Company fees
for their services as trustees. The Independent Trustees 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 Trustees.
The Company will not pay any compensation to its officers or employees or
to trustees who are not Independent Trustees.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by Maryland law.
The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former shareholder, trustee or officer or (b) any individual
who, while a trustee of the Company and at the request of the Company, serves or
has served another real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a trustee,
director, officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her status as a present or
former shareholder, trustee or officer of the Company. The Bylaws of the Company
obligate it, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former shareholder, trustee or officer who is
made a party to the proceeding by reason of his service in that capacity or (b)
any individual who, while a trustee or officer of the Company and at the request
of the Company, serves or has served another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer, shareholder or partner of such
real estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity, against any claim or
liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company. The Bylaws require the Company to indemnify a
shareholder, trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the
result of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In accordance with the MGCL, the Bylaws of the Company
require it, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written
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statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met.
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, (ii)
advising the Company with respect to the acquisition, management, financing and
disposition of the Company's Mortgage Assets and (iii) maintaining custody of
the documents related to the Company's Mortgage Loans. 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 Trustees as well as a majority of the Independent Trustees as long
as any Series A Preferred Shares remain outstanding, 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 September 30, 1996, the Advisor and its affiliates held approximately
$_____ million of residential mortgage loans. In their residential mortgage loan
business, the Advisor and its affiliates originate and purchase residential
mortgage loans and service the residential mortgage loans in their portfolio.
The Advisory Agreement has an initial term of one year. The Board of
Trustees will vote annually to determine whether to renew the Advisory Agreement
for additional one-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. Any decision by the Company either to
renew or to terminate the Advisory Agreement must be approved by a majority of
the Board of Trustees. The Advisor will be entitled to receive an annual
advisory fee equal to $________ with respect to the advisory and management
services provided by it to the Company.
As a result of the relationship between the Bank and the Company, certain
conflicts of interest may arise. See "Risk Factors--Relationship with the Bank
and Its Affiliates; Conflicts of Interest".
The principal executive offices of the Advisor are located at 6805 Old
Dominion Drive, McLean, VA 22101, telephone number (301) 887-6000.
CERTAIN TRANSACTIONS CONSTITUTING THE FORMATION
THE FORMATION
Prior to or simultaneously with the completion of the Offering, the
Company, RNC, 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:
o The Declaration of Trust of the Company will be amended to provide
for __,000,000 authorized shares of Common Shares and __,000,000
authorized Preferred Shares, and the Company will file Articles
Supplementary with the State Department of Assessments and Taxation
of Maryland, establishing the terms of the Series A Preferred
Shares.
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o The Company will sell to the public 4,000,000 Series A Preferred
Shares in the Offering (assuming the Underwriters' over-allotment
option is not exercised).
o RPC Holding Co. will acquire _________ Common Shares for a purchase
price equal to $100,000,000. In addition, RPC Holding Co. will
acquire additional Common Shares for a purchase price equal to the
aggregate amount of underwriting discounts and expenses of the
Offering and the formation of the Company.
o The Bank will acquire _________ shares of common stock of RPC
Holding Co. for a purchase price equal to $100,000,000. In addition,
the Bank will acquire additional shares of common stock of RPC
Holding Co. for a purchase price equal in amount to the additional
amount of Common Shares purchased by RPC Holding Co.
o The Bank will sell the Initial Portfolio to the Company for an
aggregate purchase price equal to approximately $200,000,000
pursuant to the terms of the Residential Mortgage Purchase
Agreement.
o The Company will enter into the Advisory Agreement with the Bank
pursuant to which the Bank, as Advisor, will manage the Mortgage
Assets held by the Company and administer the day-to-day operations
of the Company. See "Management--The Advisor".
o The Company will enter into a Servicing Agreement with the Bank
pursuant to which the Bank, as Servicer, will service the Mortgage
Loans included in the Initial Portfolio. See "Business and
Strategy--Servicing".
RPC Holding Co. currently owns, and following the completion of the
Offering, will continue to own, all of the issued and outstanding Common Shares
of the Company. The Bank owns all of the common stock of RPC Holding Co. RNC,
which owns all of the issued and outstanding capital stock of the Bank, has
indicated to the Company that, for so long as any Series A Preferred Shares are
outstanding, it intends to maintain direct or indirect ownership of at least 80%
of the outstanding Common Shares of the Company.
A PURCHASE OF SERIES A PREFERRED SHARES IS A PURCHASE OF SECURITIES ISSUED
BY THE COMPANY AND IS NOT A PURCHASE OF SECURITIES ISSUED BY, OR OTHERWISE AN
INVESTMENT IN, THE BANK OR RNC. NO OBLIGATION OF THE COMPANY IS GUARANTEED BY
THE BANK OR RNC.
The Bank will also have responsibility for the day-to-day management and
custody of the Company's assets, in its capacity as Advisor under the Advisory
Agreement and will have responsibility for servicing the Mortgage Loans under
the Servicing Agreement. See "Management--The Advisor" and "Risk
Factors--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 $200,000,000) 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 "Risk Factors--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".
BENEFITS TO THE BANK AND ITS AFFILIATES
The Bank and its affiliates expect to realize the following benefits in
connection with the Offering and the formation of the Company:
o RNC and the Bank are required by the Board of Governors of the
Federal Reserve System and the Office of the Comptroller of the
Currency to maintain certain levels of capital. The Company, the
Bank, and RNC expect that the Series A Preferred Shares will be
treated as capital of both RNC and the Bank for regulatory purposes.
The Bank
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has indicated to the Company that such treatment, together
with the Company's ability to deduct, for income tax purposes, the
dividends payable on the Series A Preferred Shares as a result of
the Company's qualification as a REIT, will provide RNC and the Bank
with a more cost-effective means of obtaining regulatory capital
than if the Bank or RNC were to issue preferred shares themselves.
Neither the Bank nor RNC would be permitted to treat any securities
issued by a trust established by either the Bank or RNC to
securitize its mortgage assets as capital for bank regulatory
purposes.
o The Bank will receive approximately $200 million at the consummation
of the Offering (assuming no exercise by the Underwriters of their
over-allotment option) in connection with the sale of the Initial
Portfolio to the Company (approximately $100 million of which
represents new funds after giving effect to the Bank's expense of
purchasing the Company's Common Shares).
o The Bank will be entitled to receive advisory and servicing fees and
RPC Holding Co. will receive annual dividends in respect of the
Common Shares. For the first 12 months following completion of the
Offering, these annualized fees and dividends are anticipated to be
as follows:
Advisory Fee........................................... $_______
Servicing Fee.......................................... $ *
Common Share Dividends................................. $_______ **
Total $
=======
o The Bank will also be entitled to retain any late payment charges,
prepayment fees, penalties and assumption fees collected in
connection with the Mortgage Loans serviced by it. In addition, the
Bank, as the 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.
- --------------
*Assumes that for the first 12 months following completion of the Offering, the
Company holds Mortgage Loans with the same aggregate outstanding principal
balances as those Mortgage Loans included in the Initial Portfolio. See
"Business and Strategy--Servicing" for a description of the basis upon which the
servicing fees will be calculated.
**The amount of dividends to be paid in respect of the Common Shares is expected
to be equal to the excess of the Company's "REIT taxable income" (excluding
capital gains) over the amount of dividends paid in respect of Preferred Shares.
The aggregate annual dividend amount of the Series A Preferred Shares is
expected to be $___________. Assuming that (i) the Mortgage Loans included in
the Initial Portfolio are held for the 12-month period following completion of
the Offering, (ii) principal repayments are reinvested in additional Mortgage
Loans with characteristics similar to those of the Mortgage Loans included in
the Initial Portfolio and (iii) interest rates remain constant during such
12-month period, the Company anticipates that the Initial Portfolio will
generate "REIT taxable income" (excluding capital gains) of approximately $__
million, after payment of servicing and advisory fees, during such 12-month
period.
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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 Articles Supplementary establishing the Series A
Preferred Shares and the Company's Declaration of Trust, the forms of which have
been filed with the Securities and Exchange Commission (the "Commission") as
exhibits to the registration statement of which this Prospectus forms a part.
See "Description of Capital Shares" below.
GENERAL
The Series A Preferred Shares form a series of the Preferred Shares of the
Company, which Preferred Shares may be issued from time to time in one or more
series with such designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption as are determined by the
Company's Board of Trustees or, if then constituted, a duly authorized
committee thereof. The Board of Trustees 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 beneficial interest 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 Common Shares or any other class or series of
shares of beneficial interest 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 Shares will be The Bank of New York. The registrar for Preferred
Shares will send notices to shareholders of any meetings at which holders of the
Preferred Shares have the right to elect trustees 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 authorized and declared by the Board of Trustees 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 as
determined by the Board of Trustees, at such annual rate, commencing on December
31, 1996. Each such dividend will be payable to holders of record as they appear
on the share 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 Trustees
of the Company or a duly authorized committee thereof. Dividends will be
noncumulative. 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 dividing the rate per annum by four.
