<PAGE> 1
================================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
OCWEN ASSET INVESTMENT CORP.
--------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 6798 65-0736120
- ------------------------------------ ------------------------------------ ------------------------------------
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
Incorporator or organization) Classification Code Number) Identification Number)
</TABLE>
1675 PALM BEACH LAKES BLVD.
WEST PALM BEACH, FLORIDA 33401
(561) 682-8000
--------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
WILLIAM C. ERBEY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
OCWEN ASSET INVESTMENT CORP.
1675 PALM BEACH LAKES BLVD.
WEST PALM BEACH, FLORIDA 33401
(561) 682-8000
--------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
COPY TO:
GERARD L. HAWKINS, ESQ.
KENNETH B. TABACH, ESQ.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
734 15TH STREET, N.W.
WASHINGTON, D.C. 20005
Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement, as
determined by market conditions.
If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED(2) PER UNIT(2) OFFERING PRICE(2)(3) FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities, Preferred Stock, par value
$0.01 per share, Common Stock, par value
$0.01 per share, and Warrants(4) $250,000,000 (5) 100% (5) $250,000,000 $73,750
=======================================================================================================================
</TABLE>
- ---------------
(1) This Registration Statement also covers delayed delivery contracts
which may be issued by the Registrant under which the counterparty may
be required to purchase Debt Securities, Preferred Stock, Common Stock
or Warrants. Such contracts would be issued with the Debt Securities,
Preferred Stock, Common Stock and/or Warrants. In addition, any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) In no event will the aggregate maximum offering price of all securities
issued under this Registration Statement exceed $250,000,000 (or the
equivalent thereof in one or more foreign currencies or composite
currencies) or, if any Debt Securities are issued with original issue
discount, such greater amount as shall result in proceeds of not more
than $250,000,000 to the Registrant.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as
amended.
(4) There is also being registered hereunder (i) an indeterminate number of
shares of Common Stock and Preferred Stock as may be issued upon the
exercise of the Warrants, (ii) an indeterminate number of shares of
Common Stock and Preferred Stock as may be issued in exchange for, or
upon conversion of, the Debt Securities and an indeterminate number of
shares of Common Stock as may be issued in exchange for, or upon
conversion of, the Preferred Stock. No separate consideration will be
received for any securities registered hereunder that are issued in
exchange for, or upon conversion of, as the case may be, Debt
Securities, Preferred Stock and/or Warrants registered hereunder.
(5) Not applicable pursuant to General Instruction II.D. of Form S-3 under
the Securities Act of 1933, as amended.
-----------------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
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 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 jurisdiction in which such offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any
such jurisdiction.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
PROSPECTUS
OCWEN ASSET INVESTMENT CORP.
$250,000,000
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND WARRANTS
Ocwen Asset Investment Corp. (the "Company"), a Virginia corporation
that has elected to be taxed as a real estate investment trust ("REIT") for
federal income tax purposes, may from time to time offer in one or more series
its debt securities (the "Debt Securities"), shares of its preferred stock, par
value $.01 per share (the "Preferred Stock"), shares of its common stock, par
value $.01 per share (the "Common Stock"), and warrants to purchase Preferred
Stock or Common Stock (the "Warrants"), with an aggregate public offering price
of up to $250,000,000 (or its foreign currency equivalent based on the exchange
rate at the time of sale) in amounts, at prices and on terms to be determined
at the time of offering. The Debt Securities, Preferred Stock, Common Stock and
Warrants (collectively, the "Securities") may be offered, separately or
together, in separate series in amounts, at prices and on terms to be set forth
in one or more supplements to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, ranking, aggregate principal amount, currency,
form (which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder, terms for sinking fund payments, terms
for conversion into Preferred Stock or Common Stock, covenants and any initial
public offering price; (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Common Stock, any public offering price; and (iv) in the case of Warrants, the
number and terms thereof, the designation and number or amount of Preferred
Stock or Common Stock issuable upon their exercise, the exercise price, the
terms of the offering and sale thereof and, where applicable, the duration and
detachability thereof. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust REIT for federal income tax purposes.
The applicable Prospectus Supplement also will contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from
time to time by the Company or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such Securities.
The Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "OAC."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE COMPANY.
-----------------
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
-----------------
The date of this Prospectus is __________ __, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company can be inspected and
copied at prescribed rates at the Commission's Public Reference Room, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
Regional Offices of the Commission: 7 World Trade Center, 13th Floor, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained by mail from
the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. If available, such reports and other
information also may be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). The
Common Stock is traded on the NYSE and, consequently, such reports, proxy
statements and other information also may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information included in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus and any accompanying Prospectus
Supplement concerning the provisions or contents of any contract, agreement or
any other document referred to herein are not necessarily complete. With
respect to each such contract, agreement or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference to the copy of the applicable
document filed with the Commission. The Registration Statement, including the
exhibits thereto, may be inspected without charge at the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. and copies of it or any part
thereof may be obtained from such office, upon payment of the fees prescribed
by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company
pursuant to Section 13 of the Exchange Act are incorporated by reference in
this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1997;
(b) Quarterly Reports on Form 10-Q for the three months ended
March 31, 1998 and June 30, 1998;
(c) Current Reports on Form 8-K dated January 26, 1998, February 6,
1998, March 19, 1998, April 8, 1998 (as amended on June 12, 1998), May
7, 1998, June 18, 1998, July 16, 1998, July 24, 1998, August 6, 1998
(as amended on September 15, 1998), September 17, 1998 and September
22, 1998; and
(d) Form 8-A, filed on April 21, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of all securities to which this Prospectus relates
shall be deemed to be incorporated herein by reference and be a part hereof
from the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, in any Prospectus Supplement relating
to a specific offering of Securities, or in any subsequently filed document
which also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any accompanying Prospectus Supplement.
2
<PAGE> 4
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
incorporated by reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Investor Relations, Ocwen Asset
Investment Corp., 1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida
33401, telephone (561) 682- 8400.
THE COMPANY
GENERAL
The Company is a hybrid REIT based in West Palm Beach, Florida which
specializes in investments in real estate and real estate-related assets. The
Company was incorporated in Virginia on January 22, 1997 and was capitalized on
May 19, 1997 with $283.7 million of net proceeds from the initial public
offering (the "Initial Public Offering") of its Common Stock. The Company is
externally managed and advised by Ocwen Capital Corporation (the "Manager"),
which is a Florida corporation and a wholly-owned subsidiary of Ocwen Financial
Corporation ("Ocwen Financial"), a Florida corporation and a diversified
financial services company that is primarily engaged in the acquisition,
servicing and resolution of subperforming and nonperforming residential and
commercial mortgage loans and other servicing - intensive assets and in diverse
mortgage lending activities.
The Company generally seeks opportunistic investments that capitalize
on inefficiencies in the real estate and mortgage markets and leverage the
operating infrastructure of the Manager. Such investments consist primarily of
(i) subordinate and residual interests in collateralized mortgage obligations
and other mortgage-backed securities (collectively, "mortgage-related
securities") and (ii) underperforming or otherwise distressed commercial and
multifamily real property, including properties acquired by mortgage lenders at
foreclosure or through deed-in-lieu thereof. The Company believes that these
investment activities complement each other from both a cash flow and a tax
planning perspective. Generally, distressed commercial real estate can provide
significant long-term upside potential after the assets are repositioned, while
providing modest yields during the repositioning process. Furthermore, taxable
income during the holding period generally would be less than both cash flow
and funds from operations ("FFO"), which does not recognize depreciation and
amortization of real estate assets as operating expenses or include gains
(losses) from debt restructuring and sales of property. In contrast,
subordinate and residual interests in mortgage-related securities, which
generally are unrated or rated below investment grade by one or more credit
rating agencies, generally can provide significant current period income to
balance the often initially lower yield from repositioning real estate assets.
Further, taxable income from subordinate and residual interests would generally
exceed FFO and cash flow in the early years of the investment.
The Company also invests, by way of purchase and origination, in other
real estate-related assets, including (i) commercial, multifamily and
single-family mortgage loans, including construction and renovation loans and
mezzanine loans, which comprise the Company's loan portfolio, and (ii)
nonperforming and subperforming mortgage loans, which generally are purchased
at a discount to their unpaid principal amount and comprise the Company's
discount loan portfolio.
3
<PAGE> 5
STRATEGY OF THE COMPANY
The Company's general strategy for investment is to take advantage of
the expertise of the Manager and its affiliates, particularly Ocwen Federal
Bank FSB (the "Bank"), a wholly-owned subsidiary of Ocwen Financial, in
acquiring, servicing and resolving nonperforming and subperforming loans and
investments in real estate, as well as in the origination and servicing of
other servicing-intensive assets, such as construction and renovation loans.
See "-- The Manager and Ocwen Financial" below. The Company draws on this
expertise in part by primarily investing in mortgage-related securities under
circumstances in which, among other things, the Company can control the
foreclosure process and appoint the Bank as special service of the defaulted
loans which back the securities purchased by the Company. Moreover, the Company
generally acquires subordinate and residual interests in mortgage-related
securities in privately-negotiated transactions, which allows the Manager
to utilize its expertise to perform due diligence on the underlying mortgage
loans as well as the underlying real estate prior to purchase, thus mitigating
certain risks associated with purchasing below investment grade subordinate and
residual interests. The Manager also provides the Company with substantial
expertise in connection with its investments in distressed real estate and
other real estate- related assets.
STRUCTURE OF THE COMPANY
The Company conducts its business primarily through Ocwen Partnership,
L.P. (the "Operating Partnership"), a Virginia limited partnership, and its
other subsidiaries. Ocwen General, Inc. (the "General Partner"), a Virginia
corporation and a wholly-owned qualified REIT subsidiary of the Company, is the
general partner of and controls the Operating Partnership. In addition, as of
June 30, 1998, Ocwen Limited, Inc. (the "Original Limited Partner"), a Virginia
corporation and a wholly-owned qualified REIT subsidiary of the Company, owned
approximately a 90.4% limited partnership interest in the Operating
Partnership. The remaining limited partnership interests in the Operating
Partnership are held by Ocwen Financial through Investors Mortgage Insurance
Holding Company ("IMIHC"), a wholly-owned subsidiary of Ocwen Financial.
The relationship among the Company, the Operating Partnership, the
General Partner and the Original Limited Partner is commonly referred to as an
umbrella partnership REIT (or "UPREIT") structure. In this structure, the
Company holds the same number of units in the Operating Partnership (through
the General Partner and the Original Limited Partner) as the number of shares
of Common Stock which the Company has issued and outstanding. As a result, any
additional units issued by the Operating Partnership share ratably with the
Common Stock of the Company in any distributions made by the Operating
Partnership. The benefit of this structure is that owners of real estate assets
may transfer them to the UPREIT while deferring the recognition of the built-in
gain for tax purposes. See "Operating Partnership Agreement."
THE MANAGER AND OCWEN FINANCIAL
The Company's business and investment affairs are managed by the
Manager, a wholly-owned subsidiary of Ocwen Financial. Ocwen Financial has been
actively involved since its formation in 1988 in the real estate and mortgage
markets and brings significant expertise to the Company in acquiring and
managing distressed real estate and real estate-related assets. Since commencing
its business of acquiring and resolving subperforming and nonperforming mortgage
loans in mid-1991, Ocwen Financial has acquired over $6.2 billion aggregate
principal amount of distressed single-family residential, multifamily and
commercial real estate loans and currently ranks (based on 1997 and 1996 loan
acquisition volumes) as the largest purchaser of domestic distressed residential
and commercial real estate loan portfolios in the United States. These
activities have given the Bank substantial expertise in resolving defaulted
mortgage loans and managing the residential and commercial real estate which it
may acquire in connection with resolving such loans. The Bank also services
mortgage loans for others on a fee basis. These services include (i) special
servicing, which generally involves asset management and resolution services
with respect to defaulted mortgage loans within a pool of mortgage loans and
with respect to the management and disposal of foreclosed properties, (ii)
primary servicing, which involves the monitoring
4
<PAGE> 6
of assets and collection and distribution of cash flow with respect to a pool
of mortgage loans and also may include special servicing functions, and (iii)
sub-servicing, which generally involves performing primary servicing and/or
special servicing functions for a master service through a sub-servicing
arrangement. The Bank believes that it is currently the leading service of
defaulted mortgage loans in the United States.
The Company's relationship with Ocwen Financial provides a number of
advantages. First, Ocwen Financial's primary operating subsidiary, the Bank, is
a leading service of problem loans and distressed real estate. As a result, the
Company is able to benefit from Ocwen Financial's experience in managing and
repositioning underperforming real estate and real estate-related assets. In
addition, these strengths also enhance the Company's ability to invest in
subordinate and residual interests in circumstances in which the Company
acquires the right to control the foreclosure process and appoint the Bank as
special service of the underlying loans. Second, the Company benefits from
Ocwen Financial's technology and proprietary software applications, which
include asset acquisition, loss mitigation and default management systems.
Third, the Company's relationship with Ocwen Financial provides it with access
to markets, positive name recognition and the opportunity to co-bid on
transactions with Ocwen Financial. And finally, the Company's relationship with
Ocwen Financial generally allows the Company to leverage the substantial
infrastructure and expertise which has been developed by Ocwen Financial in
connection with its substantial and diverse experience in dealing with real
estate and real estate-related investments.
The Company attempts to minimize potential conflicts of interest
between it and the Manager and its affiliates, which also invest in real estate
related investments, by assigning investments by asset class. In this regard,
the management agreement between the Company and the Manager (the "Management
Agreement") gives the Company the first option to invest in subordinate and
residual interests collateralized by loans originated by third parties and
distressed real estate. The Company also seeks to minimize potential conflicts
of interest by maintaining a majority of directors who are independent of the
Manager and its affiliates.
Ocwen Financial is a registered savings and loan holding company
subject to regulation by the Office of Thrift Supervision ("OTS"). The Bank is
subject to regulation by the OTS, as its chartering authority, and by the
Federal Deposit Insurance Corporation, which insures the Bank's deposits up to
the maximum extent permitted by law.
Ocwen Financial's executive offices are located at 1675 Palm Beach
Lakes Boulevard, West Palm Beach, Florida 33401, and the telephone number of
its executive offices is (561) 682-8000.
RISK FACTORS
Prospective investors should carefully review the following factors,
as well as the other information contained or incorporated by reference in this
Prospectus in connection with an investment in the Securities offered hereby.
