<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1998
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
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
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(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:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
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(d) 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED
MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(1)
====================================================================================================================================
<S> <C> <C> <C> <C>
11 1/2% Senior Notes due 2005..................... $150,000,000 100% $150,000,000 $44,250
====================================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(f).
------------------
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 23, 1998
PROSPECTUS
OCWEN ASSET INVESTMENT CORP.
OFFER TO EXCHANGE ITS
11 1/2% SENIOR NOTES DUE 2005
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF
ITS OUTSTANDING 11 1/2% SENIOR NOTES DUE 2005
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _______ __, 1998, UNLESS EXTENDED
--------------------
Ocwen Asset Investment Corp. (the "Company"), a Virginia corporation,
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $150 million aggregate
principal amount of its 11 1/2% Senior Notes due 2005 (the "New Notes") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for a like aggregate principal amount
of its 11 1/2% Senior Notes due 2005 (the "Old Notes"), of which $150 million
aggregate principal amount is outstanding. The Old Notes were originally issued
and sold to Lehman Brothers Inc., Morgan Stanley & Co., Inc., J.C. Bradford &
Co. and Piper Jaffray Inc. (the "Initial Purchasers") in transactions that were
exempt from registration under the Securities Act and resold to certain
"qualified institutional buyers" ("QIBs") and non-U.S. persons in reliance on,
and subject to the restrictions imposed pursuant to, Rule 144A and Regulation S,
respectively, under the Securities Act. The terms of the New Notes are identical
in all material respects to the terms of the Old Notes, except that (i) the New
Notes have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer under federal securities laws
applicable to the Old Notes and (ii) the holders of New Notes will not be
entitled to registration rights that holders of Old Notes have under the
Registration Rights Agreement (as defined herein), except under limited
circumstances. See "Description of New Notes" and "Description of Old Notes."
The New Notes are being offered for exchange in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated July
14, 1998, among the Company and the Initial Purchasers (the "Registration Rights
Agreement"). Except as the context may otherwise require or otherwise expressly
stated, the term "Notes" herein means the Old Notes and the New Notes.
(continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed
to all registered holders of Old Notes as of _____________ __, 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD NOTES IN THE
EXCHANGE OFFER.
-----------------
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.
-----------------
The date of this Prospectus is __________ __, 1998.
<PAGE> 3
(Continued from the previous page)
Interest on the Notes will be payable in cash semi-annually in
arrears on each January 1 and July 1, commencing on January 1, 1999, at a rate
per annum of 11 1/2%. The Notes will mature on July 1, 2005 and will be
redeemable, at the option of the Company, in whole or part, on or after July 1,
2002, at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to July 14, 2001,
the Company may, on any one or more occasions, use the net proceeds of one or
more offerings of its common stock, par value $0.01 per share (the "Common
Stock"), to redeem up to 25% of the aggregate principal amount of the Notes at a
redemption price of 111.50% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption, provided that, after any such
redemption, the aggregate principal amount of the Notes outstanding must equal
at least $112.5 million. Upon the occurrence of a Change of Control (as defined
herein), the Company is required, subject to certain conditions, to offer to
purchase all of the Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase.
The New Notes will be represented by one or more certificates in
registered global form (the "Global Securities"), which will be deposited with a
custodian for and registered in the name of Cede & Co., as nominee for The
Depository Trust Company ("DTC"). Beneficial interests in New Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. See "Description of Notes - Book-Entry, Delivery and
Form."
Based on the position of the staff of the Division of Corporation
Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters addressed to third
parties in other transactions, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer or who is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act (an "Affiliate")) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. Each holder of Old
Notes wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal (as defined herein) that such conditions have been met in
connection with its proposed acquisition of New Notes. In addition, as described
herein, if any broker-dealer (a "Participating Broker-Dealer") holds Old Notes
acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes then such Participating
Broker-Dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Notes. See "The
Exchange Offer - Resales of New Notes."
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Old Notes. The New Notes will be a new issue
of securities for which there is no existing market. There can be no assurance
as to the development or liquidity of any market for the Notes. The Company does
not intend to apply for listing of the New Notes on any securities exchange or
to seek approval for quotation of the New Notes through any automated quotation
system.
Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (as
defined herein), except for those rights which terminate upon consummation of
the Exchange Offer. Following consummation of the Exchange Offer, the holders of
Old Notes will continue to be subject to all of the existing restrictions upon
transfer thereof, and the Company will not have any further obligation to such
holders to provide for registration under the Securities Act of the Old Notes
held by them, except under limited circumstances. See "Registration Rights
Agreement." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. See "Risk Factors - Consequences of a Failure to Exchange
Old Notes."
2
<PAGE> 4
(Continued from the previous page)
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New
York City time, on ____________ __, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company (in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended). Tenders of Old Notes may
be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum aggregate principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
events and conditions which may be waived by the Company and to the provisions
of the Registration Rights Agreement. Holders may tender their Old Notes in
whole or in part in integral multiples of $1,000 principal amount. The Company
has agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer--Fees and Expenses." Holders of New Notes as of the record date for the
payment of interest on January 1, 1999 will be entitled to receive interest
accumulated from July 14, 1998. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive interest on such Old Notes and will be
deemed to have waived the right to receive any such interest accumulated from
July 14, 1998. Consequently, holders who exchange their Old Notes for New Notes
will receive the same interest payment on January 1, 1999 that they would have
received had they not accepted the Exchange Offer. See "The Exchange Offer -
Interest on New Notes."
3
<PAGE> 5
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER, 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 SHALL UNDER ANY CIRCUMSTANCE CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION 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............................................................................................. 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................... 5
SUMMARY............................................................................................................7
SELECTED CONSOLIDATED FINANCIAL DATA..............................................................................14
RISK FACTORS......................................................................................................16
USE OF PROCEEDS...................................................................................................28
RATIO OF EARNINGS TO FIXED CHARGES................................................................................28
CAPITALIZATION....................................................................................................29
THE EXCHANGE OFFER................................................................................................30
DESCRIPTION OF NEW NOTES..........................................................................................39
DESCRIPTION OF OLD NOTES..........................................................................................60
REGISTRATION RIGHTS AGREEMENT.....................................................................................61
PLAN OF DISTRIBUTION..............................................................................................62
VALIDITY OF NEW NOTES.............................................................................................62
EXPERTS...........................................................................................................62
</TABLE>
4
<PAGE> 6
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 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 New York Stock Exchange
(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-4 (together with all amendments and exhibits, the "Registration Statement")
filed by the Company with the Commission under 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
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; and
(c) Current Reports on Form 8-K filed on January 28, 1998,
February 9, 1998, March 23, 1998, April 23, 1998 (as amended on
June 12, 1998), May 12, 1998, June 19, 1998, July 16, 1998, July
24, 1998, August 6, 1998 (as amended on September 15, 1998),
September 17, 1998 and September 22, 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 securities made by this Prospectus 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, in any
supplement hereto 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
supplement hereto or in any subsequently filed document which also is
incorporated or is 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 supplement hereto. Subject to the foregoing, all information
appearing in this Prospectus is qualified in its entirety by the information
appearing in the documents incorporated by reference.
5
<PAGE> 7
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.
6
<PAGE> 8
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the detailed information and financial statements, including
the notes thereto, appearing elsewhere herein or incorporated herein by
reference. Unless the context otherwise requires, references herein to the
Company include the Company and its subsidiaries.
THE COMPANY
The Company is a hybrid real estate investment trust ("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 wholly-owned subsidiary of Ocwen
Financial Corporation ("Ocwen Financial"), a diversified financial services
company that is primarily engaged in the acquisition, servicing and resolution
of subperforming and nonperforming residential and commercial mortgage loans.
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, Ocwen
Limited, Inc. (the "Limited Partner"), a Virginia corporation and a wholly-owned
qualified REIT subsidiary of the Company, currently owns 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 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 aggregate unpaid principal amount and comprise the Company's discount loan
portfolio.
7
<PAGE> 9
The following table sets forth information regarding the principal
categories of investments of the Company at June 30, 1998.
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------
Amount Percentage
------ ----------
(Dollars in Thousands)
<S> <C> <C>
Mortgage-related securities available for sale:
Subordinate - commercial, net.................................... $126,106 15.34%
Subordinate and residual - residential, net...................... 289,827 35.26
------- ------
415,933 50.60
Investments in real estate, net...................................... 176,925 21.52
Loan and discount loan portfolios, net............................... 192,047 23.36
Other assets......................................................... 37,145 4.52
-------- ------
Total assets............................................. $822,050 100.00%
======= ======
</TABLE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer...................................... Up to $150 million aggregate principal amount of New Notes are being
offered in exchange for a like aggregate principal amount of Old Notes.