If any Series A Preferred Shares are outstanding, no full dividends shall
be authorized and declared or paid or set apart for payment on any series of
shares of the Company ranking, as to dividends, on a parity with or
junior to the Series A Preferred Shares for any period unless dividends are
authorized and declared and paid, or authorized and declared and a sum
sufficient for the payment thereof is set apart for such payments, on the Series
A Preferred Shares for 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 shares of
beneficial interest ranking on a parity as to dividends with the Series A
Preferred Shares, all dividends authorized and declared upon Series A Preferred
Shares and any other series of shares of beneficial interest ranking on a parity
as to dividends with the Series A Preferred Shares shall be authorized and
declared pro rata so that the amount of dividends authorized and declared per
share on the Series A Preferred Shares and such other series of shares
of beneficial interest shall in all cases bear to each other the same ratio that
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the dividends authorized and declared and accrued for the then current period
on the Series A Preferred Shares and such other series of shares of beneficial
interest bear to each other.
For a discussion of the tax treatment of distributions to shareholders,
see "Federal Income Tax Considerations--Taxation of United States Shareholders"
and "--Taxation of Foreign Shareholders".
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 shareholders for the
election of Trustees the aggregate amount of accrued and unpaid dividends on any
series of Preferred Shares of the Company, other than the Series A Preferred
Shares, equals or exceeds an amount equal to four quarterly dividend payments on
such series of Preferred Shares, or, if no dividends have been paid on the
Series A Preferred Shares for four quarterly dividends payments, the number of
trustees then constituting the Board of Trustees of the Company will be
increased by two (if not already increased by two due to a default in preference
dividends), and the holders of the Series A Preferred Shares, voting together
with the holders of all other series of Preferred Shares as a single class, will
be entitled to elect such two additional trustees to serve on the Company's
Board of Trustees at each such annual meeting. Each trustee elected by the
holders of shares of the Preferred Shares shall continue to serve as such
trustee 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 Shares 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 shares which shall
have preference as to dividends or distribution of assets over any outstanding
series of Preferred Shares of the Company other than a series that shall not
have any right to object to such creation or (b) to alter or change the
provisions of the Company's Declaration of Trust so as to adversely affect the
designation, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions or terms or
conditions of redemption of a series of Preferred Shares of the Company;
provided that if such amendment shall not adversely affect all series of
Preferred Shares 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 Shares
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 dividends
declared and accrued for the then current period 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 OCC (unless at such time such approvals are
not required). Under current policies of the Federal Reserve Board and the OCC,
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 RNC and the Bank warrant the
reduction of a source of permanent capital.
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 dividends authorized and
declared and accrued for the then current period, 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
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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 shares of
beneficial interest 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 shareholders, before any distribution of assets is
made to holders of Common Shares or any other class of beneficial interest
ranking junior to the Series A Preferred Shares upon liquidation, liquidating
distributions in the amount of $25 per share, plus dividends authorized,
declared and accrued for the then current period, 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 shares
of beneficial interest 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 shares of beneficial
interest 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 the consolidation or merger of any other entity with or into
the Company, 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 TRUSTEE APPROVAL
The Articles Supplementary 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 Trustees.
For so long as there are only two Independent Trustees, any action that requires
the approval of a majority of Independent Trustees must be approved by both
Independent Trustees. William B. Snyder and Robert L. Sloan are the Company's
initial Independent Trustees. See "Management--Independent Trustees". In order
to be considered "independent", a trustee must not be a current employee of the
Company, RNC, the Bank or any affiliate of the Bank or of any person or persons
that, in the aggregate, own more than 50% of the Common Shares of the Company.
In addition, any members of the Board of Trustees of the Company elected by
holders of Preferred Shares, including the Series A Preferred Shares, will be
deemed to be Independent Trustees for purposes of approving actions requiring
the approval of a majority of the Independent Trustees.
The actions that may not be taken without the approval of a majority of
the Independent Trustees as long as any Series A Preferred Shares remain
outstanding include (i) the issuance of
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additional Preferred Shares 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 Shares and Common Shares, (iii) the modification of the general
distribution policy or the authorization and declaration of any distribution in
respect of Common Shares for any year if, after taking into account any such
proposed distribution, total distributions on the Series A Preferred Shares and
the Common Shares 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 that (A) qualify
as real estate assets under Section 856(c)(6)(B) of the Code, (B) are rated
investment grade or better by at least one nationally recognized independent
rating organization, (C) are not interest-only, principal-only or high-risk
securities and (D) represent interests in or obligations backed by pools of
mortgage loans, (v) the redemption of any Common Shares, (vi) the termination or
modification of, or the election not to renew, the Servicing Agreement or the
subcontracting of any duties under the Advisory Agreement or the Servicing
Agreement to third parties unaffiliated with the Bank, (vii) any dissolution,
liquidation or termination of the Company prior to , 2001, (viii) any material
amendment to or modification of the Mortgage Purchase Agreement, including
without limitation any amendment to the representations, warranties and
covenants contained in the agreement made in connection with the acquisition of
additional Mortgage Loans and (ix) the determination to revoke the Company's
REIT status or the amendment of any of the ownership limitations contained in
the Declaration of Trust. The Articles Supplementary require that, in assessing
the benefits to the Company of any proposed action requiring their consent, the
Independent Trustees take into account the interests of holders of both the
Common Shares and the Preferred Shares, including, without limitation, holders
of the Series A Preferred Shares. In considering the interests of the holders of
Preferred Shares, including without limitation the holders of the Series A
Preferred Shares, the Independent Trustees shall owe the same duties which the
Independent Trustees owe to the holders of Common Shares.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the Series A
Preferred Shares, see "Description of Capital Shares--Restrictions on Ownership
and Transfer".
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DESCRIPTION OF CAPITAL SHARES
The following summary of the terms of the capital shares of the Company
does not purport to be complete and is subject in all respects to the applicable
provisions of Maryland law and the Declaration of Trust of the Company.
COMMON SHARES
GENERAL
The Company is authorized to issue up to 4,600,000 Common Shares. Upon
consummation of the Offering and the transactions described in "Certain
Transactions Constituting the Formation", the Company will have outstanding ____
Common Shares, all of which will be held by RPC Holding Co. (with all of RPC
Holding Co.'s outstanding capital stock held by the Bank). In addition, RNC
intends 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
Shares of the Company.
DIVIDENDS
Holders of Common Shares are entitled to receive dividends when, as and if
authorized and declared by the Board of Trustees out of assets legally available
therefor, provided that, so long as any Preferred Shares are outstanding, no
dividends or other distributions (including redemptions and purchases) may be
made with respect to the Common Shares unless full dividends on the shares of
all series of Preferred Shares, 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 Shareholders.
VOTING RIGHTS
Subject to the rights, if any, of the holders of any class or series of
Preferred Shares, all voting rights are vested in the Common Shares. The holders
of Common Shares are entitled to one vote per share. All of the issued and
outstanding Common Shares are currently, and upon consummation of the Offering
will be, held by RPC Holding Co., which in turn is 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 Shares the full preferential amounts to
which such holders are entitled, the holders of Common Shares will be entitled
to share equally and ratably in any assets remaining after the payment of all
debts and liabilities.
PREFERRED SHARES
Subject to limitations prescribed by Maryland law and the Company's
Declaration of Trust, the Board of Trustees or, if then constituted, a duly
authorized committee thereof is authorized to issue, from the authorized but
unissued shares of beneficial interest of the Company, Preferred Shares in such
classes or series as the Board of Trustees may determine and to establish, from
time to time, the number of Preferred Shares to be included in any such class or
series and to fix the designation and any preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, 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 Trustees.
Preferred Shares, upon issuance against full payment of the purchase price
therefor, and in the manner authorized by the Board of Trustees will be fully
paid and nonassessable. The specific terms of a particular class or series of
Preferred Shares will be described in the Articles Supplementary relating to
that class or series.
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Articles Supplementary relating to each class or series of Preferred
Shares will set forth the preferences and other terms of such class or series,
including without limitation the following, as applicable: (1) the designation
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 for such class or series; (4) whether such class or
series of Preferred Shares is cumulative or not and, if cumulative, the date
from which dividends on such class or series shall accumulate; (5) the provision
for any sinking fund for such class or series; (6) the terms and conditions of
redemption, 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) any voting rights of such
class or series; (9) 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; (10) any limitations on issuance of any class
or series of Preferred Shares ranking senior to or on a parity with such class
or series of Preferred Shares as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and (11) any other
specific terms, preferences, rights, limitations or restrictions of such class
or series.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Company's Declaration of Trust contains certain restrictions on the
number of Common Shares and Preferred Shares that individual shareholders may
own. For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of capital shares 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 shares 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 RPC Holding Co. of 100% of the Common Shares of the Company is
not expected to adversely affect the Company's REIT qualification because each
shareholder of RNC (the sole stockholder of the Bank, which is the sole
stockholder of RPC Holding Co.) counts as a separate beneficial owner for
purposes of the Five or Fewer Test. Further, the Declaration of Trust of the
Company contains restrictions on the acquisition of Preferred Shares intended to
ensure compliance with the One Hundred Persons Test. Such provisions include a
restriction that if any transfer of shares of beneficial interest 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 shares.