Certain statements contained herein are not, and certain statements contained
in future filings by the Company with the Commission, in the Company's press
releases or in the Company's other public or shareholder communications, may
not be based on historical facts and are "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These forward-looking statements, which are based on various
assumptions (some of which are beyond the Company's control), may be identified
by reference to a future period(s) or by the use of forward-looking terminology
such as "anticipate," "believe," "commitment," "consider," "continue," "could,"
"encourage," "estimate," "update," "whether," "expect," "intend," "in the event
of," "may," "plan," "present," "propose," "prospect," "update," "whether,"
"will," "would," future or conditional verb tenses, similar terms, variations
on such terms or negatives of such terms. Although the Company believes the
anticipated results or other expectations reflected in such forward-looking
statements are based on reasonable assumptions, it can give no assurance that
those results or expectations will be attained. Actual results could differ
materially from those indicated in such statements due to risks, uncertainties
and changes with respect to a variety of factors, including, but not limited
to, international, national, regional or local economic environments
(particularly in the market areas where the Company operates), government
fiscal and monetary policies (particularly in the market areas where the
Company operates), prevailing interest or currency exchange rates,
effectiveness of interest rate, currency and other hedging strategies, laws and
regulations affecting real estate investment trusts and investment companies
(including income and property taxation, access for disabled persons and
environmental compliance), uncertainty of foreign laws, competitive products
and pricing, competitive conditions (including from competitors that have
significantly greater resources than the Company), credit, prepayment, basis,
default, subordination and asset/liability risks, loan servicing effectiveness,
the ability to identify acquisitions and investment opportunities meeting the
Company's investment strategy, the course of negotiations and the ability to
reach agreement with respect to the material terms of any particular
transaction, satisfactory due diligence results, satisfaction or fulfillment of
agreed upon terms and conditions of closing or performance, the timing of
transaction closings, acquisitions and the integration of acquired businesses,
software integration, development and licensing, the financial and securities
markets, the availability of and costs associated with obtaining adequate and
timely sources of liquidity, dependence on existing sources of funding, ability
to repay or refinance indebtedness at maturity, the Company's ability to
generate revenues sufficient to meet debt service payments and other operating
expenses, taxable income exceeding cash flow, availability of discount loans
for purchase, size of, nature of and yields available with respect to the
secondary market for mortgage loans and the market for securizations,
allowances for loan losses, geographic concentrations of assets (temporary or
otherwise), timely leasing of unoccupied square footage (generally and upon
lease expiration), changes in real estate conditions (including liquidity,
valuation, revenues, rental rates, occupancy levels and competing properties),
adequacy of insurance coverage in the event of a loss, known or unknown
environmental conditions, external management, conflicts of interest, Year 2000
compliance, other factors generally understood to affect the real estate
acquisitions, mortgage and leasing markets, securities investments and rapid
growth companies, and other risks detailed from time to time in the Company's
reports and filings with the Commission, including its Registration Statements
on Forms S-1, S-3, S-4 and/or S-11 and periodic reports on Forms l0-Q, 8-K and
10-K. Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company does not undertake, and specifically
disclaims any obligation, to publicly release the results of any revisions
which may be made to any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such
statements.
5
<PAGE> 7
MORTGAGE-RELATED SECURITIES RISKS
The Company invests in subordinate and residual interests in
collateralized mortgage obligations ("CMOs"), including CMOs which have
qualified as Real Estate Mortgage Investment Conduits ("REMICs") under the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other
mortgage-related securities, which are subject to the risks set forth below, as
well as indirectly to the risks set forth under "-- Real Estate Investment
Risks" and "-- Lending Activities Risks."
Credit and Prepayment Risks from Ownership of Subordinate Interests in
Pools of Commercial Mortgage Loans and Subordinate and Residual Interests in
Pools of Residential Mortgage Loans. Subordinate and residual interests in
mortgage-related securities are subject to risks associated with both the
credit quality of the underlying loans and prepayments of such loans. In regard
to credit risks, subordinate and residual interests provide credit support to
the more senior classes of the mortgage-related securities and include "first
loss" unrated, credit support subordinate and residual interests. A "first
loss" security is the most subordinated class of a multi-class issuance of
pass-through or debt securities and is the first to bear the loss upon a
default on the underlying collateral. Such classes are subject to special
risks, including a substantially greater risk of loss of principal and
non-payment of interest than more senior, rated classes. Although the market
values of most subordinate classes (which includes "first loss" unrated
interests) and residual classes tend to react less to fluctuations in interest
rate levels than more senior, rated classes, the market values of subordinate
and residual classes tend to be more sensitive to changes in economic
conditions than more senior, rated classes. As a result of these and other
factors, subordinate and residual interests generally are traded less
frequently than investment-grade securities and may not provide holders thereof
with liquidity of investment.
The yield to maturity on subordinate and residual interests generally
is extremely sensitive to the default and loss experience of the underlying
mortgage loans and the timing of any such defaults or losses. Because
subordinate and residual interests generally have no credit support, to the
extent there are realized losses on the mortgage loans comprising the mortgage
collateral for such securities, the Company may not recover the full amount or,
indeed, any of its initial investment in such subordinate and residual
interests. In this regard, the Company generally emphasizes the purchase of
subordinate and residual interests in mortgage-related securities backed by
commercial and multifamily real estate loans and by single-family residential
loans made to borrowers who, because of prior credit problems, the absence of a
credit history or other factors, are unable or unwilling to qualify as
borrowers under guidelines established by the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA")
for purchases of loans by such agencies ("subprime loans"). Such subordinate
and residual interests generally involve more risk than subordinate and
residual interests in mortgage-related securities backed by single-family
residential loans which conform to the requirements established by FHLMC and
FNMA for their purchase by such agencies ("conforming loans") or
mortgage-related securities backed by such loans.
The subordination of subordinate and residual interests to more senior
classes may adversely affect the yield on the subordinate and residual
interests even if realized losses are not ultimately allocated to such classes.
On any payment date, interest and principal generally are paid on the more
senior classes before interest and principal are paid with respect to the
unrated or non-investment grade credit support classes. Typically, interest
deferred on these credit support classes is payable on subsequent payment dates
to the extent funds are available, but such deferral may not itself bear
interest. Such deferral of interest will affect adversely the yield on the
subordinate and residual interests.
The yield on subordinate interests also will be affected by the rate
and timing of payments of principal (including prepayments, repurchase,
defaults and liquidations) on the mortgage loans underlying a series of
mortgage-related securities. The rate of principal payments may vary
significantly over time depending on a variety of factors such as the level of
prevailing mortgage loan interest rates and economic, demographic, tax, legal
and other factors. Prepayments on the mortgage loans underlying a series of
mortgage-related securities are generally allocated to the more
6
<PAGE> 8
senior classes of mortgage-related securities until those classes are paid in
full or, in the case of multifamily and commercial real estate loans, until the
end of a lock-out period, which is typically five years or more. As a result,
the weighted-average lives of the subordinate interests may be longer than
would be the case if, for example, prepayments were allocated pro rata to all
classes of mortgage-related securities. To the extent that the holder of
subordinate interests is not paid compensating interest on interest shortfalls
due to prepayments, liquidations or otherwise, the yield on the subordinate
interests may be affected adversely.
The yield to maturity of residuals is very sensitive not only to
default losses but also to the rate and timing of prepayments on the underlying
loans. Interest amounts otherwise allocable to residuals generally are used to
make payments on more senior classes or to fund a reserve account for the
protection of senior classes until overcollateralization or the balance in the
reserve account reaches a specified level. The yield to maturity of residuals
is very sensitive to changes in the weighted average life of such securities,
which in turn is dictated by the rate of prepayments on the underlying mortgage
loans. In periods of declining interest rates, rates of prepayments on mortgage
loans generally increase, and if the rate of prepayments is faster than
anticipated, then the yield on the residuals will be negatively affected.
Interest Rate Risks and Other Risks from Ownership of IOs and Inverse
IOs. Although the Company has no intention of acquiring interest only ("IOs")
and inverse floating-rate, interest only ("Inverse IOs") classes of
mortgage-related securities, it may do so in the future in appropriate
circumstances. IOs are classes of mortgage-related securities that are entitled
to payments of interest but no (or only nominal) payments of principal. As in
the case of subordinate and residual interests, the yield to maturity of IOs
and Inverse IOs is very sensitive to prepayments of the underlying mortgage
loans. This is particularly the case with respect to IOs backed by
single-family residential loans, which generally do not have prepayment
penalties and "lock-out" provisions commonly included in multifamily and
commercial real estate loans, which are intended to discourage prepayments or
prohibit prepayments for specified periods. In order to hedge a portfolio of
IOs, the Company may purchase Inverse IOs, which bear interest at a floating
rate that varies inversely with (and often at a multiple of) changes in a
specified index.
Subordinate and Residual Interests May Generate Taxable Income
Exceeding Cash Flow. Subordinate and residual interests, including residual
interests which are designated as REMIC residual interests under the Code,
receive cash flow in excess of amounts needed to make payments on other classes
of the security or to fund a related reserve account. Cash flow otherwise
allocable to subordinate or residual interests is used to protect senior
classes of securities from credit losses on the underlying mortgage loans.
Moreover, in any given year, the taxable income produced by a subordinate or
residual interest may exceed its cash flow. If the Company was deemed to have a
substantial amount of such "phantom income" in any particular year, the Company
could be required to borrow funds or to liquidate assets in order to meet the
REIT distribution requirement for such year.
REAL ESTATE INVESTMENT RISKS
Value and Revenue of Real Estate are Dependent on Conditions Beyond
the Company's Control. Investment in distressed real properties is subject to
varying degrees of risk which are generally incident to the ownership of real
property. The underlying value of distressed real properties and the Company's
income and ability to make distributions to its shareholders are dependent upon
the ability of the Manager to operate the distressed real properties in a
manner sufficient to maintain or increase revenues in excess of operating
expenses and debt service and the ability of the lessee(s) to make rent
payments. Revenues may be adversely affected by adverse changes in national or
local economic conditions, competition from other properties offering the same
or similar services, changes in interest rates and in the availability, cost
and terms of mortgage funds, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for
capital improvements (particularly in older structures), changes in real estate
tax rates and other operating expenses, adverse changes in governmental rules
and fiscal policies, civil unrest, acts of God, including earthquakes, floods,
hurricanes and other natural disasters (which may result in uninsured losses),
acts of war, adverse changes in zoning laws and other factors which are beyond
the control of the Company. Revenues also may be affected by problems
experienced by lessees, which may weaken their financial condition and result
in
7
<PAGE> 9
failure to make rental payments when due. At any time, a lessee of the
Company's properties may seek the protection of bankruptcy laws, which could
result in rejection and termination of the lessee's lease and thereby cause a
reduction in cash flow available for distribution to the Company. As a result
of the foregoing factors and other factors discussed below, no assurances can
be given that the fair market value and/or revenues of the Company's
investments in real estate will not decrease in the future.
Distressed Real Properties May Have Unleased Space or Other Leasing
Risks. Distressed real properties may have significant amounts of unleased
space or be subject to other leasing risks, which may include the existence of
restrictive or below market rents in place. The Company is subject to the risk
that a property cannot be leased to the extent necessary to produce sufficient
revenue both to meet operating expenses and debt service and to provide a
return on the investment. In addition, the Company is and will be subject to
the risks that upon expiration, leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. If the Company is
unable to promptly relet or renew leases for all or a substantial portion of
this space, or if the rental rates upon such renewal or reletting are
significantly lower than expected, the Company's cash flow and ability to make
payments to holders of Securities could be adversely affected.
Impact of Competition on Occupancy Levels and Rents Charged. Numerous
properties compete with the Company's properties in attracting tenants to lease
space. Some of the competing properties may be newer, better located or owned
by parties better capitalized than the Company. The number of competitive real
estate properties in a particular area could have a material adverse effect on
(i) the ability to lease space in the Company's properties and (ii) the rents
charged.
Illiquidity of Real Estate. Real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to
vary its portfolio in response to changes in economic or other conditions. In
addition, the Code limits a REIT's ability to sell properties held for fewer
than four years, which may affect the Company's ability to sell properties.
The Company's Insurance Will Not Cover All Losses. The Company
maintains comprehensive insurance on each of its distressed real properties,
including liability and fire and extended coverage, in amounts sufficient to
permit the replacement of the properties in the event of a total loss, subject
to applicable deductibles, or in the case of a property acquired by foreclosure
or by deed-in-lieu thereof in an amount equal to the lesser of the unpaid
principal balance of the loan and actual cash value of the property, dependent
upon the status of the property. There are certain types of losses, however,
generally of a catastrophic nature, such as earthquakes, floods and hurricanes,
that may be uninsurable or not economically insurable. Inflation, changes in
building codes and ordinances, environmental considerations and other factors
also might make it not feasible to use insurance proceeds to replace a property
if it is damaged or destroyed. Under such circumstances, the insurance proceeds
received by the Company might not be adequate to restore its economic position
with respect to the affected distressed real property. The Company's policy is
to secure earthquake insurance equal to the probable maximum loss in areas
where appropriate and available. To date, the Company has purchased earthquake
insurance in amounts equal to the "probable maximum loss" for all of the
properties it has acquired in San Francisco, California. There can be no
assurance, however, that such coverage is sufficient or that it will continue
to be available upon expiration of the current terms.
Property Taxes Decrease Returns on Real Estate. Each distressed real
property is subject to real and, in some instances, personal property taxes.
The real and personal property taxes on properties in which the Company invests
may increase or decrease as property tax rates change and as the properties are
assessed or reassessed by taxing authorities. If property taxes increase, the
Company's ability to make payments to holders of Securities could be adversely
affected.
Compliance with Americans with Disabilities Act and Other Changes in
Governmental Rules and Regulations May Be Costly. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public properties are required to
meet certain federal requirements related to access and use by disabled
persons. Distressed real properties acquired by
8
<PAGE> 10
the Company may not be in compliance with the ADA. If a property is not, the
Company will be required to make modifications to such property to bring it in
compliance or face the possibility of an imposition of fines or an award of
damages to private litigants. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and operation of the
distressed real properties, including changes to building codes and fire and
life-safety codes, may occur. If the Company were required to make substantial
modifications at the distressed real properties to comply with the ADA or other
changes in governmental rules and regulations, the Company's ability to make
payments to holders of Securities could be adversely affected. As part of its
due diligence process the Company generally engages structural engineers to
evaluate ADA compliance for all property purchases and includes in its
acquisition budget capital improvement estimates for such work. However, there
can be no assurance that such estimates will be sufficient.
Real Properties with Hidden Environmental Problems Will Increase Costs
and May Create Liability for the Company. Operating costs and the value of
distressed real property may be affected by the obligation to pay for the cost
of complying with existing environmental laws, ordinances and regulations, as
well as the cost of future legislation. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Therefore,
an environmental liability could have a material adverse effect on the
underlying value of a distressed real property, the Company's income and cash
available for payments to holders of Securities.
The Company generally obtains Phase I environmental assessments on all
distressed real properties prior to their acquisition by the Company. The
purpose of Phase I environmental assessments is to identify potential
environmental contamination that is made apparent from historical reviews of
the properties, reviews of certain public records, preliminary investigations
of the sites and surrounding properties, and screening for the presence of
hazardous or toxic substances and underground storage tanks. It is possible,
however, that these reports will not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware.
Real Properties with Known Environmental Problems May Create Liability
for the Company. The Company may invest in real estate with known environmental
problems that materially impair the value of the real estate, either directly
or indirectly through the acquisition of mortgage loans and mortgage-related
securities. If so, the Company generally intends to take certain steps to limit
its liability for such environmental problems, such as creating a special
purpose entity to own such real estate. Despite these steps, there are risks
associated with such an investment. The Company's policy is to limit its
investments in environmentally distressed real property to no more than 10% of
the Company's total assets.
LENDING ACTIVITIES RISKS
Greater Risks of Loss from Multifamily, Commercial and Construction
Lending Activities. The Company originates and acquires loans secured by
existing commercial real estate or multifamily real estate, including loans
that are subordinate to first liens on such real estate. Loans with higher
loan-to-value ratios, including loans that are subordinate to first liens on
real estate, are subject to greater risks of loss than lower loan-to-value
ratio first lien mortgage loans. An overall decline in the real estate market
could adversely affect the value of the property securing the loans such that
the aggregate outstanding balance of the loan made by the Company and the
balance of the more senior loan on the property exceed the value of the
property. The Company may, in some cases, seek to mitigate this risk by
providing a mezzanine loan to the entity that owns a property, secured by a
controlling equity interest in such owner, so that, in the event of a default,
the Company can take over the management of the property and seek to reduce the
amount of losses. There can be no assurance, however, that the Company will be
able to do so. Alternatively, the mezzanine loans could take the form of a
preferred equity investment in a single purpose entity.
The Company also originates loans for the construction or
rehabilitation of commercial and multifamily real estate. Multifamily and
commercial real estate lending, particularly construction and rehabilitation
lending, is generally
9
<PAGE> 11
considered to involve a higher degree of risk than single-family residential
lending because of a variety of factors, including generally larger loan
balances, dependency on successful completion or operation of the project for
repayment, difficulties in estimating construction costs and loan terms that
often require little or no amortization of the loan over its term (typically
five years) and, instead, provide for a balloon payment at stated maturity.