Old Notes may be tendered for exchange in whole or in part. The Company is
making the Exchange Offer in order to satisfy its obligations under the
Registration Rights Agreement relating to the Old Notes. For a description
of the procedures for tendering Old Notes, see "The Exchange Offer--
Procedures for Tendering Old Notes."
Expiration Date......................................... 5:00 p.m., New York City time, on ________, 1998 unless the Exchange Offer
is extended by the Company (in which case the Expiration Date will be the
latest date and time to which the Exchange Offer is extended). See "The
Exchange Offer -- Terms of the Exchange Offer."
Conditions to the Exchange Offer........................ The Exchange Offer is subject to certain conditions, which may be waived
by the Company in its sole discretion. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered.
See "The Exchange Offer -- Conditions to the Exchange Offer."
Offer................................................... The Company reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time, (i) to delay
the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer if certain specified conditions have not been satisfied,
(iii) to extend the Expiration Date of the Exchange Offer and retain all
Old Notes tendered pursuant to the Exchange Offer, subject, however, to
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C>
the right of holders of Old Notes to withdraw their tendered Old Notes or
(iv) to waive any condition or otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange Offer -- Terms of the Exchange
Offer."
Withdrawal Rights....................................... Tenders of Old Notes may be withdrawn at any time on or prior to the
Expiration Date by delivering a written notice of such withdrawal to the
Exchange Agent in conformity with certain procedures set forth below under
"The Exchange Offer--Withdrawal Rights."
Procedures for Tendering Old Notes...................... Tendering holders of Old Notes must complete and sign a letter of
transmittal (the "Letter of Transmittal") in accordance with the
instructions contained therein and forward the same by mail, facsimile or
hand delivery, together with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or in compliance with the
specified procedures for guaranteed delivery of Old Notes. Certain
brokers, dealers, commercial banks, trust companies and other nominees
also may effect tenders by book-entry transfer, including an Agent's
Message (as defined herein) in lieu of a Letter of Transmittal. Holders of
Old Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee are urged to contact such person promptly
if they wish to tender Old Notes pursuant to the Exchange Offer. See "The
Exchange Offer--Procedures for Tendering Old Notes." Letters of
Transmittal and certificates representing Old Notes should not be sent to
the Company. Such documents should only be sent to the Exchange Agent (as
defined herein). See "The Exchange Offer - Exchange Agent."
Resales of New Notes.................................... The Company is making the Exchange Offer in reliance on the position of
the Staff of the Commission as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has
not sought its own interpretive letter, and there can be no assurance that
the Staff of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff of the
Commission, and subject to the two immediately following sentences, the
Company believes that New Notes issued pursuant to this Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business
and that such holder is not participating, and has no arrangement or
understanding with any
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C>
person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is
an Affiliate of the Company or who intends to participate in the Exchange
Offer for the purpose of distributing the New Notes, or any broker-dealer
who purchased the Old Notes from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (ii) will not be permitted or entitled to tender
such Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes unless such
sale is made pursuant to an exemption from such requirements. In addition,
as described below, if any broker-dealer holds Old Notes acquired for its
own account as a result of market-making or other trading activities and
exchanges such Old Notes for New Notes, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent in the Letter of
Transmittal or by transmission of an Agent's Message that (i) it is not an
Affiliate of the Company, (ii) any New Notes to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Notes
and (iv) if such holder is not a broker-dealer, such holder is not engaged
in, and does not intend to engage in, a distribution (within the meaning
of the Securities Act) of such New Notes. The Letter of Transmittal
contains the foregoing representations. Each Participating Broker-Dealer
that receives New Notes for its own account pursuant to the Exchange Offer
will be deemed to have acknowledged by execution of the Letter of
Transmittal or delivery of an Agent's Message that it acquired the Old
Notes for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on the position taken by
the Staff of the Commission in the interpretive letters referred to above,
the Company believes that Participating Broker-Dealers who acquired Old
Notes for their own accounts as a result of market-
</TABLE>
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<TABLE>
<S> <C>
making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the New Notes received
upon exchange of such Old Notes (other than Old Notes which represent an
unsold allotment from the original sale of the Old Notes) with a
prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
New Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or other
trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement and to the limitations described below under
"The Exchange Offer--Resales of New Notes," the Company has agreed that
this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 90 days after the Expiration Date
(subject to extension under certain limited circumstances) or, if earlier,
when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any person, including any
Participating Broker-Dealer, who is an Affiliate of the Company may not
rely on such interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection
with any resale transaction. See "The Exchange Offer -- Resales of New
Notes."