Subject to certain exceptions specified in the Company's Declaration of
Trust, no holder of Preferred Shares is permitted to own (including shares
deemed to be owned by virtue of the attribution provisions of the Code), more
than 5.0% (the "Ownership Limit") of the total number of any issued and
outstanding shares of any class or series of Preferred Shares. The Board of
Trustees 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 Bank has agreed to
indemnify the Company for any United States federal and state income taxes
imposed on the Company following a loss of REIT status that was caused by the
Company's failure to satisfy the Five or Fewer Test.
The Declaration of Trust provides that shares of any class or series of
Preferred Shares owned, or deemed to be owned, by or transferred to a
shareholder 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 (the "Special Trust") for the exclusive benefit of a charity to be named
by the Company as of the day 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; subject to applicable law, 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 shareholder'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 Special Trust shall
promptly sell
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the shares to any person whose ownership is not prohibited, whereupon the
interest of the Special 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 Shares 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 Shares (or the acquisition of an
interest in an entity that owns shares of such series of Preferred Shares) 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 Shares, and thus subject such shares 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 Preferred Shares 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 Articles Supplementary provide that Declaration of Trust may
not be amended to alter, change, repeal or amend any of the Ownership Limit
provisions without the prior approval of a majority of the Independent Trustees
as long as any Series A Preferred Shares remain outstanding.
The Declaration of Trust 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
Shares 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 shareholder
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 shareholder's actual and constructive ownership on the Company's status
as a REIT and to ensure compliance with the Ownership Limit.
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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 Sullivan & Cromwell, 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 shareholder or to certain
types of shareholders (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 INVESTOR IS URGED TO SEEK INDIVIDUAL ADVICE CONCERNING
THE EFFECT ON HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE SERIES A
PREFERRED SHARES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, INCLUDING THE
EFFECT OF POSSIBLE CHANGES IN TAX LAW.
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 Sullivan & Cromwell, 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 Sullivan & Cromwell 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".
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 shareholders. Such treatment
substantially eliminates the federal "double taxation" on earnings (at the
corporate and the shareholder 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:
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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; (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 shares of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include private foundations and certain
pension trusts and other entities) at any time during the last half of each
taxable year; (vii) that is not a bank, an insurance company or certain other
specified types of financial institutions; and 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 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 Shareholders--Treatment of
Tax-Exempt Shareholders".
Sullivan & Cromwell is of the opinion that, for purposes of condition (v)
above, beneficial ownership of both common and preferred shares of a corporation
are counted toward the 100 holder requirement. The Company expects that the
Series A Preferred Shares will be held by not less than 100 beneficial owners at
all times any such Shares are outstanding. Such ownership of the Series A
Preferred Shares would allow the Company to meet condition (v). Sullivan &
Cromwell is of the opinion
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that, in determining whether condition (vi) above is met, individual
shareholders of a corporation are treated as owning their proportionate share of
any stock held by that corporation. The Company believes that the individual
ownership of stock of the Company and of RNC and any corporate shareholders of
the Company and RNC will be sufficiently widely held for the Company to satisfy
condition (vi). In addition, the Company's Declaration of Trust 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 Shares--Restrictions on Ownership and
Transfer". Sullivan & Cromwell is also of the opinion that the Company will not
be treated as a bank for federal income tax purposes by reason of the activities
of any shareholder.
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 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 (if the REIT
makes a timely election) as qualifying for two years following foreclosure
(which period may be extended by the IRS) so long as
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(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 rule 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.
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 shareholders 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 shareholder 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, RPC Holding Co. or 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
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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 shareholders 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 shareholders 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 shareholders will be
taxable as ordinary income, and subject to certain limitations of the Code,
corporate distributees may be entitled to 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 pursuant to regulations that have not yet been promulgated by
the IRS. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
TAXATION OF UNITED STATES SHAREHOLDERS
As used herein, the term "United States Shareholder" 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 Shareholder 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 gain 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 shareholder has
held its shares. However, corporate shareholders 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
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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 Shareholder's Series A Preferred Shares, and a distribution in excess of
the United States Shareholder'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 shareholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders 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, shareholders may be required to
treat as taxable dividends certain distributions that would otherwise result in
tax-free returns 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 six months or less will be deemed a long-term capital loss to the extent of
any capital gain dividends received by the selling shareholder with respect to
such stock.
TREATMENT OF TAX-EXEMPT SHAREHOLDERS
Distributions from the Company to a tax-exempt employee's pension trust or
other domestic tax-exempt shareholder will generally not constitute "unrelated
business taxable income" unless the shareholder has borrowed to acquire or carry
its shares of the Company or the shares are otherwise used in an unrelated trade
or business of the tax-exempt entity. A tax-exempt employee's pension trust that
holds more than 10% of the shares of the capital shares 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.
TAXATION OF FOREIGN SHAREHOLDERS
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 Shareholders")
are complex, and no attempt will be made herein to provide more than a summary
of such rules. A Foreign Shareholder 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 Shareholder will be subject to regular United States
income tax to the same extent as a United States Shareholder 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
shareholder's conduct of a trade or business in the United States. See
"--Taxation of United States Shareholders". A corporate Foreign Shareholder 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 Shareholder 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 a REIT held by a Foreign Shareholder. 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
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equals or exceeds 50% of the sum of the fair market values of its USRPIs, its
foreign real property interests and its other trade business 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 Mortgage Loans to be owned by the Company that
are expected to represent substantially all of the assets of the Company, 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 a Foreign
Shareholder that is not attributable to gain from sales or exchanges by the
Company of USRPIs and not designated by the Company as a capital gain dividend
is 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 Shareholder 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 Shareholder. A Foreign Shareholder 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 shareholders (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 Shareholder 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
Shareholder'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 gain 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 Shareholder 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
Shareholders. 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 NYSE, on which the Company expects the Series A Preferred
Shares to 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 shareholder held, directly or indirectly, more than 5% of the Series
A Preferred Shares during the five-year period ending on the date of
disposition. 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 Shareholder (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 Shares that occurs within a
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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 Shareholder would be subject to
the same treatment as a United States Shareholder with respect to such gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of a nonresident alien individual). Notwithstanding the
foregoing, capital gain from sale of shares of a REIT not subject to FIRPTA will
nonetheless be taxable to a Foreign Shareholder who is an individual (under
rules generally applicable to United States Shareholders) 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 Shareholder 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 shareholders 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 SHAREHOLDERS
Under certain circumstances, a United States Shareholder 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 Shareholder 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 Shareholder
will be allowed as a credit against such United States Shareholder's United
States federal income tax liability and may entitle such United States
Shareholder to a refund, provided that the required information is furnished to
the IRS.
FOREIGN SHAREHOLDERS
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Foreign Shareholders, and a Foreign Shareholder
should consult with a tax advisor with respect to any such information reporting
and backup withholding requirements. Backup withholding with respect to a
Foreign Shareholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Foreign Shareholder will be allowed
as a credit against any United States federal income tax liability of such
Foreign Shareholder. If withholding results in an overpayment of taxes, a refund
may be obtained provided that the required information is furnished to the IRS.
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OTHER TAX CONSEQUENCES
The Company and its shareholders 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 shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
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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 permitted by 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 (c) whether the purchase or holding of
Series A Preferred Shares will constitute or give rise to a non-exempt
prohibited transaction under either Section 406 of ERISA or Section 4975 of the
Code. 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 IRAs. This summary is based on the current provisions of
ERISA and the Code and regulations and rulings thereunder, and may be subject to
future legislative, administrative or judicial change. 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
A Department of Labor regulation (29 C.F.R. ss.ss. 2510.3-101) (the "Plan
Asset Regulation") sets forth the circumstances in which the underlying assets
of an entity in which a Plan or IRA has made an equity investment are treated as
the assets of the investing Plans and IRAs ("Plan Assets"). If the assets of the
Company were deemed to be Plan Assets, transactions involving the Company's
assets would be subject to the fiduciary standards of ERISA and would be subject
to the prohibited transaction restrictions of Section 406 of ERISA and Section
4975 of the Code. (See discussion relating to prohibited transactions below).
Consequently, transactions between the Company and persons having certain types
of relationships with a Plan or IRA investing in the Company may constitute
prohibited transactions. In addition, investment authority may also have been
improperly delegated to those individuals exercising control over the Company's
assets, 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. As a result, a Plan or IRA 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, or IRA. However, the Company
believes that under the Plan Asset Regulation the Series A Preferred Shares
should be treated as "publicly-offered securities" and, as discussed below, 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.
Under the Plan Asset Regulation, 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"
(as defined in the Plan Asset Regulation).
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
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of the issuer during which the offering of such securities to the public
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".
PROHIBITED TRANSACTIONS
Section 406(a) of ERISA prohibits a fiduciary from causing a Plan to
engage in a broad range of transactions with persons having certain specified
relationships with a Plan or IRA ("Parties in Interest"), and Section 406(b) of
ERISA prohibits a Plan fiduciary from dealing with Plan assets in 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 an IRA's acquisition or holding of the Series A Preferred Shares
constitutes or results in a prohibited transaction under Section 408(e)(2) of
the Code, the IRA would lose its tax-exempt status.