Furthermore, mezzanine loans, which are subordinate to a senior loan or loans,
and construction loans generally have higher loan-to-value ratios than
conventional loans. Although the borrower generally will have an equity
investment of 10% to 15% of total project costs, such equity may not be
sufficient to protect the Company's investment in these higher-yielding loans.
Default Risks Associated with Distressed Mortgage Loans. Nonperforming
and subperforming mortgage loans may presently be in default or may have a
greater than normal risk of future defaults and delinquencies, as compared to
newly-originated, high-quality loans of comparable type, size and geographic
concentration. Returns on an investment of this type depend on the borrower's
ability to make required payments or, in the event of default, the ability of
the loan's service to foreclose and liquidate the mortgage loan. There can be
no assurance that the service can liquidate a defaulted mortgage loan
successfully or in a timely fashion.
Allowances for Loan Losses. Future additions to the allowance for loan
losses established by the Company for potential losses on its loan and discount
loan portfolios may be necessary due to changes in economic conditions,
increases in loans and discount loans and the performance of the Company's loan
and discount loan portfolios. Increases in the Company's provisions for losses
on loans would adversely affect the Company's results of operations.
FINANCING RISKS
Inability to Repay or Refinance Indebtedness at Maturity. The Company
is subject to risks normally associated with debt financing, including the risk
that the Company's cash flow will be insufficient to meet required payments of
principal and interest, the risk that any indebtedness will not be able to be
refinanced or that the terms of any such refinancing will not be as favorable
as the terms of current indebtedness. If the Company's indebtedness cannot be
refinanced at maturity, extended or paid with proceeds from the issuance of
additional debt or equity securities on terms reasonably satisfactory to the
Company, the Company's cash flow may not be sufficient in all years to pay
distributions at expected levels and to repay all maturing debt. Moreover,
these risks may be greater because of the Company's current and possible future
reliance on shorter-term financing. Furthermore, if prevailing interest rates
or other factors at the time of refinancing result in higher interest rates,
the interest expense relating to such refinanced indebtedness would increase,
adversely affecting the Company's cash flow and the amounts available for
payments to holders of Securities.
Incurrence of Additional Indebtedness. The Company may incur
additional indebtedness in the future, subject to certain limitations contained
in the instruments governing its indebtedness and in guidelines adopted by the
Board of Directors for the Company's operations, which currently provide that
the ratio of the Company's overall Indebtedness to its Equity will not exceed
four to one. "Indebtedness" for this purpose includes only full recourse debt
of the Company and excludes any debt issued in a securitization transaction or
otherwise for which recourse is limited to a fixed pool of assets; "Equity" for
this purpose excludes any assets pledged to secure limited recourse debt. The
Company's ability to incur additional indebtedness depends upon, among other
things, the amount of its unencumbered assets, which is linked to prevailing
interest rates, and changes in the credit quality of encumbered assets
underlying existing indebtedness. If the Company became more highly leveraged,
its debt service could increase to a level that could adversely affect the
Company's cash flow and, consequently, the amount available for payments to
holders of Securities, as well as increase the risk of default on the Company's
indebtedness.
Need for Additional Financing. The Company's ability to execute its
business strategy depends to a significant degree on its ability to obtain
additional indebtedness and equity capital. Factors which could affect the
Company's access to the capital markets, or the costs of such capital, include
changes in interest rates, general economic conditions and the perception in
the capital markets of the Company's business, results of operations, leverage,
financial condition
10
<PAGE> 12
and business prospects. Each of these factors is to a large extent subject to
economic, financial, competitive and other factors beyond the Company's
control.
POTENTIAL ADVERSE EFFECTS OF CHANGES IN INTEREST RATES AND OTHER ECONOMIC
CONDITIONS
Potential Adverse Effects of Changes in Interest Rates. The Company's
operations are significantly affected by current interest rates, which are
highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond the control of the Company. Changes in the general level
of interest rates can affect the Company's net interest income, which is the
difference between the interest income earned on interest-earning assets and
the interest expense incurred in connection with its interest-bearing
liabilities, by affecting the spread between the Company's interest-earning
assets and interest-bearing liabilities. Changes in the level of interest rates
also can affect, among other things, the ability of the Company to originate
and acquire loans, the value of the Company's mortgage-related securities and
other interest-earning assets and its ability to realize gains from the sale of
such assets. See "-- Mortgage-Related Securities Risks."
Potential Adverse Effects of Interest Rate Hedging Strategies. The
Company may utilize a variety of financial instruments, including interest rate
swaps, caps, floors and other interest rate exchange contracts, in order to
limit the effects of interest rates on its operations. The use of these types
of derivatives to hedge interest-earning assets and/or interest-bearing
liabilities carries certain risks, including the risk that losses on a hedge
position will reduce the funds available for payments to holders of Securities
and, indeed, that such losses may exceed the amount invested in such
instruments. There is no perfect hedge for any asset or liability, and a hedge
may not perform its intended purpose of offsetting losses or increased costs.
Moreover, with respect to certain of the instruments used as hedges, the
Company is exposed to the risk that the counterparties with which the Company
trades may cease making markets and quoting prices in such instruments, which
may render the Company unable to enter into an offsetting transaction with
respect to an open position. If the Company anticipates that the income from
any such hedging transaction will not be qualifying income for REIT income test
purposes, the Company may conduct part or all of its hedging activities through
a to-be- formed corporate subsidiary that is fully subject to federal corporate
income taxation. See "-- Potential Adverse Tax Consequences of Failure to
Qualify as a REIT and Other Tax Liabilities." The profitability of the Company
may be adversely affected during any period as a result of changing interest
rates.
Potential Effects of Changes in Economic Conditions. The Company's
success is dependent upon the general economic conditions in the geographic
areas in which a substantial number of its investments are located. Adverse
changes in national economic conditions or in the economic conditions of the
regions in which the Company conducts substantial business likely would have an
adverse effect on real estate values, interest rates and, accordingly, the
Company's business. Moreover, earthquakes and other natural disasters could
have similar effects. See "-- Real Estate Investment Risks -- The Company's
Insurance Will Not Cover All Losses." The Company has substantial investments
in real estate located in San Francisco, California (over $150 million as of
June 30, 1998, inclusive of a mortgage loan secured by real estate) and, as a
result, the Company's performance and its ability to make payments to holders
of Securities likely will be dependent to a large extent on the economic
conditions in this market area.
INVESTMENTS SUBJECT TO CURRENCY CONVERSION RISKS AND UNCERTAINTY OF FOREIGN LAWS
The Company may invest in real estate, mortgage loans secured by real
estate or mortgage-related securities backed by real estate, located outside
the United States. Directly or indirectly investing in real estate located in
foreign countries creates risks associated with the uncertainty of foreign laws
and markets. Moreover, investments in foreign assets are subject to currency
conversion risks. Although Ocwen Financial has only recently commenced
investing in foreign real estate and real estate-related assets, the Company
believes that Ocwen Financial's experience with distressed assets will be
helpful to the management of such assets. The Company's policy is to limit its
investments in foreign real estate to no more than 25% of the Company's total
assets.
11
<PAGE> 13
RISKS ASSOCIATED WITH GROWTH
The Company is currently experiencing a period of rapid growth. The
integration of recent acquisitions into existing management and operating
structures presents a management challenge. Although the Company believes that
the Manager has sufficient management depth to lead the Company through this
period of rapid growth, there can be no assurance that the Company will be able
to assimilate these recent acquisitions or any further acquisitions into its
portfolio without certain operating disruptions and unanticipated costs. The
failure to successfully integrate acquisitions could have an adverse effect on
the Company's results of operations and financial condition and its ability to
make payments to holders of Securities.
COMPETITION
The Company engages in highly competitive businesses. The acquisition
of subordinated interests, distressed real properties and nonperforming and
subperforming mortgage loans often is based on competitive bidding. In
addition, the Company encounters significant competition in its lending
activities. Multifamily residential and commercial real estate lending is
highly fragmented with certain large competitors and significant local
competition. Many of the Company's competitors are significantly larger than
the Company, have established operating histories and procedures, may have
access to greater capital and other resources and may have other advantages
over the Company in conducting certain businesses and providing certain
services.
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including
growth, debt, capitalization and operations, are determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the shareholders of
the Company. In addition, the Board of Directors may change the Company's
policies with respect to conflicts of interest, provided that such changes are
consistent with applicable legal requirements. A change in these policies could
adversely affect the Company's financial condition, results of operations or
the market price of its outstanding securities.
POTENTIAL ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT AND OTHER TAX
LIABILITIES
Consequences of Failure to Qualify as a REIT. The Company believes
that it has been organized and operated, and intends to continue to operate, so
as to qualify as a REIT under the Code, commencing with its short taxable year
ended December 31, 1997. There can be no assurance, however, that the Company
is now or will continue to be organized or operated in a manner so as to so
qualify or remain so qualified. Moreover, qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. The Company's qualification and taxation as a REIT
depends on 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. No assurances can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. If the
Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Moreover, unless
entitled to relief under certain statutory provisions, the Company also would
be disqualified from treatment as a REIT for the four taxable years following
the year during which qualification was lost. Because distributions to
shareholders would no longer be deductible in determining taxable income, this
treatment would significantly reduce the earnings of the Company available for
investment to holders of Securities because of the additional tax liability to
the Company for the years involved.
12
<PAGE> 14
95% Distribution Requirement and Other Tax Liabilities. The Company
must distribute annually at least 95% of its net taxable income (excluding any
net capital gains) to avoid corporate income taxation of the earnings that it
distributes. In addition, the Company will be subject to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions paid by it
with respect to any calendar year are less than the sum of (i) 85% of its
ordinary income for that year, (ii) 95% of its capital gain net income for that
year and (iii) 100% of its undistributed taxable income from prior years.
The Company intends to make distributions to its shareholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax for each of its taxable years. However, differences in timing
between the recognition of taxable income and the actual receipt of cash could
require the Company to borrow funds or sell assets on a short-term basis to
meet the 95% distribution requirement and to avoid the nondeductible excise
tax. The requirement to distribute a substantial portion of the Company's net
taxable income could cause the Company (i) to sell assets in adverse market
conditions, (ii) to distribute amounts that represent a return of capital or
(iii) to distribute amounts that would otherwise be spent on future
acquisitions, unanticipated capital expenditures, or repayment of debt. Gain
from the disposition of any asset held primarily for sale to customers in the
ordinary course of business generally will be subject to a 100% tax.
The Company acquires subordinate and residual interests and other debt
obligations that are deemed to have original issue discount ("OID") for federal
income tax purposes, which is generally equal to the difference between an
obligation's issue price and its redemption price. The Company also acquires
subordinate and residual interests and other debt obligations that are deemed
to have market discount for federal income tax purposes, which generally is
equal to the excess of an obligation's redemption price over the basis of the
obligation at the time of purchase. The income generated by such instruments
for federal income tax purposes consists of amortization of the OID, the market
discount and the coupon interest associated with the instruments. The Company
is required to recognize as income each year the portion of the OID and market
discount that accrues during that year, which increases the REIT distribution
requirement for that year, notwithstanding the fact that there may be no
corresponding contemporaneous receipt of cash by the Company. REMIC residual
interests also may generate taxable income in excess of cash flow or economic
income in any year. In addition, certain taxable income produced by a REMIC
residual interest may cause some of the Company's shareholders to suffer
certain adverse tax consequences. Consequently, an acquisition by the Company
of subordinate and residual interests, other debt obligations that are deemed
to have OID or market discount or REMIC residual interests could have the
effect of requiring the Company to incur borrowings or to liquidate a portion
of its portfolio at rates or times that the Company regards as unfavorable to
meet the REIT distribution requirement, notwithstanding that depreciation
deductions associated with the Company's distressed real properties help offset
the adverse tax effects of the OID and market discount generated by the
Company's other holdings.
RISK OF LOSS OF INVESTMENT COMPANY ACT EXEMPTION
The Company believes that it is not, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
Under the Investment Company Act, a non-exempt entity that is an investment
company is required to register with the Commission and is subject to
extensive, restrictive and potentially adverse regulation relating to, among
other things, operating methods, management, capital structure, dividends and
transactions with affiliates. The Investment Company Act exempts entities that,
directly or through majority-owned subsidiaries, are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interests"). Under current
interpretations by the staff of the Commission, in order to qualify for this
exemption, the Company, among other things, must maintain at least 55% of its
assets in Qualifying Interests and also may be required to maintain an
additional 25% in Qualifying Interests or other real estate-related assets. The
assets that the Company may acquire therefore may be limited by the provisions
of the Investment Company Act. The Company's investments in real estate and
mortgage loans generally constitute Qualifying Interests. In addition, the
Company believes that subordinate and residual interests in mortgage-related
securities constitute Qualifying Interests for purposes of the Investment
Company Act when the Company has certain rights regarding foreclosure on the
loans which back its interests in such securities.
13
<PAGE> 15
In this regard, the Company generally emphasizes subordinate and residual
interests in mortgage-related securities in which the Company acquires the
right to (i) direct the foreclosure upon any defaulted loan which backs such
securities and to take all other actions that a service generally may take in
connection with a defaulted loan and/or (ii) designate the Bank (or another
party) as special service with respect to any defaulted mortgage loan, subject
to the Company's right to exercise the rights set forth in clause (i). When
such arrangements exist, the Company believes that the related subordinate and
residual security constitutes a Qualifying Interest for purposes of the
Investment Company Act. Although the Company believes that its assets which are
deemed to constitute Qualifying Interests exceed 55% of its total assets and
that it has sufficient additional Qualifying Interests or other real
estate-related assets so that it is not required to register as an investment
company under the Investment Company Act, it does not intend to seek an
exemptive order, no-action letter or other form of interpretive guidance from
the Commission or staff on this position. If the Commission or its staff were
to take a different position with respect to whether the Company's subordinate
and residual interests constitute Qualifying Interests, the Company could be
required either (a) to change the manner in which it conducts its operations to
avoid being required to register as an investment company or (b) to register as
an investment company, either of which could have a material adverse effect on
the Company, the price of its securities and the ability to make payments to
holders of Securities. Further, if it were established that the Company were an
unregistered investment company, there would be a risk that the Company would
be subject to monetary penalties and injunctive relief in an action brought by
the Commission, that the Company would be unable to enforce contracts with
third parties and that third parties could seek to obtain recission of
transactions undertaken during the period it was established that the Company
was an unregistered investment company.
EXTERNAL MANAGEMENT OF THE COMPANY
The Company is managed by the Manager, subject to the supervision of
the Board of Directors of the Company. Thus, the Company is dependent on the
services of the Manager and its officers and employees for the success of the
Company. Moreover, the Manager's personnel are employees of the Bank, and
accordingly, the Company's success depends in part on the continuing ability of
Ocwen Financial to hire and retain knowledgeable personnel. This ability may be
affected, in turn, by Ocwen Financial's continued financial health. Finally,
the Company is subject to the risk that the Manager will terminate the
Management Agreement and that no suitable replacement can be found to manage
the Company.
The Manager is a wholly-owned subsidiary of Ocwen Financial, a
registered savings and loan holding company that conducts substantial
operations through the Bank, a federally-chartered savings bank. Both Ocwen
Financial and the Bank are subject to extensive government supervision and
regulation, which is intended primarily for the protection of depositors. In
addition, each of Ocwen Financial and the Bank are subject to changes in
federal and state laws, including changes in tax laws that could materially
affect the real estate industry, as well as changes in regulations,
governmental policies and accounting principles. Such changes may increase
Ocwen Financial's and the Bank's costs of doing business and assist their
competitors. Any such added burdens may adversely affect the Manager's ability
to carry out its management functions and/or the Bank's ability to provide
mortgage loan servicing for the Company, as well as affect the ability of the
Manager and its affiliates to enter into other arrangements with the Company.