Certain Federal Income Tax
Consequences........................................... Based upon current provisions of the Code, applicable U.S. Treasury
regulations (including proposed and temporary treasury regulations),
judicial authority, and administrative rulings and practice, the exchange
of an Old Note for a New Note pursuant to the Exchange Offer will not
constitute a taxable event for federal income tax purposes. There can be
no assurance that the Internal Revenue Service will continue to take this
position, and no ruling from the Internal Revenue Service has been or will
be sought. Legislative, judicial or administrative changes or
interpretations may be issued that could alter or modify this result. EACH
HOLDER OF OLD NOTES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD NOTES FOR NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS. See "The Exchange Offer - Certain Federal Income Tax
Consequences of the Exchange."
</TABLE>
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<TABLE>
<S> <C>
Exchange Agent.......................................... The exchange agent with respect to the Exchange Offer is Norwest Bank
Minnesota, National Association (the "Exchange Agent"). The addresses, and
telephone and facsimile numbers of the Exchange Agent are set forth in
"The Exchange Offer-Exchange Agent" and in the Letter of Transmittal.
Use of Proceeds......................................... The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. See "Use of Proceeds."
THE NEW NOTES
Securities Offered...................................... Up to $150 million aggregate principal amount of New Notes which have been
registered under the Securities Act. The New Notes will be issued, and the
Old Notes were issued, under the Indenture. The terms of the New Notes are
identical in all material respects to the terms of the Old Notes, except
that (i) the New Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer under
federal securities laws and (ii) the holders of New Notes will not be
entitled to registration rights that holders of the Old Notes have under
the Registration Rights Agreement, except under limited circumstances. See
"The Exchange Offer--Purpose and Effect of the Exchange Offer,"
"Description of New Notes" and "Description of Old Notes."
Maturity Date........................................... July 1, 2005.
Interest Rate........................................... The New Notes will bear interest at a rate of 11 1/2% per annum. Interest
will be paid in cash. Interest will accrue from the date of issuance or
from the most recent interest payment date for which interest has been
paid or provided.
Interest Payment Dates.................................. Interest on the New Notes will be payable on each January 1 and July 1,
commencing on January 1, 1999.
Ranking................................................. The New Notes will rank pari passu with the Old Notes. The Notes are
general unsecured obligations of the Company. 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 any subsidiary 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.
Optional Redemption..................................... The New Notes are redeemable, at the option of the Company, in whole or in
part, at any time on or after July 1, 2002, at the
</TABLE>
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<TABLE>
<S> <C>
redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, during the first 36 months after the
Closing Date, the Company may, on one or more occasions, use the net
proceeds of one or more offerings of its Common Stock to redeem up to 25%
of the aggregate principal amount of the Notes then outstanding at a
redemption price of 111.50% of the principal amount thereof, plus accrued
and unpaid interest to the date of redemption; provided, however, that
after any such redemption, the aggregate principal amount of the Notes
outstanding must equal at least $112.5 million and that such redemption
occurs within 90 days following the closing of such offering of Common
Stock. See "Description of New Notes - Optional Redemption."
Change of Control....................................... In the event of a Change of Control, the Company will, subject to certain
conditions, be required to offer to purchase all outstanding Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase. There can be no assurance
that the Company will have sufficient funds to purchase all of the Notes
in the event of a Change of Control or that the Company would be able to
obtain financing for such purpose on favorable terms, if at all. See
"Description of New Notes -Repurchase at the Option of Holders - Change of
Control."
Certain Covenants....................................... The Indenture pursuant to which the New Notes will be issued and the Old
Notes were issued contains certain covenants that will, among other
things, and subject to certain exceptions, limit the ability of the
Company and its Restricted Subsidiaries (as defined herein) to incur
additional indebtedness, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, impose
restrictions on the ability of a Restricted Subsidiary to pay dividends or
make certain payments to the Company, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of their assets to any other person. See
"Description of New Notes - Certain Covenants."
Risk Factors............................................ For a discussion of certain factors that should be considered in deciding
whether to accept the Exchange Offer, see "Risk Factors."