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,
RNC, RPC Holding Co. 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 or hold the Series A Preferred Shares pursuant
to the Offering if such acquisition or holding will constitute or result in a
non-exempt prohibited transaction.
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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 Shareholders Treatment of Tax-Exempt Shareholders".
EXPERTS
The financial statement included in this prospectus has been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in giving said reports.
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
Services. 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.
VALIDITY OF SERIES A PREFERRED SHARES
Certain matters of Maryland law relating to the validity of the Series A
Preferred Shares and the formation of the Company are being passed upon by
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, special Maryland counsel
to the Company. The validity of the Series A Preferred Shraes offered hereby and
certain tax matters described under "Federal Income Tax Considerations" will be
passed upon for the Company by Sullivan & Cromwell, Washington, D.C. Certain
legal matters will be passed upon for the Underwriters by Milbank, Tweed, Hadley
& McCloy, New York, New York. Sullivan & Cromwell will rely as to certain
matters of Maryland law upon the opinion of Ballard Spahr Andrews & Ingersoll.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part) on Form S-11 (the "Registration Statement")
under 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, 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 and at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005. 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 Articles Supplementary 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.
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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.
"Articles Supplementary" means the Articles Supplementary to the
Declaration of Trust of the Company dated __________, 1996.
"Bank" means Riggs Bank N.A., a national banking association organized
under the laws of the United States, and the parent of RPC Holding Co.
"Board of Trustees" means the board of trustees of the Company.
"By-laws" means the by-laws of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Shares" means the common shares, par value $1.00 per share, of
the Company.
"Company" means Riggs Preferred Capital, a Maryland real estate investment
trust.
"Classified" means a loan which, for bank regulatory purposes, is
designated as substandard, doubtful, or loss. For such purposes, a substandard
asset is one that is deemed inadequately protected by the current sound worth
and paying capacity of the obligor or of the collateral pledged, if any, because
the asset has a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. An asset classified as doubtful has all the weaknesses
inherent in one classified substandard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable.
Assets classified as loss are considered uncollectible.
"Declaration of Trust" means the Declaration of Trust of the Company,
as amended.
"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
Shares owned, or deemed to be owned, by or transferred to a shareholder 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.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"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).
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"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 Shareholders" 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 Trustees" means the members of the Board of Trustees who are
not current officers or employees of the Company, RNC, the Bank, RPC Holding
Co., or any affiliate of the Bank or of any person or persons that, in the
aggregate, own more than 50% of the outstanding Common Shares.
"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.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annoted Code of Maryland.
"Mortgage Assets" means real estate mortgage assets.
"Mortgage-Backed Securities" means securities that qualify as real estate
assets under Section 856(c)(6)(B) of the Code, that are rated by at least one
nationally recognized independent rating organization and that represent
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.
"Nonaccrual Status" means a loan on which, in the opinion of management,
principal or interest is not likely to be paid in accordance with the terms of
the loan agreement or on which the principalor interest is past due 90 days or
more and collateral, if any, is insufficient to cover principal and interest.
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"NYSE" means the New York Stock Exchange,Inc.
"Offering" means the offering of Series A Preferred Shares pursuant to the
Prospectus.
"One Hundred Persons Test" means the Code requirement that the capital
shares 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 Declaration of
Trust 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 Shares.
"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 Shares" means the preferred shares, 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.
"RPC Holding Co." means RPC Holding Company, a Delaware corporation, which
is parent of the Company and a wholly owned subsidiary of the Bank.
"RNC" means Riggs National Corporation, a Delaware corporation and the
parent of the Bank.
"Securities Act" means the Securities Act of 1933, as amended.
62
<PAGE>
"Series A Preferred Shares" means the Preferred Shares of the Company
offered hereby.
"Servicer" means that Bank in its role as servicer of the Mortgage Loans
under the Servicing Agreements.
"Servicing Agreement" means the servicing agreement entered into by the
Company with the Bank with respect to the Residential Mortgage Loan Services.
"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.
"Special Trust" means the trust that may be created pursuant to section
6.6(l) of the [Amended and Restated] Declaration of Trust.
"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 shares 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.
"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.
"Three-Year ARM" means an ARM that adjusts every three years beginning 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, RPC Holding Co., the Bank and the Underwriters.
"United States Shareholders" 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.
63
<PAGE>
"USRPI" means United States real property interest.
64
<PAGE>
INDEX TO FINANCIAL STATEMENT
Report of Independent Public Accountants................................... F-2
Balance Sheet of Riggs Preferred Capital as of October 9, 1996........... F-3
Note to Financial Statement................................................ F-4
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees
of Riggs Preferred Capital
We have audited the accompanying balance sheet of Riggs Preferred Capital
(the "Company") (a Maryland real estate investment trust) as of October 9,
1996. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Riggs Preferred Capital as of
October 9, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
October 9, 1996
F-2
<PAGE>
RIGGS PREFERRED CAPITAL
BALANCE SHEET
OCTOBER 9, 1996
ASSETS
Cash.......................................................... $1,000
------
SHAREHOLDER'S EQUITY
Common Shares, par value $1.00 per share, 1000 shares authorized;
1000 shares issued and outstanding......................... $1,000
------
The Note to Financial Statement is an integral part of this Statement.
F-3
<PAGE>
RIGGS PREFERRED CAPITAL
NOTE TO FINANCIAL STATEMENT
1. ORGANIZATION
Riggs Preferred Capital (the "Company"), a wholly owned subsidiary of RPC
Holding Co., was formed on October 9, 1996 in the State of Maryland. RPC
Holding Company ("RPC Holding Co.") is a wholly owned subsidiary of the Riggs
Bank N.A. (the "Bank") and was incorporated in Delaware on October 9, 1996.
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 shareholders primarily from the
net interest income derived from its investments in mortgage-related assets. The
Company intends to purchase these mortgage-related assets from the Bank and its
affiliates at their estimated fair values. These assets will be recorded in the
Company's financial statements at the Bank's historical cost basis which will
approximate their estimated fair values. 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 October 9, 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 RPC Holding Co. 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 (the "Underwriting Agreement") among the Company, RPC Holding
Co., the Bank and the underwriters named below (the "Underwriters"), the Company
has agreed that the Company will sell to each of 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:
NUMBER OF SHARES
OF SERIES A
UNDERWRITER PREFERRED SHARES
Goldman, Sachs & Co....................................... _,000,000
---------
Total................................. _,000,000
=========
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 public, 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 600,000
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
4,000,000 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 representatives, 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 Series A
Preferred Shares.
The Company expects that the Series A Preferred Shares will be listed on
the NYSE. In order to meet one of the requirements for listing the Series A
Preferred Shares on the NYSE, the Underwriters have undertaken to sell Series A
Preferred Shares to a minimum of 100 beneficial holders.
The Company, RNC, RPC Holding Co., and the Bank have agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
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 HAVING BEEN AUTHORIZED. 4,000,000 SHARES
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR
AN OFFER TO SELL OR A SOLICITATION OF AN RIGGS PREFERRED
OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR CAPITAL
SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY ____% NONCUMULATIVE
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE PREFERRED SHARES OF
AFFAIRS OF THE COMPANY SINCE THE DATE BENEFICIAL INTEREST,
HEREOF OR THAT INFORMATION CONTAINED SERIES A
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
-----------------------
SUMMARY TABLE OF CONTENTS --------------------
Page
Table of Contents................. 3 RIGGS
Prospectus Summary................ 4
Risk Factors...................... 12 --------------------
The Company....................... 18
Use of Proceeds................... 18
Capitalization.................... 20
Business and Strategy............. 21
Management........................ 35
Certain Transactions Constituting
the Formation................... 38
Description of Series A Preferred
Shares........................... 41
Description of Capital Shares..... 45
Federal Income Tax
Considerations.................. 48
ERISA Considerations.............. 57
Experts........................... 59
Ratings........................... 59
Validity of Series A Preferred
Shares.......................... 59
Additional Information............ 59
Glossary.......................... 60
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 SECU-
RITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN
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........................................... $ 34,849
Stock Exchange Listing Fees................................ $ *
Printing and Engraving Expenses............................ $ *
Legal Fees and Expenses.................................... $ *
Accounting Fees and Expenses............................... $ *
Blue Sky Fees and Expenses................................. $ *
Miscellaneous.............................................. $ *
-------------
Total...................................................... $ *
=============
________________
* To be filed 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 ______
Common Shares, par value $____ per share, to RPC Holding Co. Prior to the
consummation of the Offering, the Company will amend its Declaration of Trust to
change the par value of its Common Shares to $_____ per share. Simultaneously
with the consummation of the Offering, the Company will issue an aggregate of
_____________ Common Shares to RPC Holding Co. The description of these
transactions in the Prospectus under the heading "Certain Transactions
Constituting the Formation" is incorporated herein by reference. These Common
Shares will be issued in reliance upon the exemption from registration under
Section 4(2) of the Securities Act.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
Pursuant to Title 8 of the Corporations and Associations Title of the
Annotated Code of Maryland, as amended, Maryland REIT law permits a Maryland
real estate investment trust to include in its Declaration of Trust a provision
limiting the liability of its trustees and officers to the trust and its
shareholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Declaration of Trust of the Company
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland Law.