POTENTIAL CONFLICTS OF INTEREST
The Company is subject to various potential conflicts of interest
arising from its relationship with the Manager and its affiliates, including
the following:
(i) As of June 30, 1998, Ocwen Financial beneficially owned 1,540,000
shares or 8.1% of the outstanding Common Stock, as well as options to purchase
1,912,500 shares of Common Stock. As of the same date, Ocwen Financial also
indirectly owned an 8.7% limited partnership interest in the Operating
Partnership.
(ii) Two of the members of the Board of Directors of the Company and
all of its officers are employed by the Bank and devote substantial time to the
affairs of the Bank and Ocwen Financial.
14
<PAGE> 16
(iii) Pursuant to the Management Agreement, the Manager renders
management services to the Company for a management fee based on average
invested assets, which also benefits the Manager as the asset size of the
Company increases, regardless of the performance of the Company's assets. In
addition, the incentive portion of the management fee, which is based on the
Company's FFO, as adjusted, may create an incentive for the Manager to
recommend investments that have greater income potential but are generally more
speculative than if the management fee did not include a performance component.
(iv) Although the Manager has granted to the Company the first option
to acquire distressed real estate and subordinate and residual interests backed
by loans which were not formerly owned by the Manager and its affiliates, as
discussed below, Ocwen Financial, the Bank and other affiliates of the Manager
invest in other assets that the Company invests in, including a wide variety of
mortgage-related securities and single-family, multifamily and commercial real
estate loans, including subperforming and nonperforming loans. The Manager and
its affiliates have no obligation to make investment opportunities available to
the Company, and as a result, the Company's ability to invest in certain real
estate related assets may be limited to the extent that such assets are
attractive to Ocwen Financial or one of its affiliates.
(v) Because they share certain investment strategies, from time to
time the Company may acquire assets from Ocwen Financial, the Bank and other
affiliates of the Manager and co-participate in investment transactions with
these entities.
The Company and the Manager have taken a number of steps with a view
towards protecting the Company and its shareholders from potential conflicts of
interest. Significantly, the Company's Amended and Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), provide that,
except in the case of an unfilled vacancy, a majority of the Board of Directors
must be Independent Directors. See "Certain Provisions of Virginia Law and of
the Company's Articles and Bylaws - Board of Directors."
The Independent Directors have established general guidelines for the
Company's investments, borrowings and operations (the "Guidelines"). The
Independent Directors review transactions engaged in by the Company on a
quarterly basis to monitor compliance with the Guidelines and review the
Company's investment policies annually. The Independent Directors rely
primarily on information provided to them by the Manager in conducting these
reviews and do not otherwise participate in the Company's daily operations.
Pursuant to the Guidelines, any acquisition of assets from or any
transactions with the Manager or one of its affiliates must be approved in
advance by a majority of the Independent Directors. In making each decision,
the Independent Directors consider information provided by the Manager and such
other information as they deem appropriate to determine whether the investment
is consistent with the Guidelines, whether the price is fair and whether the
investment is otherwise in the best interests of the Company.
Pursuant to the Management Agreement and the Guidelines, the Company
has the first option to invest in distressed real estate and subordinate and
residual interests collateralized by loans originated by third parties.
Therefore, the Manager and its affiliates will not invest in any such
particular asset unless a majority of the Independent Directors have decided
that the Company should not invest in such particular asset. In deciding
whether to invest in such an asset, the Independent Directors may consider,
among other factors, whether the asset is well-suited for the Company and
whether the Company is financially able to take advantage of the investment
opportunity.
The Management Agreement and the Guidelines also provide that if a
large pool of mortgage loans and real estate is offered for sale by a third
party pursuant to a competitive bidding process, the Manager or its affiliates
may bid on such pool jointly with an unaffiliated entity, as long as the
Manager or its affiliates take title only to the loans and not to the real
estate. In the alternative, the Manager may, but is not required to, invite the
Company to bid jointly on such a pool. If the Manager or its affiliates and the
Company, on the one hand, or the Manager or its affiliates and an unaffiliated
third party, on the other hand, are successful in such a bid, the Manager will
take title to the loans and the
15
<PAGE> 17
Company or the unaffiliated third party, as the case may be, will take title to
the real estate, unless otherwise approved by a majority of the Independent
Directors.
The Management Agreement and the Guidelines also provide that if the
Company and the Manager or its affiliates co-participate in a loan, the terms
of the participation would be structured so that the Bank would service the
loans and retain a market servicing fee, after which the remaining proceeds
from the loan would be shared pari passu in accordance with the ownership
interests in the loan, unless another arrangement were approved by a majority
of the Independent Directors.
The Management Agreement and the Guidelines do not limit or restrict
the right of the Manager or any of its directors, officers, employees or
affiliates from engaging in any business or rendering services of any kind to
any other person, including the purchase of or rendering advice to others
purchasing real estate assets that meet the Company's policies and criteria.
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
The Company conducts its business primarily through the Operating
Partnership and its qualified REIT subsidiaries. All of the assets of the
Company are held by subsidiaries and all of the Company's operating revenues
are derived from the operations of such subsidiaries. Therefore, the Company's
ability to make payments or distributions on the Securities is dependent upon
earnings of its subsidiaries and the distribution of sufficient funds from its
direct and indirect subsidiaries to the Company. The Company's subsidiaries
will have no obligation, contingent or otherwise, to make any funds available
to the Company for payments or distributions on the Securities and will not be
guarantors of the Securities. Moreover, to the extent that assets of the
Company held through subsidiaries of the Company secure borrowings incurred by
such subsidiaries, the ability of such subsidiaries to declare dividends or
make distributions to the Company will be limited.
Because the Company conducts all of its operations through the
Operating Partnership and its qualified REIT subsidiaries, the right of the
Company (and therefore the right of the Company's creditors and shareholders)
to participate in any distribution of the assets or earnings of its
subsidiaries is subject to the prior claims of creditors of such subsidiaries,
including any claims of the Company as a creditor to the extent such claims may
be recognized.
YEAR 2000 RISK
The Company believes that the systems of the Manager are capable of
functioning from and after the year 2000 without any material additional costs.
The ability of third parties with whom the Manager transacts business on behalf
of the Company to adequately address their year 2000 issues is outside of the
Company's control. There can be no assurance that the failure of the Manager,
the Company or such third parties to adequately address their respective year
2000 issues will not have a material adverse effect on the Company.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
the Company intends to invest, contribute or otherwise transfer the net
proceeds of any sale of Securities to the Operating Partnership, which would
use such net proceeds for general business purposes, including the acquisition
of subordinate and residual interests in mortgage-related securities,
underperforming and otherwise distressed multifamily residential and commercial
real estate and other assets in accordance with the Company's strategic
objectives. Pending such application, the net proceeds may be invested in
short-term, interest-bearing securities which are consistent with the Company's
intention to continue to qualify for taxation as a REIT and/or to pay down debt
on a temporary basis.
16
<PAGE> 18
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the period from
May 14, 1997 to December 31, 1997 was not meaningful and for the six months
ended June 30, 1998 earnings were insufficient to cover fixed charges of $7.9
million by $3.9 million. Excluding a non-recurring item, consisting of a $14.0
million mark-to-market loss related to the Company's portfolio of interest-only
and inverse interest-only mortgage-related securities backed by single-family
residential loans, which was sold by the Company in May 1998, the Company's
ratio of earnings to fixed charges for the six months ended June 30, 1998 would
have been 2.27. There were no shares of Preferred Stock outstanding during the
foregoing periods. Accordingly, the ratio of earnings to combined fixed charges
and Preferred Stock dividends is identical to the ratio of earnings to fixed
charges.
For purposes of computing the ratio of earnings to fixed charges,
earnings have been calculated by adding fixed charges (excluding capitalized
interest) to income (loss) before taxes. Fixed charges consist of interest
costs, whether expensed or capitalized, and amortization relating to any
indebtedness, whether expensed or capitalized.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be issued under one or more trust indentures
(each, as may be supplemented from time to time, an "Indenture") between the
Company and one or more trustees (each, a "Trustee") chosen by the Company and
qualified to act as Trustee under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Indenture will be subject to and governed by
the Trust Indenture Act. A form of Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part and the Indenture
relating to any issue of Debt Securities will be available for inspection at
the corporate trust office of the Trustee or as described under "Available
Information." If Debt Securities are to be issued, a description of their terms
(as well as the form of Debt Securities and any supplemental Indenture) will be
filed by the Company as an exhibit to a Current Report on Form 8-K and
incorporated herein by reference. The statements made under this heading
relating to the Debt Securities and the Indentures are summaries of certain
anticipated provisions thereof, do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities.
When issued, the Debt Securities will be direct obligations of the
Company and may rank equally and ratably with other unsecured and
unsubordinated indebtedness of the Company, or may be subordinate in right of
payment to the prior payment in full of Senior Debt (as defined in the
applicable Prospectus Supplement) ("Subordinated Debt Securities"). In addition
to the terms of the Indenture and any specific, express terms of the Debt
Securities described below, the issuance of the Debt Securities will be limited
by, and subject to certain terms of, the Company's other financing facilities.
TERMS
The applicable Indenture may provide that the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time in or pursuant to authority
granted by a resolution of the Board of Directors of the Company or as
established in one or more indentures supplemental to an Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the
holders of the Debt Securities of such series, for issuances of additional Debt
Securities of such series.
The applicable Indenture also may provide that there may be more than
one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the applicable Indenture may resign or be removed
with respect to one or more series of Debt Securities, and a successor Trustee
may be appointed to act with respect to
17
<PAGE> 19
such series. In the event that two or more persons are acting as Trustee with
respect to different series of Debt Securities, each such Trustee shall be a
Trustee of a trust under the applicable Indenture separate and apart from the
trust administered by any other Trustee, and, except as otherwise indicated
therein, any action described therein to be taken by the Trustee may be taken
by each such Trustee with respect to, and only with respect to, the one or more
series of Debt Securities for which it is Trustee under the applicable
Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and their ranking;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities that is convertible into Common Stock
and/or Preferred Stock, or the method by which any such portion shall be
determined;
(4) if convertible, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the ownership or
transferability of the Common Stock and/or Preferred Stock into which such Debt
Securities are convertible;
(5) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the
method by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the interest payment dates on
which any such interest will be payable, the regular record dates for such
interest payment dates, or the method by which such dates shall be determined,
the persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) the place or places where the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of transfer
or exchange and where notices or demands to or upon the Company in respect of
such Debt Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and conditions
upon which such Debt Securities will be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
18
<PAGE> 20
(11) if other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium,
if any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or method
may, but need not be, based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall be
determined;
(13) the events of default or covenants of such Debt Securities, to
the extent different from or in addition to those described herein, and any
provisions granting special rights to the holders of such Debt Securities upon
the occurrence of events specified in such Prospectus Supplement;
(14) any provisions for collateral security for repayment of such
Debt Securities;
(15) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(16) whether such Debt Securities will be in registered or bearer
form and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(17) whether such Debt Securities will be issued in the form of one
or more temporary or permanent global securities and, if so, the terms and
conditions, if any, upon which interests in such Debt Securities in global form
may be exchanged, in whole or in part, for the individual Debt Securities
represented thereby;
(18) the applicability, if any, of the defeasance and covenant
defeasance provisions of the applicable Indenture;
(19) the terms, if any, upon which such Debt Securities may be
convertible into Common Stock and/or Preferred Stock and the terms and
conditions upon which such conversion will be effected, including, without
limitation, the initial conversion price or rate and the conversion period;
(20) whether and under what circumstances the Company will pay
additional amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment; and
(21) any other terms of such Debt Securities not inconsistent with
the provisions of the applicable Indenture.
Except as described under "- Merger, Consolidation or Sale" or as may
be set forth in any Prospectus Supplement, an Indenture will not contain any
provisions that would limit the ability of the Company to incur indebtedness or
that would afford holders of the Debt Securities protection in the event of a
highly leveraged or similar transaction involving the Company. However,
restrictions on ownership and transfers of the Company's capital stock,
designed to preserve its status as a REIT, may act to prevent or hinder a
change of control of the Company. See "Description of Capital Stock -
Restrictions on Ownership and Transfer." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of, or additions to, the events of default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
19
<PAGE> 21
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement,
the Debt Securities of any series which are registered securities other than
registered securities issued in global form (which may be of any denomination)
shall be issuable in denominations of $1,000 and integral multiples thereof.
Unless otherwise specified in the applicable Prospectus Supplement,
the principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
register to be maintained by the Trustee or by wire transfer of funds to such
person at an account maintained within the United States.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder thereof on the applicable record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be given to each holder of such Debt
Security not less than 15 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the applicable Trustee. Every Debt Security tendered for conversion,
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company
may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith.
Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of selection; (ii) register the transfer of or exchange any
Debt Security, or portion thereof, called for redemption, except the unredeemed
portion of any Debt Security being redeemed in part; or (iii) register the
transfer or exchange of a Debt Security between a record date and the next
succeeding interest payment date.
MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company may not, directly or
indirectly, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or more
related transactions, to another corporation, person or entity unless (i) the
Company is the surviving corporation or the entity or the person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (the "Surviving Entity") is a person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (ii) if the Company is not the Surviving Entity, the
Surviving Entity expressly and unconditionally assumes by supplemental
indenture, executed and delivered to the Trustee in form reasonably
satisfactory to the Trustee, all obligations of the Company on the Debt
Securities under the applicable Indenture; (iii) immediately after such
transaction, no event of default under the applicable Indenture exists; (iv)
except in the case of a merger of a wholly-owned subsidiary of the Company with
or into the Company, the Company or the entity or person formed by or surviving
any such consolidation or merger (if other than the Company),
20
<PAGE> 22
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made, will have a consolidated net worth
immediately after the transaction equal to or greater than the consolidated net
worth of the Company immediately preceding the transaction; and (v) the Company
or the Surviving Entity, as applicable, shall have delivered or caused to be
delivered to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each to the effect
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition complies with the Indenture and all conditions precedent
provided in clauses (i) through (iv) above have been complied with.
CERTAIN COVENANTS
Existence. Each Indenture will provide that, except as permitted under
"- Merger, Consolidation or Sale," the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights, licenses and franchises; provided, however, that the Company
shall not be required to preserve any right, license or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not adverse in any material
respect to the holders of the Debt Securities.
Payment of Taxes and Other Claims. Each Indenture will provide that
the Company will pay, and will cause each of its subsidiaries to pay, prior to
delinquency, all material taxes, assessments and governmental levies, except
such as are contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to
holders of the Debt Securities.
Reports. Each Indenture will provide that, whether or not required by
the rules and regulations of the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such forms, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.
Additional Covenants. Any additional covenants of the Company with
respect to any series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will describe specific "Events of Default" with respect
to any series of Debt Securities issued thereunder. Such Events of Default are
likely to include (with grace and cure periods): (a) default for 30 days in the
payment of any installment of interest on any Debt Security of such series; (b)
default in the payment of the principal of (or premium, if any, on) any Debt
Security of such series when due and payable, at maturity, upon redemption or
otherwise; (c) default in making any sinking fund payment as required for any
Debt Security of such series; (d) default in the performance or breach of any
other covenant or warranty of the Company contained in the applicable
Indenture, continued for 60 days after written notice as provided in the
applicable Indenture; (e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (as defined in the Indenture), or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries (but not
including any indebtedness or obligations for which recourse is limited to
property purchased), whether such indebtedness or guarantee now exists, or
shall be created hereafter, which default is caused by failure to pay principal
of or premium, if any, or interest on such indebtedness prior to the expiration
of the grace period provided in such indebtedness on the date of such default
(a "Payment Default") and the principal amount of such indebtedness, together
with the principal amount of any other such indebtedness under which there has
been a Payment Default, aggregates $10.0 million or more; (f) a final judgment
or final judgments for the payment of money are entered by a court or courts of
competent jurisdiction against the Company or any of its Restricted
Subsidiaries and such judgment or judgments remain unpaid, undischarged
21
<PAGE> 23
or unstayed for a period of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $10.0 million; (g) certain events of bankruptcy
or insolvency with respect to the Company or any Significant Subsidiary; and
(h) any other Event of Default provided with respect to a particular series of
Debt Securities. The term "Significant Subsidiary" means each signficant
subsidiary (as defined in Regulation S-X promulgated under the Securities Act)
of the Company.