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
The following table presents selected consolidated historical financial
data of the Company and its subsidiaries at the dates and for the periods
indicated. The selected consolidated historical financial data at December 31,
1997 and for the period from May 14, 1997 to December 31, 1997 have been derived
from the financial statements audited by PricewaterhouseCoopers LLP, independent
certified public accountants. The selected consolidated historical financial
data at June 30, 1998 and for the six months ended June 30, 1998 is unaudited
but in the opinion of management reflects all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for a fair
presentation of the Company's financial data at such date and for such period.
Operating results for the six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for any other interim period or
the entire year ending December 31, 1998. The selected consolidated historical
financial data should be read in conjunction with, and is qualified in its
entirety by reference to, the information in the Consolidated Financial
Statements and related notes incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $822,050 $288,003
Cash and cash equivalents................................. 13,101 48,677
Securities available for sale............................. 415,933 146,027
Loan portfolio, net....................................... 183,535 15,831
Discount loans, net....................................... 8,512 26,979
Investments in real estate, net........................... 176,925 45,430
Securities sold under agreements to repurchase............ 223,820 --
Obligation outstanding under lines of credit.............. 269,415 --
Minority interest......................................... 29,886(1) 2,942
Shareholders' equity...................................... 273,681(2) 271,258
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 14, 1997 TO
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
OPERATIONS DATA:
Interest income............................................... $ 19,679(3) $13,462
Interest expense.............................................. 6,240 --
--------- -------
Net interest income........................................... 13,439 13,462
Provision for loan losses..................................... 206 --
--------- -------
Net interest income after provision for loan losses........... 13,233 13,462
Operating income:
Real Estate investments..................................... 6,549 2,209
Other operating income...................................... 27 13
--------- -------
Total operating income.............................. 6,576 2,222
Operating expenses............................................ 6,028 728
Other expenses................................................ 3,360 3,155
Loss on securities held for trading........................... (13,958)(3) --
--------- -------
Income (loss) before minority interest........................ (3,537) 11,801
Minority interest in net (income) loss of operating
partnership............................................... (321) (9)
--------- -------
Net income (loss)............................................. $ ( 3,858) $11,792
========= =======
FFO(4)........................................................ $ 11,162(3) $11,971
========= =======
PER SHARE DATA(5):
Net income (loss)............................................. $ (0.20) $ 0.60
FFO(5)........................................................ 0.58 0.61
Dividends..................................................... 0.74 0.73
Book value.................................................... 14.43 14.30
</TABLE>
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- ---------------
(1) Reflects the Operating Partnership's issuance of limited partnership units
to IMIHC. Includes 1,473,733 limited partnership units in the Operating
Partnership issued to IMIHC for a capital contribution of $24.5 million in May
1998.
(2) Includes an approximately $14.0 million capital contribution resulting from
the Company's sale of the Company's portfolio of interest-only and inverse
floating rate interest-only classes of mortgage-related securities backed by
single-family residential loans (the "IO Portfolio") to William C. Erbey,
Chairman and Chief Executive Officer of the Company and Ocwen Financial, and
Barry N. Wish, a director of Ocwen Financial, for a cash price of $54.6 million,
in May 1998.
(3) Interest income reflects a $3.1 million impairment write-down of the
Company's IO Portfolio, and loss on securities held for trading reflects an
unrealized mark-to-market loss of approximately $14.0 million on the Company's
IO Portfolio in anticipation of its sale to related parties. Exclusive of
charges related to the IO Portfolio, consisting of the $14.0 million
mark-to-market loss and the $3.1 million impairment write-down, the Company
would have reported $13.1 million of net income or $0.68 per diluted share
during the six months ended June 30, 1998.
(4) The Company considers FFO to be an appropriate supplementary measure of the
performance of a REIT because such measure does not recognize (i) depreciation
and amortization of real estate assets as operating expenses, which management
believes are not meaningful in evaluating income-producing real estate because
such real estate historically has not depreciated, and (ii) gains/losses from
debt restructuring and sales of property. In the six months ended June 30, 1998,
FFO was calculated by adding back $1.1 million of real estate related
depreciation and the $14.0 million loss on securities held for trading to the
Company's $3.9 million net loss during the period. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of the Company's performance or to cash flow as a
measure of liquidity or ability to make distributions.
(5) Based on diluted weighted average shares outstanding.
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RISK FACTORS
Prospective investors should carefully review the following factors,
as well as the other information contained in this Prospectus, in connection
with the Exchange Offer and the New Notes 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," "expect," "intend," "may," "plan," "present,"
"propose," "prospect," "will," 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, those described below and other factors generally affecting the
real estate acquisition, mortgage and leasing markets and securities markets.