The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former shareholder, trustee or officer or (b) any individual
who, while a trustee of the Company and at the request of the Company, serves or
has served another real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a shareholder,
trustee, director, officer or partner of such real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former shareholder, trustee or officer of the Company. The Bylaws
of the Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former shareholder, trustee or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a shareholder, trustee or officer of
the Company and at the request of the Company, serves or has served another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a shareholder, trustee,
director, officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who
II-1
<PAGE>
is made a party to the proceeding by reason of his service in that capacity,
against any claim or liability to which he may become subject by reason of such
status. The Declaration of Trust and Bylaws also permit the Company to indemnify
and advance expenses to any person who served a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a shareholder, trustee or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In accordance with the MGCL, the Bylaws of the Company
require it, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES 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
EXHIBIT NUMBER DESCRIPTION
1** -- Form of Underwriting Agreement between the Company, the
Bank and the Underwriters
3(a)(i) -- Declaration of Trust of the Company
3(a)(ii)** -- Form of Articles Supplementary establishing the Series A
Preferred Shares
3(a)(iii)** -- Form of Amended and Restated Declaration of Trust of the
Company
3(b)(i) -- By-laws of the Company
4** -- Specimen of certificate representing Series A Preferred
Shares
5** -- Opinion of Sullivan & Cromwell, counsel to the Company,
relating to Series A Preferred Shares
8** -- Opinion of Sullivan & Cromwell, 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 the Bank
II-2
<PAGE>
10(e)** -- Form of Advisory Agreement between the Company and the Bank
23(a) -- Consent of Arthur Andersen LLP
23(b)** -- Consents of Sullivan & Cromwell (included in Opinions of
Sullivan & Cromwell filed as Exhibits 5 and 8,
respectively)
24 -- Powers of Attorney
- --------------
** 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 trustees, 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 trustee, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, 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 Washington, D.C., on the 10th day of October 1996.
RIGGS PREFERRED CAPITAL
By /s/ Linda A. Madrid
Linda A. Madrid
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.
SIGNATURE TITLE DATE
* Chairman and Trustee October 9, 1996
.............................. (Principal Executive Officer)
Timothy A. Lex
* President and Trustee October 9, 1996
..............................
Joseph W. Barr
* Chief Financial Officer and October 9, 1996
.............................. Treasurer
John L. Davis (Principal Financial and
Accounting Officer)
* Trustee October 9, 1996
..............................
F. Anderson Morse
* Trustee October 9, 1996
...............................
Timothy C. Coughlin
* Trustee October 9, 1996
................................
David W. Scott
* Trustee October 9, 1996
................................
Robert L. Sloan
* Trustee October 9, 1996
................................
William B. Snyder
*By: /s/ Linda A. Madrid
Linda A. Madrid
(as attorney-in-fact)
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
1** -- Form of Underwriting Agreement between the Company, the
Bank and the Underwriters
3(a)(i) -- Declaration of Trust of the Company
3(a)(ii)* -- Form of Articles Supplementary establishing the Series A
Preferred Shares
3(a)(iii)** -- Form of Amended and Restated Declaration of Trust of the
Company
3(b)(i) -- By-laws of the Company
4** -- Specimen of certificate representing Series A Preferred
Shares
5** -- Opinion of Sullivan & Cromwell, counsel to the Company,
relating to Series A Preferred Shares
8** -- Opinion of Sullivan & Cromwell, 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 the Bank
10(e)** -- Form of Advisory Agreement between the Company and the Bank
23(a) -- Consent of Arthur Andersen LLP
23(b)** -- Consents of Sullivan & Cromwell (included in Opinions of
Sullivan & Cromwell filed as Exhibits 5 and 8, respectively)
24 -- Powers of Attorney
- --------------
** To be filed by amendment
II-6
<PAGE>
RIGGS PREFERRED CAPITAL
DECLARATION OF TRUST
Dated October 9, 1996
This DECLARATION OF TRUST is made as of the date set forth above by
the undersigned Trustees.
ARTICLE I
FORMATION
Riggs Preferred Capital (the "Trust") is a real estate investment
trust within the meaning of Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland, as amended from time to time ("Title 8"). The
Trust shall not be deemed to be a general partnership, limited partnership,
joint venture, joint stock company or a corporation (but nothing herein shall
preclude the Trust from being treated for tax purposes as an association under
the Internal Revenue Code of 1986, as amended from time to time (the "Code")).
ARTICLE II
NAME
The name of the Trust is:
Riggs Preferred Capital
Under circumstances in which the Board of Trustees of the Trust (the
"Board of Trustees" or "Board") determines that the use of the name of the Trust
is not practicable, the Trust may use any other designation or name for the
Trust.
ARTICLE III
PURPOSES AND POWERS
Section 1. Purposes. The purposes for which the Trust is formed are to
invest in and to acquire, hold, manage, administer, control and dispose of
property, including, without limitation or obligation, engaging in business as a
real estate investment trust under the Code.
Section 2. Powers. The Trust shall have all of the powers granted to
real estate investment trusts by Title 8 and all other powers which are not
inconsistent with law and are appropriate to promote and attain the purposes set
forth in the Declaration of Trust.
<PAGE>
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland
is The Corporation Trust Incorporated, whose post office address is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The
resident agent is a citizen of and resides in the State of Maryland. The Trust
may have such offices or places of business within or outside the State of
Maryland as the Board of Trustees of the Trust may from time to time determine.
ARTICLE V
BOARD OF TRUSTEES
Section 1. Powers. Subject to any express limitations contained in the
Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust
shall be managed under the direction of the Board of Trustees and (b) the Board
shall have full, exclusive and absolute power, control and authority over any
and all property of the Trust. The Board may take any action as in its sole
judgment and discretion is necessary or appropriate to conduct the business and
affairs of the Trust. The Declaration of Trust shall be construed with the
presumption in favor of the grant of power and authority to the Board. Any
construction of the Declaration of Trust or determination made in good faith by
the Board concerning its powers and authority hereunder shall be conclusive. The
enumeration and definition of particular powers of the Trustees included in the
Declaration of Trust or in the Bylaws shall in no way be limited or restricted
by reference to or inference from the terms of this or any other provision of
the Declaration of Trust or the Bylaws or construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the Board
or the Trustees under the general laws of the State of Maryland or any other
applicable laws.
The Board, without any action by the shareholders of the Trust (the
"Shareholders"), shall have and may exercise, on behalf of the Trust, without
limitation, the power to terminate the status of the Trust as a real estate
investment trust under the Code; to adopt, amend and repeal Bylaws; to elect
officers in the manner prescribed in the Bylaws; to solicit proxies from holders
of shares of beneficial interest of the Trust; and to do any other acts and
deliver any other documents necessary or appropriate to the foregoing powers.
Section 2. Number. The number of Trustees initially shall be seven,
which number may thereafter be increased or decreased by the Trustees then in
office from time to time; however, the total number of Trustees shall be not
less than one
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and not more than 15. No reduction in the number of Trustees shall cause the
removal of any Trustee from office prior to the expiration of his term.
Section 3. Initial Board. The names and addresses of the Trustees who
shall serve until the first annual meeting of Shareholders and until their
successors are duly elected and qualify are:
Name Address
---- -------
Joseph W. Barr 800 17th Street, N.W.
Washington, D.C. 20006
Timothy C. Coughlin 800 17th Street, N.W.
Washington, D.C. 20006
Timothy A. Lex 800 17th Street, N.W.
Washington, D.C. 20006
F. Anderson Morse 6805 Old Dominion Drive
McLean, Virginia 22101
David W. Scott 800 17th Street, N.W.
Washington, D.C. 20006
Robert L. Sloan 5255 Loughboro Road, N.W.
Washington, D.C. 20016
William B. Snyder 6900 Wisconsin Avenue
Suite 504
Chevy Chase, Maryland 20815
Section 4. Term. The Trustees shall be elected at each annual meeting
of Shareholders and shall serve until the next annual meeting of Shareholders
and until their successors are duly elected and qualify.
Section 5. Removal. A Trustee may be removed, at any time, at a
meeting of the Shareholders called for that purpose, by the affirmative vote of
the holders of not less than two thirds of the Shares then outstanding and
entitled to vote generally in the election of Trustees.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
The beneficial interest in the Trust shall be divided into shares of
beneficial interest ("Shares"). The total number of Shares which the Trust has
authority to issue is 1,000, consisting of 1,000 common shares of beneficial
interest, $1.00 par value per share (the "Common Shares"). The Board of Trustees
may classify or reclassify any unissued Shares from time to time by setting or
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changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption of the Shares.
The Board of Trustees may authorize the issuance from time to time of
Shares of any class or series, whether now or hereafter authorized, or
securities or rights convertible into Shares of any class or series, whether now
or hereafter authorized, for such consideration (whether in cash, property, past
or future services, obligation for future payment or otherwise) as the Board of
Trustees may deem advisable (or without consideration in the case of a Share
split or Share dividend), subject to such restrictions or limitations, if any,
as may be set forth in the Declaration of Trust or the Bylaws of the Trust.