If an Event of Default under an Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing, then
in every such case the applicable Trustee or the holders of not less than 25%
in principal amount of the outstanding Debt Securities of that series may
declare the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given
by the holders), provided that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Significant Subsidiary, all outstanding Debt Securities of such series will
become due and payable without further action or notice. Notwithstanding the
foregoing, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding
under the applicable Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the holders of not less than a majority in principal amount
of outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if all Events of Default, other
than the non-payment of accelerated principal or interest (or specified portion
thereof), with respect to Debt Securities of such series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in the applicable Indenture. Each
Indenture also will provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case
may be) may waive any past default with respect to such series and its
consequences, except a default in the payment of the principal of (or premium,
if any) or interest on any Debt Security of such series.
The applicable Trustee will be required to give notice to the holders
of Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or in the payment of any sinking fund installment in
respect of any Debt Security of such series) if designated officers of such
Trustee consider such withholding to be in the interest of such holders.
The right of any holder to institute a proceeding with respect to an
Indenture will be subject to certain conditions precedent, including notice and
indemnity to the applicable Trustee, but the holder has an absolute right to
receipt of principal of (and premium, if any) and interest on such holder's
Debt Security on or after the respective due dates expressed in the Debt
Security, and to institute suit for the enforcement of any such payments.
Subject to provisions in the Indenture relating to its duties in case
of default, no Trustee will be under an obligation to exercise any of its
rights or powers under such Indenture at the request or direction of any
holders of any series of Debt Securities then outstanding under such Indenture,
unless such holders shall have offered to the applicable Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
aggregate principal amount of the outstanding Debt Securities of any series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or of exercising any trust or power conferred upon such Trustee. However, each
Trustee may refuse to follow any direction which is in conflict with any law or
the applicable Indenture, which may involve such Trustee in personal liability
or which may be unduly prejudicial to the holders of Debt Securities of such
series not joining therein.
Within 90 days after the close of each fiscal year, the Company will
be required to deliver to each Trustee a certificate, signed by two of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof.
22
<PAGE> 24
MODIFICATION OF THE INDENTURE
Except as provided in the next two succeeding paragraphs, the
Indenture for a series of Debt Securities may be amended or supplemented with
the consent of the holders of at least a majority in principal amount of such
Debt Securities then outstanding, and any existing default or compliance with
any provision of the Indenture or such Debt Securities may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Debt Securities.
Without the consent of each holder of a series of Debt Securities
affected, an amendment or waiver may not (with respect to any such Debt
Securities held by a non-consenting holder): (i) reduce the principal amount of
such Debt Securities whose holders must consent to an amendment, supplement or
waiver; (ii) reduce the principal of or change the fixed maturity of any such
Debt Security or alter the provisions with respect to the redemption of such
Debt Securities; (iii) reduce the rate or change the time for payment of
interest on any such Debt Security; (iv) waive a default in the payment of
principal of or premium, if any, or interest on such Debt Securities (except a
recission of acceleration of such Debt Securities by the holders of a majority
in aggregate principal amount of the Debt Securities and a waiver of the
payment default that resulted from such acceleration); (v) make any such Debt
Security payable in money other than that stated in the Debt Security; (vi)
make any change in the provisions of the Indenture relating to waivers of past
defaults or the rights of holders of such Debt Securities to receive payments
of principal of or premium, if any, or interest on the Debt Securities; (vii)
waive a redemption payment with respect to any such Debt Security; or (viii)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
any series of Debt Securities, the Company and the Trustee may amend or
supplement the applicable Indenture or such Debt Securities for any of the
following purposes: (i) to cure any ambiguity, defect or inconsistency; (ii) to
provide for the assumption of the Company's obligations to holders of such Debt
Securities in the case of a merger or consolidation; (iii) to provide for
uncertificated Debt Securities of a series; (iv) to make any change that would
provide any additional rights or benefits to the holders of such Debt
Securities or that does not adversely affect the legal rights under the
Indenture of any such holder; (v) to comply with requirements of the Commission
in order to maintain the qualification of the Indenture under the Trust
Indenture Act; (vi) to add to the covenants of the Company for the benefit of
the holders of all or any series of Debt Securities or to surrender any right
or power conferred upon the Company under the Indenture; (vii) to add any
additional events of default for the benefit of the holders of all or any
series of Debt Securities; (viii) to establish the form or terms of any series
of Debt Securities, including the provisions and procedures relating to Debt
Securities convertible into Common Stock or Preferred Stock; (ix) to provide
for the acceptance of appointment by a successor Trustee with respect to the
Debt Securities of one or more series and to facilitate the administration of
the trusts under the Indenture by more than one Trustee; or (x) to facilitate
the defeasance and discharge of any series of Debt Securities, provided that
any such action shall not adversely affect in any material respect the
interests of the holders of the Debt Securities of such series or any other
series of Debt Securities.
SUBORDINATION
The terms and conditions if any, upon which Subordinated Debt
Securities of a series are subordinated to Debt Securities of other series or
to other indebtedness of the Company will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include a description
of the indebtedness ranking senior to such Subordinated Securities, the
restrictions on payments to the holders of such Subordinated Debt Securities
while a default with respect to such senior indebtedness is continuing, the
restrictions, if any, on payments to the holders of such Subordinated Debt
Securities following an Event of Default, and provisions requiring holders of
such Subordinated Debt Securities to remit certain payments to holders of
senior indebtedness.
23
<PAGE> 25
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under the Indentures, the Company may be permitted to discharge
certain obligations to holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each Indenture relating to Debt Securities will provide that, under
certain circumstances, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities,
except for (i) the rights of holders of outstanding Debt Securities to receive
payments in respect of the principal of, premium, if any, and interest on such
Debt Securities when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to the Debt Securities concerning
issuing temporary Debt Securities, registration of Debt Securities, mutilated,
destroyed, lost or stolen Debt Securities and the maintenance of an office or
agency for payment and to hold money for security payments held in trust, (iii)
the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith, and (iv) the legal defeasance
provisions of the Indenture, ("defeasance") or (b) to be released from its
obligations with respect to certain covenants in the Indenture, and thereafter
any omission to comply with such obligations shall not constitute a default or
an Event of Default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or non-callable Government
Securities (as defined below), or a combination thereof, as will be sufficient,
in the opinion of a nationally-recognized firm of independent public
accountants, to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust may be established only if, among other things, the
Company has delivered to the applicable Trustee an opinion of counsel (as
specified in each Indenture) to the effect that the holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. federal income tax law occurring after
the date of the Indenture.
"Government Securities" means securities which are direct obligations
of, or obligations guaranteed by, the United States for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance,
including any modifications of the provisions described above, with respect to
the Debt Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock and/or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such Debt Securities.
24
<PAGE> 26
To protect the Company's status as a REIT, the Company may refuse to
effect a conversion of the Debt Securities if, as a result of such conversion,
any person would beneficially own, either directly or indirectly, more than the
permissible amount of the Company's outstanding capital stock. See "Description
of Capital Stock - Restrictions on Ownership and Transfer."
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
the form of one or more temporary or permanent global securities ("Global
Securities") that will be deposited with, or on behalf of, a depositary
identified in the applicable Prospectus Supplement relating to such series.
Global Securities may be issued in either registered or bearer form and in
either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of Debt Securities will be described in
the applicable Prospectus Supplement relating to such series.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation provide that the Company may
issue up to 225,000,000 shares of capital stock, consisting of 200,000,000
shares of Common Stock and 25,000,000 shares of Preferred Stock.
The following description of the Common Stock and the Preferred Stock
is in all respects qualified in its entirety by reference to the applicable
provisions of Virginia law, the Articles of Incorporation and Bylaws of the
Company, which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part, and, in the case of Preferred Stock,
applicable articles of amendment relating to any offering of Preferred Stock
("Articles of Amendment"). If Preferred Stock is to be issued, a description of
the terms of such Preferred Stock (as well as the form of Preferred Stock
certificate) will be filed by the Company as an exhibit to a Current Report on
Form 8-K and incorporated herein by reference.
COMMON STOCK
All shares of Common Stock issued will be duly authorized, fully paid
and nonassessable and will have no preemptive rights. Subject to the
preferential rights of any other shares or series of shares of capital stock,
holders of Common Stock are entitled to receive dividends if and when
authorized and declared by the Board of Directors of the Company out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of capital stock, the holders of
Common Stock possess the exclusive voting power. There is no cumulative voting
in the election of directors, which means in all elections of directors, each
holder of Common Stock has the right to cast one vote for each share of stock
for each candidate.
The transfer agent and registrar for the Common Stock is The Bank of
New York.
PREFERRED STOCK
Terms. Subject to the limitations prescribed by the Articles of
Incorporation, the Board of Directors of the Company is authorized to fix the
number of shares constituting each series of Preferred Stock and the
designations and powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or
25
<PAGE> 27
restrictions thereof, including such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution of the Board of Directors of the Company. The Preferred Stock will,
when issued, be duly authorized and fully paid and nonassessable by the Company
and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the
Preferred Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof, or type of payment (in cash or in-kind), applicable to
such Preferred Stock;
(4) the date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) the provision for redemption, if applicable, of such Preferred Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof);
(10) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) a discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(13) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
the Company; and
(14) 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. See "- Restrictions on Ownership and Transfer" below.
The issuance of Preferred Stock could adversely affect the voting
power, dividend rights and other rights of holders of Common Stock. Although
the Board of Directors of the Company has no such intention at the present
time, it could establish a series of Preferred Stock that could, depending on
the terms of such series, delay, defer or prevent a transaction or a change in
control of the Company that might involve a premium price for the Common Stock
or otherwise be in the best interest of the holders thereof. Management
believes that the availability of Preferred Stock provides the Company with
increased flexibility in structuring possible future financing and acquisitions
and in meeting other needs that might arise.
26
<PAGE> 28
Rank. Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock and to all equity securities ranking junior
to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with
all equity securities issued by the Company the terms of which specifically
provide that such equity securities rank on a parity with the Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of the Company; and (iii) junior to all equity securities issued by
the Company the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of the Company. The term "equity
securities" does not include convertible debt securities.
Dividends. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of assets of the Company legally available for payment, cash or
in-kind dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the share transfer books of the Company on
such record dates as shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series of
the Preferred Stock for which dividends are noncumulative, then the holders of
such series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, full dividends will
not be declared or paid or set apart for payment on the Preferred Stock of any
other series ranking, as to dividends, on a parity with the Preferred Stock of
such series, and no dividends will be declared or paid or set apart for payment
on the Preferred Stock of any other series ranking, as to dividends, junior to
the Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Stock of any series and the shares
of any other series of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series, all dividends declared upon Preferred Stock
of such series and any other series of Preferred Stock ranking on a parity as
to dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Preferred Stock of such series and
such other series of Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. The
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of such series which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital
stock ranking junior to the Preferred Stock of such series as to
27
<PAGE> 29
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Stock,
or any other capital stock of the Company ranking junior to or on a parity with
the Preferred Stock of such series as to dividends or upon liquidation, nor
shall any Common Stock, or any other capital stock of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such shares) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
Any dividend payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series which remains payable.
Redemption. If so provided in the applicable Prospectus Supplement,
the Preferred Stock will be subject to mandatory redemption or redemption at
the option of the Company, as a whole or in part, in each case upon the terms,
at the times and at the redemption prices set forth in such Prospectus
Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period and
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
no shares of any series of Preferred Stock shall be redeemed (unless all
outstanding Preferred Stock of such series are simultaneously redeemed) or
directly or indirectly purchased or acquired (except by conversion into or
exchange for capital stock of the Company ranking junior to the Preferred Stock
of such series as to dividends and upon liquidation); provided, however, that
the foregoing shall not prevent the purchase or acquisition of Preferred Stock
of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on comparable terms to holders of all
outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Board of Directors of the Company and such shares may be
redeemed pro rata from the holders of record of such shares in proportion to
the number of such shares held by such holders (with adjustments to avoid
redemption of fractional shares) or any other equitable method determined by
the Board of Directors of the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the share transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are
28
<PAGE> 30
to be surrendered for payment of the redemption price; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all the shares of Preferred Stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Preferred Stock to be redeemed from each
such holder. If notice of redemption of any Preferred Stock has been given and
if the funds necessary for such redemption have been set aside by the Company
in trust for the benefit of the holders of any shares of Preferred Stock so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Stock, such Preferred Stock shall no longer
be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. Any moneys so
deposited which remain unclaimed by the holders of the Preferred Stock at the
end of two years after the redemption date will be returned by such bank or
trust company to the Company.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock
shall be entitled to receive out of assets of the Company legally available for
distribution to stockholders, liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Stock does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock 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
liquidating distributions on all outstanding Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in
the distribution of assets upon liquidation, dissolution or winding up, then
the holders of the Preferred Stock and all other such classes or series of
capital stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law or as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long
as any shares of Preferred Stock remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least a majority
of the shares of each series of Preferred Stock outstanding at the time, given
in person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Articles of Incorporation or the Articles of
Amendment for such series of Preferred Stock, whether by merger, consolidation
or otherwise (each, an "Event"), so as to materially and adversely affect any
right, preference, privilege or voting power of such series of Preferred Stock
or the holders thereof; provided, however, with respect to the occurrence of
any of the Events set forth in (ii) above, so long as the Preferred Stock
remains outstanding with the terms thereof materially
29
<PAGE> 31
unchanged, taking into account that upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of any such Event shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock; and provided further
that (x) any increase in the amount of the authorized Common Stock or Preferred
Stock or the authorization, creation or issuance of any other series of
Preferred Stock or any other class or series of capital stock, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Stock or any other class or series of capital stock, in each case
ranking on a parity with or junior to the Preferred Stock of such series with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which any
series of Preferred Stock are convertible into shares of Common Stock will be
set forth in the applicable Prospectus Supplement relating thereto. Such terms
will include the number of shares of Common Stock into which the Preferred
Stock are convertible, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the
option of the holders of the Preferred Stock or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Stock.
Global Securities. The Preferred Stock of a series may be issued in
whole or in part in the form of one or more Global Securities that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Preferred Stock will be described in the applicable Prospectus Supplement
relating to such series.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, it must meet
certain requirements concerning the ownership of its outstanding shares of
capital stock. Specifically, not more than 50% in value of the Company's
outstanding capital stock may be owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. Because the Board of Directors believes it is
essential for the Company to continue to qualify as a REIT, the Articles of
Incorporation contain certain restrictions on ownership and transfer of the
Company's capital stock to assist the Company in meeting this requirement.
Specifically, the Articles of Incorporation provide, subject to certain
exceptions and waivers described below, that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than (i) 9.1%
(or, with respect to Ocwen Financial, 13%) of the number of outstanding shares
of Common Stock, or (ii) 9.9% of the number of outstanding shares of any series
of Preferred Stock (collectively, the "Ownership Limitation").