Some, but not all, of these risks are summarized below as well as in the
Company's reports and filings with the Commission, including its periodic
reports under the Exchange Act. 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.
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 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
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absence of a credit history or other factors, are unable or unwilling to qualify
as borrowers under guidelines established by the 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 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 recently sold its IO Portfolio and currently
has no intention of acquiring additional IOs and Inverse IOs, 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 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. The yield to maturity of an Inverse IO is extremely sensitive
to inverse changes in the related 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
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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 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, 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 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
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
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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 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 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 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.
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
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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 non-voting 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 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 servicer to foreclose and liquidate the mortgage loan.
There can be no assurance that the servicer can liquidate a defaulted mortgage
loan successfully or in a timely fashion.
Allowances for Loan Losses. At June 30, 1998, the Company had
established a $206,000 allowance for loan losses on its loan portfolio and had
not established such an allowance on its discount loan portfolio. Although the
Company believes that these actions were adequate at such date and in accordance
with generally accepted accounting principles, future additions to allowances
for loan losses 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
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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.
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; and "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, 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 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 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. 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
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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." At June 30, 1998, the Company had $141.1 million of
investments in real estate located in San Francisco, California, as well as an
$11.6 million loan for the construction of an apartment building in San
Francisco. Given this concentration of real estate investments, the Company's
performance and its ability to make payments to Holders 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.
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.
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.
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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 and 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
distribution to Holders because of the additional tax liability to the Company
for the years involved.
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 ("Excess Inclusion") may cause some of the Company's
shareholders to suffer certain adverse tax consequences. See "Federal Income Tax
Considerations." Consequently, an acquisition by the Company of subordinate and
residual interests, other debt
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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. 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 servicer generally
may take in connection with a defaulted loan and/or (ii) designate the Bank (or
another party) as special servicer 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. At June 30, 1998, the Company believes that its
Qualifying Interests, including subordinate and residual interests in
mortgage-related securities which the Company believes meet the criteria set
forth above, comprised over 87% of the Company's total assets and that the
Company's Qualifying Interests and other real-estate related assets comprised
over 95% of the Company's total assets. As a result, the Company believes that
it was not required to register as an investment company under the Investment
Company Act. The Company does not intend, however, 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. 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 recision 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
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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) Ocwen Financial beneficially owns 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. Ocwen Financial also indirectly holds 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. See "Management of the
Company."
(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 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)
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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."
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 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 and its ability to make payments
to Holders is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. All of the assets of the Company are held by subsidiaries
and all of the Company's operating revenues are derived from operations of such
subsidiaries. Therefore, the Company's ability to pay interest on, principal of
and redemption payments when due on the Notes is dependent upon the earnings of
its subsidiaries and the distribution of sufficient funds from its direct and
indirect subsidiaries to the Company. The Company's subsidiaries will
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have no obligation, contingent or otherwise, to make any funds available to the
Company for payments on the Notes and will not be guarantors of the Notes.
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. See "Description of Certain Indebtedness."
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 (including pursuant to the Operating Partnership Note)
to the extent such claims may be recognized.
CHANGE IN CONTROL
Upon a Change of Control, the Company will be required to offer to
purchase all of the Notes then outstanding at 101% of their aggregate principal
amount, plus accrued and unpaid interest, if any. The repurchase price is
payable in cash. There can be no assurance that, were a Change of Control to
occur, the Company would have sufficient funds to pay the purchase price for all
Notes which the Company might be required to purchase.
In the event the Company does not have sufficient funds to pay the
purchase price of the Notes upon a Change of Control, the Company may be
required to seek third party financing to the extent it did not have sufficient
funds available to meet its purchase obligations, and there can be no assurance
that the Company would be able to obtain such financing on favorable terms, if
at all.
ABSENCE OF A MARKET FOR THE NOTES
The New Notes will not be listed on any national securities exchange
or approved for quotation on a national inter-dealer quotation system. There can
be no assurance as to the liquidity of any markets that may develop for the New
Notes or the Old Notes, or at what price holders of the New Notes or the Old
Notes will be able to sell their New Notes or their Old Notes, as the case may
be. Future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. In connection with the
offering of the Old Notes, each Initial Purchaser informed the Company that it
intends to make a market in the New Notes and the Old Notes. However, the
Initial Purchasers are not obligated to do so and any such market making
activity may be terminated at any time without notice to the holders of the New
Notes or the Old Notes, as applicable. In addition, such market making activity
will be subject to the limits of the Exchange Act and the regulations thereunder
and may be limited during the pendency of the Exchange Offer and during the
period a shelf registration statement required to be filed pursuant to the
Registration Rights Agreement is required to remain effective. See "Description
of Old Notes" and "Registration Rights Agreement."