ARTICLE VII
SHAREHOLDERS
There shall be an annual meeting of the Shareholders, to be held after
delivery of the annual report and on proper notice to the Shareholders, at such
time and place as shall be determined by resolution of the Board of Trustees.
ARTICLE VIII
LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
Section 1. Limitation of Shareholder Liability. No Shareholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the property or affairs
of the Trust.
Section 2. Limitation of Trustee and Officer Liability. To the maximum
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no Trustee
or officer of the Trust shall be liable to the Trust or to any Shareholder for
money damages. Neither the amendment nor repeal of this Section, nor the
adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
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Section 3. Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the Trust, and
all persons shall look solely to the property of the Trust for the payment of
any claim under or for the performance of that instrument. The omission of the
foregoing exculpatory language from any instrument shall not affect the validity
or enforceability of such instrument and shall not render any Shareholder,
Trustee, officer, employee or agent liable thereunder to any third party, nor
shall the Trustees or any officer, employee or agent of the Trust be liable to
anyone for such omission.
Section 4. Indemnification. The Trust shall have the power, to the
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former Shareholder, Trustee or officer of the Trust or (b) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former Shareholder, Trustee or officer of the Trust. The Trust
shall have the power, with the approval of its Board of Trustees, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Trust in any of the capacities described in (a) or (b) above
and to any employee or agent of the Trust or a predecessor of the Trust.
Section 5. Transactions Between the Trust and its Trustees, Officers,
Employees and Agents. Subject to any express restrictions in this Declaration of
Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may
enter into any contract or transaction of any kind (including, without
limitation, for the purchase or sale of property or for any type of services,
including those in connection with underwriting or the offer or sale of
Securities of the Trust) with any person, including any Trustee, officer,
employee or agent of the Trust or any person affiliated with a Trustee, officer,
employee or agent of the Trust, whether or not any of them has a financial
interest in such transaction.
Section 6. Insurance. The Trust shall have the power to purchase and
pay for out of Trust Property insurance policies insuring the Trust and the
Trust Property against any and all risks, and insuring the Shareholders, the
Trustees, officers, employees and agents of the Trust individually against all
claims and liabilities of every nature arising by reason of holding or having
held any such status, office or position or by reason of any
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action alleged to have been taken or omitted (including those alleged to
constitute misconduct, gross negligence, reckless disregard of duty or bad
faith) by any such Person in such capacity, whether or not the Trust would have
the power to indemnify such Person against such claim or liability.
ARTICLE IX
AMENDMENT
Section 1. General. This Declaration of Trust may not be amended
except as provided in this Article IX.
Section 2. By Trustees. The Trustees, by a two-thirds vote, may amend
any provision of this Declaration of Trust from time to time to enable the Trust
to qualify as a real estate investment trust under the Code or under Title 8.
Section 3. By Shareholders. Except as provided in Section 2 of this
Article IX, this Declaration of Trust may be amended only by the affirmative
vote of the holders of not less than a majority of the Shares then outstanding
and entitled to vote thereon.
ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8.
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ARTICLE XI
MISCELLANEOUS
This Declaration of Trust is executed by the Trustees and delivered in
the State of Maryland with reference to the laws thereof, and the rights of all
parties and the validity, construction and effect of every provision hereof
shall be subject to and construed according to the laws of the State of Maryland
without regard to conflicts of laws provisions thereof.
IN WITNESS WHEREOF, this Declaration of Trust has been executed on
this 9th day of October, 1996 by the undersigned Trustees, each of whom
acknowledges that this document is his act, that to the best of his knowledge,
information, and belief, the matters and facts set forth herein are true in all
material respects and that this statement is made under the penalties for
perjury.
/s/Joseph W. Barr
---------------------------------
Joseph W. Barr
/s/Timothy C. Coughlin
---------------------------------
Timothy C. Coughlin
/s/Timothy A. Lex
---------------------------------
Timothy A. Lex
/s/F. Anderson Morse
---------------------------------
F. Anderson Morse
/s/David W. Scott
---------------------------------
David W. Scott
/s/Robert L. Sloan
---------------------------------
Robert L. Sloan
/s/William B. Snyder
---------------------------------
William B. Snyder
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RIGGS PREFERRED CAPITAL
BYLAWS
ARTICLE I
OFFICES
SECTION 1. Principal Office. The principal office of the Trust shall
be located at such place or places as the Trustees may designate.
SECTION 2. Additional Offices. The Trust may have additional offices
at such places as the Trustees may from time to time determine or the business
of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Place. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
SECTION 2. Annual Meeting. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held during the month of October of each year, after the
delivery of the annual report, referred to in Section 12 of this Article II, at
a convenient location and on proper notice, on a date and at the time set by the
Trustees, beginning with the year 1997. Failure to hold an annual meeting does
not invalidate the Trust's existence or affect any otherwise valid acts of the
Trust.
SECTION 3. Special Meetings. The chairman of the Board or the
president or three of the Trustees may call special meetings of the
shareholders. Special meetings of shareholders shall also be called by the
secretary upon the written request of the holders of shares entitled to cast not
less than a majority of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. The secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment by such shareholders
<PAGE>
to the Trust of such costs, the secretary shall give notice to each shareholder
entitled to notice of the meeting. Unless requested by shareholders entitled to
cast a majority of all the votes entitled to be cast at such meeting, a special
meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any meeting of the shareholders held during the
preceding twelve months.
SECTION 4. Notice. Not less than ten nor more than 90 days before each
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such shareholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
shareholder at his post office address as it appears on the records of the
Trust, with postage thereon prepaid.
SECTION 5. Scope of Notice. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
SECTION 6. Organization. At every meeting of the shareholders, the
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of both
the Secretary and assistant secretaries, a person appointed by the Chairman
shall act as Secretary.
SECTION 7. Quorum. At any meeting of shareholders, the presence in
person or by proxy of
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shareholders entitled to cast a majority of all the votes entitled to be cast at
such meeting shall constitute a quorum; but this section shall not affect any
requirement under any statute or the Declaration of Trust for the vote necessary
for the adoption of any measure. If, however, such quorum shall not be present
at any meeting of the shareholders, the shareholders entitled to vote at such
meeting, present in person or by proxy, shall have the power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 8. Voting. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come before the meeting, unless more than a majority of the votes
cast is required herein or by statute or by the Declaration of Trust. Unless
otherwise provided in the Declaration of Trust, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders.
SECTION 9. Proxies. A shareholder may vote the shares owned of record
by him, either in person or by proxy executed in writing by the shareholder or
by his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Trust before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 10. Voting of Shares by Certain Holders. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the board
of directors of such corporation or other entity or agreement of the partners of
a partnership presents a certified copy
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of such bylaw, resolution or agreement, in which case such person may vote such
shares. Any trustee or other fiduciary may vote shares registered in his name as
such fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision of the Declaration of Trust or
these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article
of the Annotated Code of Maryland (or any successor statute) shall not apply to
any acquisition by any person of shares of beneficial interest of the Trust.
This section may be repealed, in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may, to the
extent provided by an successor bylaw, apply to any prior or subsequent control
share acquisition.
SECTION 11. Inspectors. At any meeting of shareholders, the chairman
of the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report
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the results and perform such other acts as are proper to conduct the election
and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the result of the voting shall
be prima facie evidence thereof.
SECTION 12. Reports to Shareholders.
The Trustees shall submit to the shareholders at or before the annual
meeting of shareholders a report of the business and operations of the Trust
during such fiscal year, containing a balance sheet and a statement of income
and surplus of the Trust, accompanied by the certification of an independent
certified public accountant, and such further information as the Trustees may
determine is required pursuant to any law or regulation to which the Trust is
subject. Within the earlier of 20 days after the annual meeting of shareholders
or 120 days after the end of the fiscal year of the Trust, the Trustees shall
place the annual report on file at the principal office of the Trust and with
any governmental agencies as may be required by law and as the Trustees may deem
appropriate.
SECTION 13. Nominations and Shareholder Business.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction of the
Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record both at the time of giving of notice provided for in this Section 13(a)
and at the time of the annual meeting, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this Section 13(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 13, the shareholder must have given timely notice thereof in
writing to the secretary of the Trust. To be timely, a shareholder's notice
shall be delivered to the secretary at
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the principal executive offices of the Trust not less than 60 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date or if the Trust has not previously held an annual meeting,
notice by the shareholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (i) as to each person whom
the shareholder proposes to nominate for election or reelection as a Trustee all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Trustees, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a Trustee if
elected); (ii) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and of the beneficial
owner, if any, on whose behalf the nomination or proposal is made; and (iii) as
to the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (x) the name and address of such
shareholder, as they appear on the Trust's books, and of such beneficial owner
and (y) the number of shares of each class of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 13 to the contrary, in the event that the number of
Trustees to be elected to the Board of Trustees is increased and there is no
public announcement naming all of the nominees for Trustee or specifying the
size of the increased Board of Trustees made by the Trust at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section 13(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the secretary at the principal executive offices of the
Trust not later than the close of business on
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the tenth day following the day on which such public announcement is first made
by the Trust.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13(b). In the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Trust's notice of meeting, if the
shareholders notice containing the information required by paragraph (a)(2) of
this Section 13 shall be delivered to the secretary at the principal executive
offices of the Trust not earlier than the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior to
such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Trustees to be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 13 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 13 and, if any proposed nomination or business is not in
compliance with this Section 13, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 13, "public announcement" shall mean
disclosure in a press release
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reported by the Dow Jones News Service, Associated Press or comparable news
service or in a document publicly filed by the Trust with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13. Nothing in this Section 13 shall be deemed
to affect any rights of shareholders to request inclusion of proposals in the
Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 14. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by
shareholders entitled to cast a sufficient number of votes to approve the
matter, as required by the statute, the Declaration of Trust of the Trust or
these Bylaws, and such consent is filed with the minutes of proceedings of the
shareholders.