Subject to certain exceptions described below, any purported transfer
of shares of Common Stock or Preferred Stock that would (i) result in any
person owning, directly or indirectly, shares of Common Stock or Preferred
Stock in excess of the Ownership Limitation, (ii) result in the shares of
Common Stock and Preferred Stock, collectively, being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code or (iv) cause the Company to own, actually or constructively, 10%
or more of the ownership interests in a tenant of the Company's real property,
within the meaning of Section 856(d)(2)(B) of the Code, will be designated as
"Shares-in-Trust" and transferred automatically to a trust (the "Trust")
effective on the day before the purported transfer of such shares of Common
Stock or Preferred Stock. The record holder of the shares of Common Stock or
Preferred Stock that are designated as Shares-in-Trust (the "Prohibited Owner")
will be required to submit such number of shares of Common Stock or Preferred
Stock to the Company for registration in the name of the Trust. The trustee of
the Trust (the "Trustee") will be designated by the Company, but
30
<PAGE> 32
will not be affiliated with the Company. The beneficiary of the Trust (the
"Beneficiary") will be one or more charitable organizations that are named by
the Company.
Shares-in-Trust will remain issued and outstanding shares of Common
Stock or Preferred Stock and will be entitled to the same rights and privileges
as all other shares of the same class or series. The Trustee will receive all
dividends and distributions on the Shares-in-Trust and will hold such dividends
or distributions in trust for the benefit of the Beneficiary. The Trustee will
vote all Shares-in-Trust. The Trustee will designate a permitted transferee of
the Shares-in-Trust, provided that the permitted transferee (i) purchases such
Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required
to repay to the Trustee the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date of which was on or after the date that such shares became
Shares-in-Trust. The Prohibited Owner generally will receive from the Trustee
the lesser of (i) the price per share such Prohibited Owner paid for the shares
of Common Stock or Preferred Stock that were designated as Shares-in-Trust (or,
in the case of a gift or devise, the Market Price (as defined below) per share
on the date of such transfer) or (ii) the price per share received by the
Trustee from the sale of such Shares-in-Trust. Any amounts received by the
Trustee in excess of the amounts to be paid to the Prohibited Owner will be
distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to
the Company, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Shares-in-Trust (or,
in the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price
(as defined below) for the five consecutive Trading Days (as defined below)
ending on such date. The "Closing Price" on any date shall mean the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the NYSE, or if the Common Stock and/or the Preferred Stock, as applicable,
is not listed on the NYSE or another exchange or automated quotations system,
the "Closing Price" on any date shall mean the average of the closing bid and
asked prices furnished by a professional market maker making a market in such
stock selected by the Board of Directors of the Company. "Trading Day" shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person who acquires or attempts to acquire shares of Common Stock
or Preferred Stock in violation of the foregoing restrictions, or any person
who owned shares of Common Stock or Preferred Stock that were transferred to a
Trust, will be required (i) to give immediately written notice to the Company
of such event and (ii) to provide to the Company such other information as it
may request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such
lower percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock and Preferred Stock must, within 30 days
after January 1 of each year, provide to the Company a written statement or
affidavit stating the name and address of such direct or indirect owner, the
number of shares of Common Stock and Preferred Stock owned directly or
indirectly, and a description of how such shares are held. In addition, each
direct or indirect stockholder shall provide to the Company such additional
information as the Company may request in order to determine the effect, if
any, of such ownership on the Company's status as a REIT and to ensure
compliance with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition
of shares of Common Stock or Preferred Stock by an underwriter that
participates in a public offering of such shares. In addition, the Board of
Directors, upon
31
<PAGE> 33
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
and upon such other conditions as the Board of Directors may direct, may exempt
a person from the Ownership Limitation under certain circumstances. The
foregoing restrictions will not be removed until (A)(i) such restrictions are
no longer required in order to qualify as a REIT, and (ii) the Board of
Directors determines that it is no longer in the best interest of the Company
to retain such restrictions; or (B)(i) the Board of Directors determines that
it is no longer in the best interests of the Company to attempt to qualify, or
to continue to qualify, as a REIT and (ii) there is an affirmative vote of
two-thirds of the number of shares of Common Stock and Preferred Stock entitled
to vote on such matter at a regular or special meeting of the stockholders of
the Company.
Pursuant to an amendment adopted in May 1998, the Articles of
Incorporation provide that nothing contained therein shall prohibit the
settlement of any transaction entered into through the facilities of any
national securities exchange registered under the Exchange Act or of the
national market system of a national securities association registered under
the Exchange Act, while maintaining the authority of the Board of Directors of
the Company to take all action necessary to maintain the Company's status as a
REIT for federal income tax purposes.
All certificates representing shares of Common Stock or Preferred
Stock will bear a legend referring to the restrictions described above.
The Ownership Limitation could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
shares of Common Stock might receive a premium for their shares of Common Stock
over the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants for the purchase of Preferred Stock or
Common Stock. Warrants may be issued independently or together with any Debt
Securities, Preferred Stock or Common Stock offered by any Prospectus
Supplement and may be attached to or separate from such Debt Securities,
Preferred Stock or Common Stock. Each series of Warrants will be issued under a
separate warrant agreement (a "Warrant Agreement") to be entered into between
the Company and a bank or trust company, as warrant agent (the "Warrant
Agent"), all as set forth in the Prospectus Supplement relating to the
particular issue of Warrants. The Warrant Agent will act solely as an agent of
the Company in connection with the Warrants and will not assume any obligation
or relationship of agency or trust for or with any holders of Warrants or
beneficial owners of Warrants. If Warrants are to be issued, a copy of the form
of Warrant Agreement will be filed by the Company as an exhibit to a Current
Report on Form 8-K and incorporated herein by reference. The following summary
of certain provisions of the form of Warrant Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the applicable Warrant Agreement.
TERMS
If Warrants are offered, the related Prospectus Supplement will
describe the Warrant Agreement and the terms of the Warrants, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currencies in which the price or prices of such Warrants may be payable;
(v) the designation, amount and terms of the Preferred Stock and/or Common
Stock purchasable upon exercise of such Warrants; (vi) the designation and
terms of the Debt Securities, Preferred Stock and/or Common Stock, if any, with
which such Warrants are issued and the number of such Warrants issued with each
such Security; (vii) if applicable, the date on and after which such Warrants
and the Preferred Stock and/or Common Stock purchasable upon exercise of such
Warrants will be separately transferable; (viii) the price or prices at which
and the currency or currencies in which the Preferred Stock and/or Common Stock
purchasable upon exercise of such Warrants may be purchased; (ix) the date on
which the right to exercise such Warrants shall commence and the date on
32
<PAGE> 34
which such right shall expire; (x) the minimum and maximum amount of such
Warrants which may be exercised at any one time; (xi) information with respect
to book-entry procedures, if any; (xii) a discussion of certain United States
federal income tax considerations; and (xiii) any other material terms of such
Warrants, including terms, procedures and limitations relating to exchange or
exercise of such Warrants.
EXERCISE
Prior to the exercise of any Warrants to purchase Preferred Stock
and/or Common Stock, holders of such Warrants will not have any of the rights
of holders of Preferred Stock or Common Stock, as the case may be, purchasable
upon such exercise, including the right to receive payments of dividends, if
any, on the Preferred Stock or Common Stock purchasable upon such exercise, or
to exercise any applicable right to vote.
Each Warrant will entitle the holder to purchase Preferred Stock
and/or Common Stock at such exercise price as shall in each case be set forth
in, or calculable from, the Prospectus Supplement relating to the Warrants.
Warrants may be exercised at any time up to the time on the expiration date set
forth in the Prospectus Supplement relating to such Warrants. After the close
of business on the expiration date (or such later date to which such expiration
date may be extended by the Company), unexercised Warrants will become void.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
As discussed under "Description of Capital Stock - Restrictions on
Ownership and Transfer," the Articles of Incorporation contain restrictions on
the ownership and transfer of the Company's capital stock in order to assist
the Company in qualifying as a REIT under the Code. An individual or entity
that owns Warrants to acquire Common Stock and/or Preferred Stock may be deemed
to own such Common Stock or Preferred Stock for purposes of meeting the
Ownership Limitation. Therefore, the terms of any Warrant Agreement entered
into in connection with the issuance of Warrants may contain certain provisions
restricting the ownership and transfer of the Warrants. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to the Warrants.
CERTAIN PROVISIONS OF VIRGINIA LAW AND
OF THE COMPANY'S ARTICLES AND BYLAWS
The following summary of certain provisions of Virginia law and of the
Articles of Incorporation and Bylaws of the Company does not purport to be
complete and is subject to and qualified in its entirety by reference to
Virginia law and the Articles of Incorporation and Bylaws of the Company.
BOARD OF DIRECTORS
The Bylaws provide that the number of Directors of the Company may be
established by the Board of Directors but may not be fewer than one nor more
than nine, and that the size of the Board of Directors may not be increased
beyond nine except by a vote of 80% of the directors. Any vacancy will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining Directors, except that a vacancy
resulting from an increase in the number of Directors must be filled by a
majority of the entire Board of Directors.
The Articles of Incorporation of the Company provide that, except in
the case of an unfilled vacancy, a majority of the Board of Directors must be
Independent Directors. The Articles of Incorporation define "Independent
Director" as a director who within the last two years has not directly or
indirectly (i) owned an interest in the Manager or any of its "affiliates" (as
defined in the Articles of Incorporation), (ii) been employed by the Manager or
any of its "affiliates," (iii) been an officer or director of the Manager or
any of its "affiliates," (iv) performed services for the Manager or (v) had any
"material business or professional relationship" with the Manager or any of its
"affiliates."
33
<PAGE> 35
The Company's Bylaws also provide that a Director may be removed with
or without cause with the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of Directors. This provision, when coupled
with the provisions of the Bylaws authorizing the Board of Directors to fill
vacant directorships, as a practical matter precludes the Company's
shareholders from removing incumbent directors and filling the vacancies
created by such removal with their own nominees.
AMENDMENT
The Articles of Incorporation may be amended by the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock (and
majority of the outstanding shares of Preferred Stock, if any, to the extent
that such amendment would materially adversely affect the holders of the
Preferred Stock), with the shareholders voting as a class with one vote per
share; provided, that the Articles of Incorporation provision relating to the
Company's election to be taxed as a REIT shall not be amended, altered, changed
or repealed without the affirmative vote of holders of two-thirds of the
outstanding shares of Common Stock and any other shares of capital stock
entitled to vote generally in the election of directors voting as a class, and
the Articles of Incorporation provisions relating to the Board of Directors
shall not be amended, altered, changed or repealed without the affirmative vote
of the holders of two-thirds of the outstanding shares of Common Stock and any
other shares of capital stock entitled to vote generally in the election of
directors voting as a class. The Company's Bylaws may be amended by the Board of
Directors or by vote of the holders of a majority of the outstanding shares of
Common Stock, provided that provisions with respect to removal of directors,
quorum requirements and approval of certain matters by a majority of the
Directors cannot be amended without the affirmative vote of 80% of the members
of the entire Board of Directors including a majority of the Independent
Directors, or the holders of two-thirds of the outstanding shares of Common
Stock and any other class of shares of capital stock entitled to vote generally
in the election of directors.
BUSINESS COMBINATIONS
The Virginia Stock Corporation Act contains provisions restricting
"Affiliated Transactions." These provisions, with several exceptions discussed
below, require approval of material acquisition transactions between a Virginia
corporation having more than 300 Stockholders of record and any holder of more
than 10% of any class of its outstanding voting shares (an "Interested
Shareholder") by the holders of at least two-thirds of the remaining voting
shares. Affiliated Transactions subject to this approval requirement include
mergers, share exchanges, material dispositions of corporate assets not in the
ordinary course of business, any dissolution of the corporation proposed by or
on behalf of an Interested Shareholder, or any reclassification, including a
reverse stock split, a recapitalization or a merger of the corporation with its
subsidiaries that increases the percentage of voting shares owned beneficially
by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder
becomes an owner of 10% of the outstanding voting shares, a Virginia
corporation cannot engage in an Affiliated Transaction with such Interested
Shareholder without approval of two-thirds of the voting shares other than
those shares beneficially owned by the Interested Shareholder, and majority
approval of the "Disinterested Directors." A Disinterested Director, for this
purpose, means, with respect to a particular Interested Shareholder, a member
of the Company's Board of Directors who was (i) a member on the date on which
an Interested Shareholder became an Interested Shareholder and (ii) recommended
for election by, or was elected to fill a vacancy and received the affirmative
vote of, a majority of the Disinterested Directors then on the Board. At the
expiration of the three-year period, the statute requires approval of
Affiliated Transactions by two-thirds of the voting shares other than those
beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three-year period has expired and require
either that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the stockholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
34
<PAGE> 36
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Stockholder whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its Articles of
Incorporation or Bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Company has not "opted out" of the
Affiliated Transactions provisions.
CONTROL SHARE ACQUISITIONS
The Virginia Stock Corporation Act also contains provisions regulating
certain "Control Share Acquisitions," which are transactions causing the voting
strength of any person acquiring beneficial ownership of shares of a public
corporation in Virginia to meet or exceed certain threshold percentages (20%,
33 1/3% or 50%) of the total votes entitled to be cast for the election of
directors. Shares acquired in a control share acquisition have no voting rights
unless: (i) the voting rights are granted by a majority vote of all outstanding
shares other than those held by the acquiring person or any officer or employee
Director of the corporation, or (ii) the Articles of Incorporation or Bylaws of
the corporation provide that these Virginia law provisions do not apply to
acquisitions of its shares. The acquiring person may require that a special
meeting of the stockholders be held to consider the grant of voting rights to
the shares acquired in the control share acquisition. These provisions were
designed to deter certain takeovers of Virginia public corporations. Under
Virginia law, a corporation may "opt out" of the Control Share Acquisitions
provisions in its Articles of Incorporation or Bylaws. The Company has not
"opted out" of the Control Share Acquisitions provisions.
OPERATIONS
The Company is generally prohibited from engaging in certain
activities and acquiring or holding property or engaging in any activity that
would cause the Company to fail to qualify as a REIT.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by such stockholders
may be made only (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, nominations of
persons for election to the Board of Directors may be made only (i) pursuant to
the Company's notice of meeting, (ii) by the Board of Directors or (iii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions set forth in the
Bylaws.
OPERATING PARTNERSHIP AGREEMENT
The following summary of the Third Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Operating Partnership
Agreement"), including the description of certain provisions set forth
elsewhere in this Prospectus, is qualified in its entirety by reference to the
Operating Partnership Agreement, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
GENERAL
Pursuant to the Operating Partnership Agreement, the General Partner,
as the sole general partner of the Operating Partnership, has full, exclusive
and complete responsibility and discretion in the management and control of
35
<PAGE> 37
the Operating Partnership. The limited partners of the Operating Partnership
have no authority in their capacity as limited partners to transact business
for, or participate in the management activities or decisions of, the Operating
Partnership, except as required by applicable law. Consequently, the Company,
by virtue of its ownership of the General Partner, controls the assets and
business of the Operating Partnership. However, the Operating Partnership
Agreement provides that any amendment to the Operating Partnership Agreement
that would (i) affect the Redemption Rights (as defined below), (ii) adversely
affect the limited partners' rights to receive cash distributions, (iii) alter
the Operating Partnership's allocations of income or loss or (iv) impose on the
limited partners any obligations to make additional contributions to the
capital of the Operating Partnership, will require the consent of limited
partners (other than the Company) holding more than 50% of the partnership
interests ("Units") held by such partners (other than the Company).
GENERAL PARTNER NOT TO WITHDRAW
Pursuant to the Operating Partnership Agreement, the General Partner
is not able to voluntarily withdraw from the Operating Partnership or transfer
or assign its interest in the Operating Partnership unless the transaction in
which such withdrawal or transfer occurs results in the limited partners
receiving property in an amount equal to the amount they would have received
had they exercised the Redemption Rights immediately prior to such transaction,
or unless the successor to the General Partner contributes substantially all of
its assets to the Operating Partnership in return for an interest in the
Operating Partnership.