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.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or
any state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject
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thereto, and in each case in compliance with certain other conditions and
restrictions. Old Notes which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of Old
Notes which remain outstanding will not be entitled to any rights to have such
Old Notes registered under the Securities Act pursuant to the Registration
Rights Agreement, except under limited circumstances.
To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. In addition, although the Old Notes have been designated for
trading by QIBs as defined in Rule 144A, in the Private Offerings, Resale and
Trading through Automated Linkages Market ("PORTAL") of the National Association
of Securities Dealers, Inc., to the extent that Old Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Old Notes
which remain outstanding after the Exchange Offer could be adversely affected.
The Old Notes provide, among other things, that, if a registration
statement relating to the Exchange Offer has not been filed by October 12, 1998,
declared effective by January 10, 1999, or the New Notes are not issued on or
prior to 30 business days after the registration statement is declared
effective, the interest rate borne by the Old Notes upon the date of such
default will increase by specified amounts until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old Notes will
not be entitled to any prospective increase in the interest rate thereon or any
further registration rights under the Registration Rights Agreement, except
under limited circumstances. The New Notes will not be entitled to any such
prospective increase in the interest rate thereon. See "Description of New
Notes" and "Description of Old Notes."
EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Old Notes, a properly completed and duly executed Letter of Transmittal or
Agent's Message in lieu thereof and all other required documents. Therefore,
holders of the Old Notes desiring to tender such Old Notes in exchange for New
Notes should allow sufficient time to ensure timely delivery. The Company is not
under any duty to give notification of defects or irregularities with respect to
the tenders of Old Notes for exchange.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of
the New Notes offered hereby. Old Notes surrendered in exchange for New Notes
will be retired and cancelled.
The net proceeds to the Company from the sale of the Old Notes
amounted to approximately $144.4 million. The Company contributed the net
proceeds from the offering of the Old Notes to the Operating Partnership
(through the purchase of an unsecured, unsubordinated note), which will use such
proceeds for general corporate purposes, including the acquisition of
subordinate and residual interests, underperforming and otherwise distressed
multifamily and commercial real estate and other assets in accordance with the
Company's strategic objectives. Pending such applications, net proceeds from the
Offering may be invested in short-term, interest-bearing securities.
RATIOS 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 the
$14.0 million mark-to-market loss on the IO Portfolio, the Company's ratio of
earnings to fixed charges for the six months ended June 30, 1998 would have
been 2.27. For purposes of computing this information, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to income
(loss)
28
<PAGE> 30
before taxes. Fixed charges consist of interest costs, whether expensed or
capitalized, and amortization relating to any indebtedness, whether expensed or
capitalized.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1998 and as adjusted to reflect the issuance of the Old Notes.
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------------
Actual As Adjusted
-------------------- ------------------
(Dollars in Thousands, Except
Share Data)
<S> <C> <C>
Liabilities:
11 1/2% Senior Notes due 2005(1) ................................... $ -- $ 150,000
Securities sold under agreements to repurchase ..................... 223,820 223,820
Obligation outstanding under lines of credit........................ 269,415 269,415
Dividends and distributions payable ................................ 10,179 10,179
Accrued expenses, payables and other liabilities.................... 15,069 15,069
------------ ------------
Total liabilities................................................ 518,483 668,483
------------ ------------
Minority interest(2) ................................................... 29,886 29,886
Shareholders' Equity:
Preferred stock, $.01 par value; 25,000,000 shares
authorized; no shares issued and outstanding ....................... -- --
Common Stock, $.01 par value; 200,000,000 shares
authorized; 19,125,000 shares issued (18,965,000
shares outstanding)(3) ............................................. 190 190
Additional paid-in capital(4) ........................................ 294,461 294,461
Distributions in excess of earnings .................................. (19,999) (19,999)
Unrealized gain on securities available for sale...................... 81 81
Cumulative translation adjustments ................................... (1,052) (1,052)
------------ ------------
Total shareholders' equity ......................................... 273,681 273,681
------------ ------------
Total capitalization.............................................. $ 822,050 $ 972,050
============ ============
</TABLE>
(1) For a description of the Notes, see "Description of Notes" and "Description
of Old Notes."