SECTION 15. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
SECTION 1. General Powers; Qualifications; Trustees Holding Over. The
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age who
is not under legal disability. In case of failure to elect Trustees at an annual
meeting of the shareholders, the Trustees holding over shall continue to direct
the management of the business and affairs of the Trust until their successors
are elected and qualify.
SECTION 2. Number. At any regular meeting or at any special meeting
call for that purpose, a majority of the entire Board of Trustees may establish,
increase or decrease the number of Trustees.
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SECTION 3. Annual and Regular Meetings. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the Trustees may be
called by or at the request of the chairman of the board or the president or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
SECTION 5. Notice. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address or by telephone or facsimile transmission.
Personally delivered or telegraphed notices shall be given at least two days
prior to the meeting. Notice by mail shall be given at least five days prior to
the meeting. Telephone or facsimile-transmission notice shall be given at least
24 hours prior to the meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail properly addressed, with postage
thereon prepaid. If given by telegram such notice shall be deemed to be given
when the telegram is delivered to the telegraph company. Telephone notice shall
be deemed given when the Trustee is personally given such notice in a telephone
call to which he is a party and notice by facsimile transmission shall be deemed
given upon receipt by the sender of confirmation indicating receipt of the
transmission. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the trustees need be stated in the notice
unless specifically required by the statute or these Bylaws.
SECTION 6. Quorum. A majority of the Trustees shall constitute a
quorum for transaction of business at any meeting of the Trustees, provided
that, if less than a majority of such Trustees are present at said meeting, a
majority of the Trustees present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group
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of Trustees is required for action, a quorum must also include a majority of
such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
SECTION 7. Voting. The action of the majority of the Trustees present
at a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion is required for such action by
applicable statute.
SECTION 8. Telephone Meetings. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
SECTION 9. Informal Action by Trustees. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
SECTION 10. Vacancies. If for any reason any or all of the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder. Any vacancy (including
a vacancy created by an increase in the number of Trustees) shall be filled, at
any regular meeting or at any special meeting called for that purpose, by a
majority of the Trustees though less than a quorum. Any individual so elected as
Trustee shall hold office for the unexpired term of the Trustee he is replacing.
SECTION 11. Compensation; Financial Assistant.
(a) Compensation. Trustees shall not receive any stated salary for
their services as Trustees but, by resolution of the Trustees, may receive fixed
sums per year and/or per meeting and/or per visit to real property owned or to
be acquired by the Trust and for any service or activity they performed or
engaged in as Trustees. Trustees may be reimbursed for expenses of attendance,
if any, at each annual, regular or special meeting of the Trustees or of any
committee thereof; and for their expenses, if any, in
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connection with each property visit and any other service or activity performed
or engaged in as Trustees; but nothing herein contained shall be construed to
preclude any Trustees from serving the Trust in any other capacity and receiving
compensation therefor.
(b) Financial Assistant to Trustees. The Trust may lend money to,
guarantee an obligation of or otherwise assist a Trustee or a trustee of its
direct or indirect subsidiary. The loan, guarantee or other assistance may be
with or without interest, unsecured, or secured in any manner that the Board of
Trustees approves, including a pledge of Shares.
SECTION 12. Removal of Trustees. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
SECTION 13. Loss of Deposits. No trustee shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.
SECTION 14. Surety Bonds. Unless required by law, no Trustee shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
SECTION 15. Reliance. Each Trustee, officer, employee and agent of the
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protect with regard to any act or failure to act in reliance
in good faith upon the books of account or other records of the Trust, upon an
opinion of counsel or upon reports made to the Trust by any of its officers or
employees or by the adviser, accountants, appraisers or other experts or
consultants selected by the Trustees or officers of the Trust, regardless of
whether such counsel or expert may also be a Trustee.
SECTION 16. Interested Trustee Transactions. Section 2-419 of the
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
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SECTION 17. Certain Rights of Trustees, Officers, Employees and
Agents. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust, in his person capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar or in addition to or in competition with those of
or relating to the Trust.
ARTICLE IV
COMMITTEES
SECTION 1. Number, Tenure and Qualifications. The Trustees may appoint
from among its members an Executive Committee, an Audit Committee, a Credit
Committee and other committees, composed of two or more Trustees, to serve at
the pleasure of the Trustees.
SECTION 2. Powers. The Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
SECTION 3. Meetings. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee to act in the place of such
absent member. Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Trustees.
One-third, but not less than two, of the members of any committee
shall be present in person at any meeting of such committee in order to
constitute a quorum for the transaction of business at such meeting, and the act
of a majority present shall be the act of such committee. The Board of Trustees
may designate a chairman of any committee, and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
such committee, the members thereof present at any meeting and not disqualified
from voting, whether or not they constitute a quorum, may unanimously appoint
another Trustee to act at the meeting in the place of such absent or
disqualified members.
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of
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Trustees at the next succeeding meeting, and any action by the committee shall
be subject to revision and alteration by the Board of Trustees, provided that no
rights of third persons shall be affected by any such revision or alteration.
SECTION 4. Telephone Meetings. Members of a committee of the Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
SECTION 5. Informal Action by Committees. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
SECTION 6. Vacancies. Subject to the provisions hereof, the Board of
Trustees shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
SECTION 1. General Provisions. The officers of the Trust shall include
a president, a secretary and a treasurer and may include a chairman of the
board, a vice chairman of the board, a chief executive officer, a chief
operating officer, a chief financial officer, one or more vice presidents, one
or more assistant secretaries and one or more assistant treasurers. In addition,
the Trustees may from time to time appoint such other officers with such powers
and duties as they shall deem necessary or desirable. The officers of the Trust
shall be elected annually by the Trustees at the first meeting of the Trustees
held after each annual meeting of shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except
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president and vice president may be held by the same person. In their
discretion, the Trustees may leave unfilled any office except that of president
and secretary. Election of an officer or agent shall not of itself create
contract rights between the Trust and such officer or agent.
SECTION 2. Removal and Resignation. Any officer or agent of the Trust
may be removed by the Trustees if in their judgment the best interests of the
Trust would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the Trust
may resign at any time by giving written notice of his resignation to the
Trustees, the chairman of the board, the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Trust.
SECTION 3. Vacancies. A vacancy in any office may be filled by the
Trustees for the balance of the term.
SECTION 4. Chief Executive Officer. The Trustees may designate a chief
executive officer from among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the chairman and vice chairman of the
board, the chief executive officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
SECTION 5. Chief Operating Officer. The Trustees may designate a chief
operating officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
SECTION 6. Chief Financial Officer. The Trustees may designate a chief
financial officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
SECTION 7. Chairman and Vice Chairman of the Board. The chairman of
the board shall preside over the
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meetings of the Trustees and of the shareholders at which he shall be present
and shall in general oversee all of the business and affairs of the Trust. In
the absence of the chairman of the board, the vice chairman of the board shall
preside at such meetings at which he shall be present. The chairman and the vice
chairman of the board may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Trustees or by these Bylaws to some other officer or agent of
the trust or shall be required by law to be otherwise executed. The chairman of
the board and the vice chairman of the board shall perform such other duties as
may be assigned to him or them by the Trustees.
SECTION 8. President. In the absence of the chairman, the vice
chairman of the board and the chief executive officer, the president shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a chief executive officer
by the Trustees, the president shall be the chief executive officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The president may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Trustees or by these Bylaws to some other officer
or agent of the Trust or shall be required by law to be otherwise executed; and
in general shall perform all duties incident to the office of chief executive
officer and such other duties as may be prescribed by the Trustees from time to
time.
SECTION 9. Vice Presidents. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
SECTION 10. Secretary. The secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books
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provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the trust records and of the seal of the Trust; (d) keep a register of the post
office address of each shareholder which shall be furnished to the secretary by
such shareholder; (e) have general charge of the share transfer books of the
Trust; and (f) in general perform such other duties as from time to time may be
assigned to him by the chief executive officer or by the Trustees.
SECTION 11. Treasurer. The treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
The treasurer shall disburse the funds of the Trust as may be ordered
by the Trustees, taking proper vouchers for such disbursements, and shall render
to the president and Trustees, at the regular meetings of the Trustees or
whenever they may require it, an account of all his transactions as treasurer
and of the financial condition of the Trust.