CAPITAL CONTRIBUTIONS
On May 19, 1997, the Company completed the Initial Public Offering of
its Common Stock, which resulted in net proceeds of $283.7 million. The Company
incorporated and capitalized two qualified REIT subsidiaries, the General
Partner and the Original Limited Partner which, in turn, organized and
capitalized the Operating Partnership. The Company, through the General Partner
and the Original Limited Partner, contributed all of the net proceeds from the
Initial Public Offering to the Operating Partnership. The General Partner and
Original Limited Partner initially had a 1% and a 99% ownership interest in the
Operating Partnership, respectively.
In December 1997, the Company repurchased 160,000 shares of Common
Stock from IMIHC at the weighted average price of the Common Stock on the day
of the repurchase. IMIHC immediately acquired 160,000 Units in the Operating
Partnership, representing a 0.8% ownership interest. The shares were
repurchased in order to comply with the stock ownership restrictions imposed on
REITs. The shares redeemed by the Company are reflected as treasury stock in
the Company's consolidated financial statements, whereas the Units acquired by
IMIHC gave rise to a minority interest in the Operating Partnership. In
February and May 1998, IMIHC made additional contributions of capital to the
Operating Partnership, which increased its minority interest therein to 8.7% as
of June 30, 1998.
In July 1998, the Company contributed the net proceeds of an offering
of $150 million principal amount of 11 1/2% Senior Notes due 2005 to the
Operating Partnership through the purchase of an unsecured, unsubordinated note
due 2005.
The Operating Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in
excess of funds available to the Operating Partnership from borrowing or
capital contributions, the General Partner may borrow such funds from a
financial institution or other lender and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the General
Partner's borrowing of such funds. Moreover, the General Partner is authorized
to cause the Operating Partnership to issue partnership interests for less than
fair market value if the Company (i) has concluded in good faith that such
issuance is in the best interests of the Company and the Operating Partnership
and (ii) the General Partner makes a capital contribution in an amount equal to
the proceeds of such issuance. Under the Operating Partnership Agreement, each
of the General Partner and the Original Limited Partner is obligated to
contribute the net proceeds of any future offering of capital stock by the
Company as additional capital to the Operating Partnership in exchange for an
additional partnership interest. Upon such contribution, the General Partner's
and the Original Limited Partner's percentage interests in the Operating
36
<PAGE> 38
Partnership would be increased on a proportionate basis based upon the amount
of such additional capital contributions. The percentage interests of the
limited partners (other than the Original Limited Partner) would be decreased
on a proportionate basis in the event of additional capital contributions by
the General Partner and the Original Limited Partner. In addition, if the
General Partner and the Original Limited Partner were to contribute additional
capital to the Operating Partnership, the General Partner would revalue the
property of the Operating Partnership to its fair market value (as determined
by the General Partner) and the capital accounts of the partners would be
adjusted to reflect the manner in which the unrealized gain or loss inherent in
such property (that has not been reflected in the capital accounts previously)
would be allocated among the partners under the terms of the Operating
Partnership Agreement as if there were a taxable disposition of such property
for such fair market value on the date of the revaluation.
REDEMPTION RIGHTS
Pursuant to the Operating Partnership Agreement, a limited partner
(other than the Original Limited Partner) has the right (the "Redemption
Rights") to cause the Operating Partnership to redeem the limited partner's
Units for cash or, at the election of the General Partner, shares of Common
Stock on a one-for-one basis, provided that such Units have been outstanding
for at least one year. A limited partner may not exercise Redemption Rights for
less than 1,000 Units or, if the limited partner holds less than 1,000 Units,
all of the Units held by the limited partner. The redemption price for Units
will be paid in cash or Common Stock in the discretion of the Company. The
redemption price will be paid in cash in the event that the issuance of shares
of Common Stock to the redeeming limited partner would (i) result in any person
owning, directly or indirectly, shares of Common Stock in excess of the
Ownership Limitation, (ii) result in shares of capital stock of the Company
being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iii) result in the Company being "closely held" within
the meaning of Section 856(h) of the Code, (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code or (v) cause the acquisition of
shares of Common Stock by such redeeming limited partner to be "integrated"
with any other distribution of shares of Common Stock for purposes of complying
with the Securities Act.
The Manager holds options to acquire 1,912,500 shares of Common Stock
(or, at the option of the Company, Units), at an exercise price equal to the
initial public offering price of the Common Stock of $16 per share. One quarter
of these options vest and become exercisable on each of the first four
anniversaries of May 19, 1997, the closing date of the Initial Public Offering.
Such options terminate on May 19, 2007. Upon an acquisition of Units, the
Manager may exercise its Redemption Rights in accordance with the terms of the
Operating Partnership Agreement.
If the Company decides to securitize some or all of its Mortgage Loans
(or to resecuritize some or all of its MBS) through the issuance of non-REMIC
collaterized mortgage obligations with multiple maturities ("CMOs"), it is
anticipated that the Mortgage Loans will be distributed, through the General
Partner and the Original Limited Partner, to the Company in order to prevent
the Mortgage Loans from being treated as a taxable mortgage pool for federal
income tax purposes upon the issuance of the CMOs. Accordingly, the General
Partner and the Original Limited Partner have the right to redeem a portion of
their partnership interests in the Operating Partnership in exchange for
Mortgage Loans to the extent necessary to facilitate such a securitization
transaction. The portion of the General Partner's or the Original Limited
Partner's partnership interest that is redeemed will be based on the fair
market value of the Mortgage Loans distributed, as determined by the General
Partner, but subject to review by the Independent Directors to ensure
compliance with the guidelines established by them for the Company's
investments, borrowings and operations.
OPERATIONS
The Operating Partnership Agreement requires that the Operating
Partnership be operated in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT for federal tax purposes, to avoid
any federal income or excise tax liability imposed by the Code and to ensure
that the Operating Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code.
37
<PAGE> 39
In addition to the administrative and operating costs and expenses
incurred by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company and the General Partner
(collectively, the "Company Expenses") and the Company Expenses are treated as
expenses of the Operating Partnership. The Company Expenses generally include
(i) all expenses relating to the formation and continuity of existence of the
Company and the General Partner, (ii) all expenses relating to the public
offering and registration of securities by the Company, (iii) all expenses
associated with the preparation and filing of any periodic reports by the
Company under federal, state or local laws or regulations, (iv) all expenses
associated with compliance by the Company and the General Partner with laws,
rules and regulations promulgated by any regulatory body and (v) all other
operating or administrative costs of the General Partner incurred in the
ordinary course of its business on behalf of the Operating Partnership.
DISTRIBUTIONS
The Operating Partnership Agreement provides that the Operating
Partnership shall distribute cash from operations (including net sale or
refinancing proceeds, but excluding net proceeds from the sale of the Operating
Partnership's property in connection with the liquidation of the Operating
Partnership) on a quarterly (or, at the election of the General Partner, more
frequent) basis, in amounts determined by the General Partner in its sole
discretion, to the partners in accordance with their respective percentage
interests in the Operating Partnership. Upon liquidation of the Operating
Partnership, after payment of, or adequate provision for, debts and obligations
of the Operating Partnership, including any partner loans, it is anticipated
that any remaining assets of the Operating Partnership will be distributed to
all partners with positive capital accounts in accordance with their respective
positive capital account balances. If the General Partner has a negative
balance in its capital account following a liquidation of the Operating
Partnership, it will be obligated to contribute cash to the Operating
Partnership equal to the negative balance in its capital account.
ALLOCATIONS
Income, gain and loss of the Operating Partnership for each fiscal
year generally will be allocated among the partners in accordance with their
respective interests in the Operating Partnership, subject to compliance with
the provisions of Code Sections 704(b) and 704(c) and regulations of the U.S.
Treasury promulgated thereunder.
TERM
The Operating Partnership shall continue until December 31, 2050, or
until sooner terminated as provided in the Operating Partnership Agreement or
by operation of law.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner
is the tax matters partner of the Operating Partnership and, as such, has
authority to handle tax audits and to make tax elections under the Code on
behalf of the Operating Partnership.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States federal income tax
considerations to the Company is based on current law, is for general
information only and is not tax advice. The tax treatment of a holder of any of
the Securities will vary depending upon the terms of the specific Securities
acquired by such holder, as well as such holder's particular situation, and
this discussion does not attempt to address any aspects of United States
federal income taxation relating to holders of Securities. Certain United
States federal income tax considerations relevant to holders of the Securities
will be provided in the applicable Prospectus Supplement relating thereto.
38
<PAGE> 40
This discussion does not consider specific facts and circumstances
that may be relevant to a particular holder's tax position, and does not
consider U.S. state and local or non-U.S. tax consequences. Furthermore, the
following discussion is based on provisions of the Code and administrative and
judicial interpretations, all of which are subject to change, possibly on a
retroactive basis.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
The Company believes that it has been organized and qualified, and
intends to continue to qualify, as a REIT under the Code. Qualification for
treatment as a REIT requires the Company to meet certain criteria, including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. A REIT generally is not subject to federal
income tax on that portion of its ordinary income or capital gains that is
distributed currently to shareholders. The Company has distributed and intends
to continue to distribute substantially all of its taxable income to
shareholders and to meet distribution requirements to continue to qualify for
the reduction of its taxable income by that portion of its income and gains that
is distributed to its stockholders. The Company generally will be subject
to federal income tax at normal corporate rates on its undistributed income and
to a 4% excise tax under the Code on the amount, if any, by which the sum of 85%
of its ordinary income (including accrued but unpaid interest income) and 95% of
any net capital gain exceeds the amount actually distributed to its shareholders
during the year (or declared as a dividend during October, November or December
of a calendar year, if distributed during the following January as ordinary
income dividends). Accrued income for the last month of each quarter is
generally received within 30 days after the end of the quarter. The Company is
not aware of any present circumstances that would cause it to fail to qualify as
a REIT, nor does it anticipate any such circumstances in the reasonably
foreseeable future. If the Internal Revenue Service successfully challenged the
tax status of the Company as a REIT, the Company's earnings (whether distributed
or not) would become subject to federal income tax (including any applicable
minimum tax) at regular corporate rates.
To assist in maintaining the Company's qualification as a REIT under
the Code, the Company's Articles of Incorporation contain restrictions on the
ownership and transfer of its capital stock. See "Description of Capital Stock
- - Restrictions on Ownership and Transfer."
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more
underwriters, and also may sell Securities directly to other purchasers or
through agents. The distribution of the Securities may be effected from time to
time in one or more transactions, at a fixed price or prices which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. If underwriters are used
in the sale of Securities, the Securities will be acquired by the underwriters
for their own account and may be resold from time to time in one or more
transactions, including negotiated transactions. If the Securities are sold
through one or more agents, as designated by the Company from time to time, any
such agent will be acting on a best efforts basis for the period of its
appointment.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters (which may be all or a portion of the discount to be received
by such underwriter from the Company) and/or commissions from the purchasers
for whom they may act as agents. Underwriters, dealers and agents that
participate in the distribution of Securities may be deemed to be underwriters,
and any discounts or commissions they receive from the Company, and any profit
on the resale of Securities they realize, may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the related Prospectus Supplement.
39
<PAGE> 41
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock, which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement are expected to be listed on
such exchange, subject to official notice of issuance. The Company may elect to
list any series of Debt Securities, Preferred Stock or Warrants on a securities
exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Securities, but will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for any Securities, other than the Common Stock.
Under agreements the Company may enter into, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company in the ordinary course of
business. In connection with any particular issue of Debt Securities, the
Company may enter into hedging transactions with an underwriter, dealer or
agent participating in such transaction or an affiliate thereof.
If so indicated in the Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws
of the jurisdiction to which such purchaser is subject. The underwriters and
such other agents will not have any responsibility in respect of the validity
or performance of such contracts.
LEGAL MATTERS
Certain matters relating to the validity of the Securities will be
passed upon for the Company by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, D.C.
EXPERTS
The financial statements of the Company as of December 31, 1997 and
for the period from May 14, 1997 to December 31, 1997, incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, the Statement of Revenue and Certain Expenses for
the 225 Bush Street Property for the year ended December 31, 1997, incorporated
in this Prospectus by reference from the Company's Current Report on Form
8-K/A, filed on June 12, 1998, and the Statements of Revenue and Certain
Expenses for: (i) the 841 Prudential Drive Property for the year ended December
31, 1997; (ii) the 450 Sansome Street Property for the year ended December 31,
1996; (iii) the Cortez Plaza Property for the year ended December 31, 1997; and
(iv) the Bayers Road Shopping Centre Property for the year ended December 31,
1997, incorporated in this Prospectus by reference from the Company's Current
Report on Form 8-K/A, filed on September 15, 1998, have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in their reports which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
40
<PAGE> 42
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT DEBT SECURITIES, PREFERRED STOCK, AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................
Incorporation of Certain
Documents by Reference...............................................
The Company.............................................................
Risk Factors............................................................
Use of Proceeds.........................................................
Ratio of Earnings to Fixed Charges......................................
Description of Debt Securities..........................................
Description of Capital Stock............................................
Description of Warrants.................................................
Certain Provisions of Virginia Law and of the
Company's Articles and Bylaws........................................
Operating Partnership Agreement.........................................
Certain Federal Income Tax
Considerations.......................................................
Plan of Distribution....................................................
Legal Matters...........................................................
Experts.................................................................
</TABLE>
================================================================================
================================================================================
OCWEN ASSET INVESTMENT CORP.
$250,000,000
DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK AND WARRANTS
----------
PROSPECTUS
----------
____________ ___, 1998
===============================================================================
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee $73,750
New York Stock Exchange listing fee *
Printing and engraving expenses *
Transfer agent and registrar fees *
Trustee fees *
Legal fees and expenses *
Accounting fees and expenses *
Miscellaneous expenses *
-------
Total $ *
=======
</TABLE>
- -----------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated and Amended Articles of Incorporation of the Registrant
contain a provision which, subject to certain exceptions described below,
eliminates the liability of a Director or officer to the Registrant or its
shareholders for monetary damages for any breach of duty as a Director or
officer. This provision does not eliminate such liability to the extent that it
is proved that the Director or officer engaged in willful misconduct or a
knowing violation of criminal law or of any federal or state securities law.
The Registrant's Restated and Amended Articles of Incorporation also
require the Registrant to indemnify any Director or officer who is or was a
party to a proceeding, including a proceeding by or in the right of the
Registrant, by reason of the fact that he or she is or was a Director or
officer or is or was serving at the request of the Registrant as a Director,
officer, employee or agent of another entity provided that the Board of
Directors determines that the conduct in question was in the best interest of
the Registrant and such person was acting on behalf of the Registrant. A
Director or officer of the Registrant is entitled to be indemnified against all
liabilities and expenses incurred by the Director or officer in the proceeding,
except such liabilities and expenses as are incurred (i) if such person is an
Independent Director or officer, because of his or her gross negligence,
willful misconduct or knowing violation of the criminal law or (ii) in the case
of the Director other than the Independent Directors, because of his or her
negligence or misconduct. Unless a determination has been made that
indemnification is not permissible, a Director or officer also is entitled to
have the Registrant make advances and reimbursement for expenses prior to final
disposition of the proceeding upon receipt of a written undertaking from the
Director or officer to repay the amounts advanced or reimbursed if it is
ultimately determined that he or she is not entitled to indemnification. Such
advance shall be permissible when the proceeding has been initiated by a
shareholder of the Registrant only if such advance is approved by the court of
competent jurisdiction. The Board of Directors of the Registrant also has the
authority to extend to any person who is an employee or agent of the
Registrant, or who is or was serving at the request of the Registrant as a
Director, officer, employee or agent of another entity, the same
indemnification rights held by Directors and officers, subject to all of the
accompanying conditions and obligations.
The Virginia Stock Corporation Act (the "Virginia Act") permits
indemnification of the Registrant's Directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended. Under Section
II-1
<PAGE> 44
13.1-697 of the Virginia Act, a Virginia corporation generally may indemnify
its officers and Directors in civil or criminal actions if they acted in good
faith and believed their conduct to be in the best interests of the corporation
and, in the case of criminal actions, had no reasonable cause to believe that
the conduct was unlawful. The Virginia Act also permits a corporation to
require indemnification of officers and Directors with respect to any action
except in the case of willful misconduct or knowing violation of the criminal
law. In addition, the Virginia Act limits the damages that may be assessed
against a Director or officer of the Registrant in a shareholder or derivative
proceeding to the greater of (a) $100,000 or (b) the amount of cash
compensation received by him from the Registrant in the twelve months
immediately preceding the act or omission giving rise to liability. This limit
on liability will not apply in the event of willful misconduct or a knowing
violation of the criminal law or of federal or state securities laws.
The Registrant carries an insurance policy providing directors' and
officers' liability insurance for any liability its Directors or officers or
the Directors or officers of any of its subsidiaries may incur in their
capacities as such.
The Registrant will indemnify Ocwen Capital Corporation, a Florida
corporation (the "Manager"), and its officers and directors from any action or
claim brought or asserted by any party by reason of any allegation that the
Manager for one or more of its officers or directors is otherwise accountable
or liable for the debts or obligations of the Registrant or its affiliates. In
addition, the Manager and its officers and Directors will not be liable to the
Registrant, and the Registrant will indemnify the Manager and its officers and
Directors for acts performed pursuant to the management agreement between the
Registrant and the Manager, except for claims arising from acts constituting
bad faith, willful misconduct, gross negligence or reckless disregard of their
duties under the management agreement.
II-2
<PAGE> 45
ITEM 16. EXHIBITS.
The exhibits filed as a part of this Registration Statement are as
follows:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Location
----------- ------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement for Common Stock or Preferred Stock (1)
1.2 Form of Underwriting Agreement for Debt Securities (1)
3.1 Amended and Restated Articles of Incorporation of the Company (2)
3.2 Amendment to the Amended and Restated Articles of Incorporation of the (3)
Company
3.3 Bylaws of the Company (2)
4.1 Specimen Common Stock certificate (2)
4.2 Specimen Preferred Stock certificate (1)
4.3 Form of Articles of Amendment with respect to Preferred Stock (1)
4.4 Form of Indenture for Debt Securities *
4.5 Form of Debt Securities (1)
4.6 Form of Indenture between the Company and Norwest Bank Minnesota, (4)
National Association, as trustee thereunder, for the Company's 11 1/2%
Senior Notes due 2005
4.7 Form of the Company's 11 1/2% Senior Notes due 2005 (attached as Exhibit (4)
A to the Indenture included as Exhibit 4.6)
4.8 Form of Warrant Agreement, including form of specimen warrant (1)
certificate
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding legality of
Securities being registered
8 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding federal (1)
income tax consequences
10.1 Third Amended and Restated Agreement of Limited Partnership of Ocwen (5)
Partnership, L.P.
10.2 Management Agreement between the Company and the Manager (5)
12 Computation of ratio of earnings to fixed charges 23.1
Consent of Elias, Matz, Tiernan & Herrick L.L.P. regarding
legality
opinion (contained in the opinion included as Exhibit 5)
23.2 Consent of Elias, Matz, Tiernan & Herrick L.L.P. regarding tax opinion (1)
23.3 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney (included in the signature page to this Registration --
Statement)
</TABLE>
II-3
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit No. Exhibit Location
----------- ------- --------
<S> <C> <C>
25.1 Statement of Eligibility of Trustee on Form T-1 (1)
25.2 Statement of Eligibility of Trustee on Form T-2 (1)
99.1 Investment Guidelines (6)
</TABLE>
- -------------------
* To be filed by amendment.
(1) To be filed by amendment or incorporated by reference in
connection with the offering of Securities.
(2) Incorporated by reference to the Company's Registration Statement
on Form S-11 (File No. 333-21965) filed with the Commission on
February 18, 1997, as amended.
(3) Incorporated by reference to the definitive Proxy Statement filed
with the Commission on April 15, 1998.
(4) Incorporated by reference to the Company's Current Report on Form
8-K filed with the Commission on July 16, 1998.
(5) Incorporated by reference to the Quarterly Report on Form 10-
filed on May 15, 1998.
(6) Incorporated by reference to the Quarterly Report on Form 10-Q
filed on August 14, 1998.
II-4
<PAGE> 47
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in th
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a) (1) (i) and (a) (1)
(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being 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 questions 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.
(d) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
II-5
<PAGE> 48
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective; and
(ii) For the purpose of determining any liability under the
Securities 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.
(e) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act (the "TIA") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the TIA.
II-6
<PAGE> 49
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-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Palm Beach, State of Florida on the 21st day of
September 1998.
OCWEN ASSET INVESTMENT CORP.
By: /s/ William C. Erbey
------------------------------------
William C. Erbey
Chairman and Chief Executive Officer
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. Each of the directors and/or officers of
Ocwen Asset Investment Corp. whose signature appears below hereby appoints
William C. Erbey and Christine A. Reich, and each of them severally, as his or
her attorney-in-fact to sign in his or her name and behalf, in any and all
capacities stated below and to file with the Securities and Exchange Commission
any and all amendments, including post-effective amendments, to this
Registration Statement on Form S-3, making such changes in the Registration
Statement as appropriate, and generally to do all such things in their behalf
in their capacities as directors and/or officers to enable Ocwen Asset
Investment Corp. to comply with the provisions of the Securities Act of 1933,
and all requirements of the Securities and Exchange Commission.
/s/ William C. Erbey Date: September 21, 1998
- ------------------------------------
William C. Erbey
Chairman and Chief Executive Officer
(principal executive officer)
/s/ Christine A. Reich Date: September 21, 1998
- ------------------------------------
Christine A. Reich
Director and Vice Chairman
/s/ Benjamin W. Navarro Date: September 21, 1998
- ------------------------------------
Benjamin W. Navarro
Director
II-7
<PAGE> 50
/s/ Timothy J. Riddiough Date: September 21, 1998
- ------------------------------------
Timothy J. Riddiough
Director
/s/ Peter M. Small Date: September 21, 1998
- ------------------------------------
Peter M. Small
Director
/s/ Mark S. Zeidman Date: September 21, 1998
- ------------------------------------
Mark S. Zeidman
Senior Vice President and Chief
Financial Officer (principal
financial and accounting officer)
II-8
<PAGE> 1
EXHIBIT 5
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
September 30, 1998
Board of Directors
Ocwen Asset Investment Corp.
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Ocwen Asset Investment Corp., a Virginia
corporation (the "Company"), with respect to the Company's Registration
Statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of up to
$250,000,000 in aggregate public offering price of the Company's debt
securities (the "Debt Securities"), preferred stock, par value $.01 per share
(the "Preferred Stock"), common stock, par value $.01 per share (the "Common
Stock"), and warrants to purchase Preferred Stock or Common Stock (the
"Warrants," and together with the Debt Securities, Preferred Stock and Common
Stock, the "Securities"), all of which Securities may be sold by the Company
from time to time as set forth in the prospectus which forms a part of the
Registration Statement (the "Prospectus"), and as to be set forth in one or
more supplements to the Prospectus (each, a "Prospectus Supplement"). This
opinion letter is furnished to you at your request to enable you to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. Section
229.601(b)(5), in connection with the Registration Statement.
As counsel to the Company, we have examined the Company's Restated and
Amended Articles of Incorporation, as amended (the "Articles"), and such
Company records, certificates and other documents and relevant statutes,
regulations, published rulings and such questions of law as we considered
necessary or appropriate for the purpose of this opinion.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
relied upon the representations and statements of officers and other
representatives of the Company with respect to the factual determinations
underlying the legal conclusions set forth herein. We have not attempted to
verify independently such representations and statements.
We assume that the issuance, sale, amount and terms of the Securities to
be offered from time to time will be duly authorized and determined by proper
action of the Board of Directors of the Company consistent with the procedures
and terms described in the Registration Statement (each, a "Board Action") and
in accordance with the Articles and applicable Virginia law. We further assume
that (i) any Debt Securities will be issued pursuant to one or more indentures
(each, an "Indenture"), the forms of which will be filed as exhibits to a
Current Report on Form 8-K prior to issuance thereof, (ii) any Warrants will be
issued under one or more warrant agreements, the forms of which will be filed
as exhibits to a Current Report on Form 8-K prior to issuance thereof (each, a
"Warrant Agreement"), each to be between the Company and a warrant agent
identified therein (each, a "Warrant Agent"), and (iii) prior to any issuance
of shares of Preferred Stock, appropriate articles of amendment shall be filed
for recordation with the State Corporation Commission of the Commonwealth of
Virginia (each, "Articles of Amendment").
<PAGE> 2
Board of Directors
September 30, 1998
Page 2
This opinion letter is based as to matters of law solely on (i) the
Virginia State Corporation Act and (ii) Virginia contract law (but not
including any statutes, ordinances, administrative decisions, rules or
regulations of any political subdivision of Virginia), in each case as
currently in effect, and we express no opinion herein as to any other laws,
statutes, ordinances, rules or regulations.
Based upon, subject to and limited by the foregoing and the other qualifications
herein, we are of the opinion that:
1. When the Registration Statement has become effective under the
Securities Act and when the Debt Securities have been (a) duly
established by an Indenture or any supplemental indenture thereto, (b)
duly authorized and established by applicable Board Action and duly
authenticated by the Trustee thereunder (the "Trustee"), and (c) duly
executed and delivered on behalf of the Company against payment of
valid consideration therefor in accordance with the terms of such
Board Action, any applicable underwriting agreement or purchase
agreement, an Indenture and any applicable supplemental indenture, and
as contemplated by the Registration Statement and/or the applicable
Prospectus Supplement, the Debt Securities will constitute binding
obligations of the Company, enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting rights of creditors
and other obligees (including, without limitation, the effect of
statutory and other law regarding fraudulent conveyances, fraudulent
transfers and preferential transfers) and as may be limited by the
exercise of judicial discretion and the application of principles of
equity, including, without limitation, requirements of good faith,
fair dealing, conscionability and materiality (regardless of whether
the Debt Securities are considered in a proceeding in equity or at
law).
2. When the Registration Statement has become effective under the
Securities Act and when a series of the Preferred Stock has been duly
authorized and established by applicable Board Action, in accordance
with the terms of the Articles and applicable law, and appropriate
Articles of Amendment have been duly filed, and, upon issuance and
delivery of such series of Preferred Stock against payment of valid
consideration therefor in accordance with the terms of such Board
Action and any applicable underwriting agreement or purchase
agreement, and as contemplated by the Registration Statement and/or
the applicable Prospectus Supplement, the shares represented by such
series of Preferred Stock will be validly issued, fully paid and
nonassessable.
3. When the Registration Statement has become effective under the
Securities Act, upon due authorization by Board Action of an issuance
of Common Stock, and upon issuance and delivery of such Common Stock
against payment of valid consideration therefor in accordance with the
terms of such Board Action and any applicable underwriting agreement
or purchase agreement, and as contemplated by the Registration
Statement and/or the applicable Prospectus Supplement, such shares of
Common Stock will be validly issued, fully paid and nonassessable.
4. When the Registration Statement has become effective under the
Securities Act and when the Warrants have been (a) duly established
pursuant to the related Warrant Agreement, (b) duly authorized and
established by applicable Board Action and duly authenticated by the
Warrant Agent and (c) duly executed and delivered on behalf of the
Company against payment of valid consideration therefor in accordance
with the terms of such Board Action, any applicable underwriting
agreement or purchase agreement and the applicable Warrant Agreement,
and as contemplated by the Registration Statement and/or the
applicable Prospectus Supplement, the Warrants will constitute binding
obligations of the Company, enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting rights of creditors
and other obligees (including, without limitation, the effect of
statutory and other law regarding fraudulent conveyances, fraudulent
transfers and preferential transfers) and as may be limited by the
exercise of judicial discretion and the application
<PAGE> 3
of principles of equity, including, without limitation, requirements
of good faith, fair dealing, conscionability and materiality
(regardless of whether the Warrants are considered in a proceeding in
equity or at law).
The opinions expressed in Paragraphs (1) and (4) above shall be understood
to mean only that if there is a default in performance of an obligation, (i) if
a failure to pay or other damage can be shown and (ii) if the defaulting party
can be brought into a court which will hear the case and apply the governing
law, then, subject to the availability of defenses and to the exceptions set
forth in Paragraphs (1) and (4), the court will provide a money damage (or
perhaps injunctive or specific performance) remedy.
To the extent that the obligations of the Company under any Indenture may
be dependent upon such matters, we assume for purposes of this opinion that the
Trustee is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
legally valid and binding obligation of the Trustee enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance, with
respect to acting as a trustee under the Indenture, with all applicable laws
and regulations; and that the Trustee has the requisite organizational and
legal power and authority to perform its obligations under the Indenture.
To the extent that the obligations of the Company under any Warrant
Agreement may be dependent upon such matters, we assume for purposes of this
opinion that the applicable Warrant Agent is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization; that
the Warrant Agent is duly qualified to engage in the activities contemplated by
the Warrant Agreement; that the Warrant Agreement has been duly authorized,
executed and delivered by the Warrant Agent and constitutes the legally valid
and binding obligation of the Warrant Agent enforceable against the Warrant
Agent in accordance with its terms; that the Warrant Agent is in compliance,
with respect to acting as a warrant agent under the Warrant Agreement, with all
applicable laws and regulations; and that the Warrant Agent has the requisite
organizational and legal power and authority to perform its obligations under
the Warrant Agreement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules promulgated thereunder.
This opinion is rendered solely for your benefit in connection with the
transactions described above upon the understanding that we are not hereby
assuming any professional responsibility to any other person. Except as
provided in the preceding paragraph, this opinion may not be relied upon by any
other person and this opinion may not be used, disclosed, quoted, filed with a
governmental agency or otherwise referred to without our express prior written
consent. The opinions expressed in this letter are limited to the matters
expressly set forth herein, and no other opinions should be inferred beyond the
matters expressly stated herein.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Gerard L. Hawkins
---------------------------------
Gerard L. Hawkins, a Partner
<PAGE> 1
EXHIBIT 12
Computation of ratio of earnings to fixed charges
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31,1997
<S> <C> <C>
Earnings
Gain/(loss) from continuing operations $(3,858,110) $11,791,518
Add:
Fixed charges 7,929,687 --
----------- -----------
Earnings for computation purposes 4,071,577 11,791,518
(Deficiency) of earnings available to
cover fixed charges $(3,858,110) --
----------- -----------
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
included in this Registration Statement on Form S-3 of Ocwen Asset Investment
Corp. of: (a) our report, dated January 26, 1998, incorporated by reference in
the December 31, 1997 Annual Report on Form 10-K of Ocwen Asset Investment
Corp.; (b) our report dated June 3, 1998 on the 225 Bush Street Property
included in the Current Report on Form 8-K/A of Ocwen Asset Investment Corp.
filed on June 12, 1998; (c) our reports: (i) dated July 23, 1998 on the 841
Prudental Drive Property; (ii) dated June 26, 1998 on the 450 Sansome Street
Property; (iii) dated June 19, 1998 on the Cortez Plaza Property; and (iv) dated
June 23, 1998 on the Bayers Road Shopping Centre Property, all included in the
Current Report on Form 8-K/A of Ocwen Asset Investment Corp. filed on September
15, 1998. We also consent to the reference to our firm under the heading
"Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
September 28, 1998