If required by the Trustees, he shall give the Trust a bond in such
sum and with such surety or sureties as shall be satisfactory to the Trustees
for the faithful performance of the duties of his office and for the restoration
to the Trust, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, moneys and other property of whatever
kind in his possession or under his control belonging to the Trust.
SECTION 12. Assistant Secretaries and Assistant Treasurers. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Trustees. The assistant treasurers shall, if required
by the Trustees, give bonds for the faithful performance of their duties in such
sums and with such surety or sureties as shall be satisfactory to the Trustees.
SECTION 13. Salaries. The salaries and other compensation of the
officers shall be fixed from time to time by the Trustees and no officer shall
be prevented from
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receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. The Trustees may authorize any officer or agent
to enter into any contract or to execute and deliver any instrument in the name
of and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
deemed valid and binding upon the Trustees and upon the Trust when so authorized
or ratified by action of the Trustee.
SECTION 2. Checks and Drafts. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust in such manner as shall from time to time be determined by the
Trustees.
SECTION 3. Deposits. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
SECTION 1. Certificates. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the chief executive officer, the president or a
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as
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to their transferability or voting powers, which are preferred or limited as to
their dividends or as to their allocable portion of the assets upon liquidation
or which are redeemable at the option of the Trust, shall have a statement of
such restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. In lieu of such statement or
summary, the Trust may set forth upon the face or back of the certificate a
statement that the Trust will furnish to any shareholder, upon request and
without charge, a full statement of such information.
SECTION 2. Transfers. Certificates shall be treated as negotiable and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. Upon
surrender to the Trust or the transfer agent of the Trust of a share certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Trust shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
The Trust shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share 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 the State of Maryland.
Notwithstanding the foregoing, transfers of shares of beneficial
interest of the Trust will be subject in all respects to the Declaration of
Trust and all the terms and conditions contained therein.
SECTION 3. Replacement Certificate. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of any affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, an officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it
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against any loss or claim which may arise as a result of the issuance of a new
certificate.
SECTION 4. Closing of Transfer Books or Fixing of Record Date. The
Trustees may set, in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of shareholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of shareholders is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the Trustees,
declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing the expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
SECTION 5. Share Ledger. The Trust shall maintain at its principal
office or at the office of its
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counsel, accountants or transfer agent, an original or duplicate share ledger
containing the name and address of each shareholder and the number of shares of
each class held by such shareholder.
SECTION 6. Fractional Shares; Issuance of Units. Trustees may issue
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the Declaration of Trust or these Bylaws, the Trustees may issue units
consisting of different securities of the Trust. Any security issued in a unit
shall have the same characteristics as any identical securities issued by the
Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Trustees shall have the power, from time to time, to fix the
fiscal year of the Trust by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
SECTION 1. Authorization. Dividends and other distributions upon the
shares of beneficial interest of the Trust may be authorized and declared by the
Trustees, subject to the provisions of law and the Declaration of Trust.
Dividends may be paid in cash, property or shares of the Trust, subject to the
provisions of law and the Declaration of Trust.
SECTION 2. Contingencies. Before payment of any dividends, there may
be set aside out of any funds of the Trust available for dividends or other
distributions such sum or sums as the Trustees may from time to time, in their
absolute discretion, think proper as a reserve fund for contingencies, for
equalizing dividends or other distributions, for repairing or maintaining any
property of the Trust or for such other purpose as the Trustees shall determine
to be in the best interest of the Trust, and the
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Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Declaration of Trust, the Trustees
may from time to time adopt, amend, revise or terminate any policy or policies
with respect to investments by the Trust as they shall deem appropriate in their
sole discretion.
ARTICLE XI
SEAL
SECTION 1. Seal. The Trustees may authorize the adoption of a seal by
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its organization. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
SECTION 2. Affixing Seal. Whenever the Trust is permitted or required
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any
former Trustee, officer or shareholder (including among the foregoing, for all
purposes of this Article XII and without limitation, any individual who, while a
Trustee, officer or shareholder and at the express request of the Trust, serves
or has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, shareholder,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) who has been successful, on the
merits or otherwise, in the defense of a proceeding
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to which he was made a party by reason of service in such capacity, against
reasonable expenses incurred by him in connection with the proceeding, (b) any
Trustee or officer or any former Trustee or officer against any claim or
liability to which he may become subject by reason of such status unless it is
established that (i) his act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit in
money, property or services or (iii) in the case of a criminal proceeding, he
had reasonable cause to believe that his act or omission was unlawful and (c)
each shareholder or former shareholder against any claim or liability to which
he may become subject by reason of such status. In addition, the Trust shall,
without requiring a preliminary determination of the ultimate entitlement to
indemnification, pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason of
such status provided that, in the case of a Trustee or officer, the Trust shall
have received (i) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (ii) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses as the
case may be, to
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the fullest extent permitted by the MGCL, as in effect from time to time, for
directors of Maryland corporations.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws.
ARTICLE XV
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments and any supplements thereto.
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EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated October 9, 1996 with respect to the financial statement of Riggs
Preferred Capital and to all references to our Firm included in the Prospectus
constituting part of this Registration Statement on Form S-11.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Washington, D.C.
October 9, 1996
II-7
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin and Linda A. Madrid my true and lawful
attorneys-in-fact and agents to do any and all acts and things and to execute
any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/Timothy A. Lex
------------------------------
Timothy A. Lex
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/Joseph W. Barr
------------------------------
Joseph W. Barr
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission, ( the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing of the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/John L. Davis
------------------------------
John L. Davis
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/F. Anderson Morse
------------------------------
F. Anderson Morse
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy A. Lex and Linda A. Madrid my true and lawful attorneys-in-fact
and agents to do any and all acts and things and to execute any and all
instruments which said attorneys-in-fact and agents may deem necessary or
advisable to enable the Trust and RPC Holding Co. to comply with the Securities
Act of 1933, as amended, and any requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under said Act of 4,600,000 shares of ___% Noncumulative Preferred
Shares of Beneficial Interest, Series A, liquidation preference $25.00 per
share, of the Trust including specifically, but without limitation thereof, full
power and authority to sign my name as a trustee and/or officer of the Trust to
the Registration Statement on Form S-11, or such other form for the registration
of securities as the Commission may require covering such shares and to any
amendment or amendments (including, without limitation, post-effective
amendments) or supplements to said registration statement or statements and to
the prospectus or prospectuses relating thereto, and to certify on my behalf
that, to the best of my knowledge and belief, the Trust meets all of the
requirements for filing the Registration Statement on Form S-11, hereby
ratifying and confirming all that said attorneys-in-fact and agents shall do or
cause to be done by virtue hereof; and to do any and all acts and things and to
execute any and all other instruments, documents or agreements which said
attorneys-in-fact and agents may deem necessary or advisable to enable the Trust
or RPC Holding Co. to accomplish and complete the transactions contemplated in
the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/Timothy C. Coughlin
------------------------------
Timothy C. Coughlin
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/David W. Scott
------------------------------
David W. Scott
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/Robert L. Sloan
------------------------------
Robert L. Sloan
<PAGE>
RIGGS PREFERRED CAPITAL
RPC HOLDING COMPANY
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a trustee
and/or officer of Riggs Preferred Capital, a Maryland real estate investment
trust (the "Trust"), and as a director and/or officer of RPC Holding Company, a
Delaware corporation ("RPC Holding Co."), do hereby nominate, constitute and
appoint Timothy C. Coughlin, Timothy A. Lex and Linda A. Madrid my true and
lawful attorneys-in-fact and agents to do any and all acts and things and to
execute any and all instruments which said attorneys-in-fact and agents may deem
necessary or advisable to enable the Trust and RPC Holding Co. to comply with
the Securities Act of 1933, as amended, and any requirements of the Securities
and Exchange Commission (the "Commission") in respect thereof, in connection
with the registration under said Act of 4,600,000 shares of ___% Noncumulative
Preferred Shares of Beneficial Interest, Series A, liquidation preference $25.00
per share, of the Trust including specifically, but without limitation thereof,
full power and authority to sign my name as a trustee and/or officer of the
Trust to the Registration Statement on Form S-11, or such other form for the
registration of securities as the Commission may require covering such shares
and to any amendment or amendments (including, without limitation,
post-effective amendments) or supplements to said registration statement or
statements and to the prospectus or prospectuses relating thereto, and to
certify on my behalf that, to the best of my knowledge and belief, the Trust
meets all of the requirements for filing the Registration Statement on Form
S-11, hereby ratifying and confirming all that said attorneys-in-fact and agents
shall do or cause to be done by virtue hereof; and to do any and all acts and
things and to execute any and all other instruments, documents or agreements
which said attorneys-in-fact and agents may deem necessary or advisable to
enable the Trust or RPC Holding Co. to accomplish and complete the transactions
contemplated in the Registration Statement on Form S-11.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of
October, 1996.
/s/William B. Snyder
------------------------------
William B. Snyder