(2) Reflects the Operating Partnership's issuance of limited partnership units
to IMIHC. Includes the Operating Partnership's issuance of 1,473,733 limited
partnership units to IMIHC in exchange for a capital contribution of $24.5
million in May 1998.
(3) Does not reflect shares issuable upon exercise of options to purchase
1,912,500 shares of Common Stock which have been granted by the Company to the
Manager pursuant to the Option Plan.
(4) Includes an approximately $14.0 million capital contribution resulting from
the Company's sale of the IO Portfolio in May 1998.
29
<PAGE> 31
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered
into the Registration Rights Agreement with the Initial Purchasers, pursuant to
which the Company agreed to file and to use its best efforts to cause to be
declared effective by the Commission a registration statement with respect to
the exchange of the Old Notes for New Notes with terms identical in all material
respects to the terms of the Old Notes. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual
obligations of the Company under the Registration Rights Agreement. The form and
terms of the New Notes are the same as the form and terms of the Old Notes,
except that the New Notes (i) have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer under the
Securities Act and (ii) holders of New Notes will not be entitled to
registration rights that holders of the Old Notes have under the Registration
Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Notes" and "Description of
Old Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name the Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
the DTC system whose name appears on a security position listing as the holder
of such Old Notes and who desires to deliver such Old Notes by book-entry
transfer at DTC.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $150 million aggregate principal amount of New
Notes for a like aggregate principal amount of Old Notes properly tendered on or
prior to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Company will issue, promptly after the
Expiration Date, $150 million aggregate principal amount of New Notes in
exchange for a like aggregate principal amount of Old Notes tendered and
accepted in connection with the Exchange Offer. Holders of Old Notes may tender
their Old Notes in whole or in part.
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered. As of the date of this Prospectus,
$150 million aggregate principal amount of Old Notes are outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer. Old Notes which are not tendered, or are
tendered but not accepted, in connection with the Exchange Offer will remain
outstanding, but will not be entitled to any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Notes" and "Description of
Old Notes."
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof promptly after the Expiration Date.
30
<PAGE> 32
Holders of Old Notes who tender Old Notes in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Old Notes in connection with the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
THE COMPANY DOES NOT MAKE ANY RECOMMENDATION TO HOLDERS OF OLD NOTES
AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR
OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
AGGREGATE NUMBER OF OLD NOTES TO TENDER BASED ON SUCH HOLDER'S OWN FINANCIAL
POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
___________ __, 1998 unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of Old Notes for exchange, (ii) to terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
if the Company determines, in its sole and absolute discretion, that any of the
events or conditions referred to under "--Conditions to the Exchange Offer" have
occurred or exist or have not been satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain Old Notes tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes as described under "--Withdrawal Rights," and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment
will be followed promptly by oral or written notice thereof to the Exchange
Agent and by making a public announcement thereof, and such announcement in the
case of an extension will be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer,
the Company will exchange, and will issue to the Exchange Agent, New Notes for
Old Notes validly tendered and not withdrawn promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or (in the case of a book-entry
31
<PAGE> 33
transfer) an Agent's Message in lieu of the Letter of Transmittal, and (iii) any
other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC. The
term "Agent's Message" means a message, transmitted by DTC to and received by
the Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgement from the tendering participant,
which acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such Letter
of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the
Company will be deemed to have accepted for exchange, and thereby exchanged, Old
Notes validly tendered and not withdrawn as, if and when the Company gives oral
or written notice to the Exchange Agent of the Company's acceptance of such Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Notes, Letters of Transmittal and related
documents and transmitting New Notes to validly tendering holders. Such exchange
will be made promptly after the Expiration Date. If, for any reason whatsoever,
acceptance for exchange or the exchange of any Old Notes tendered pursuant to
the Exchange Offer is delayed (whether before or after the Company's acceptance
for exchange of Old Notes) or the Company extends the Exchange Offer or is
unable to accept for exchange or exchange Old Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Company's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes, and
such Old Notes may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, or Agent's Message in lieu
thereof, a holder of Old Notes will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Notes, that the Company will acquire good, marketable
and unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and the Old Notes tendered for exchange
are not subject to any adverse claims. The holder also will warrant and agree
that it will, upon request, execute and deliver any additional documents deemed
by the Company or the Exchange Agent to be necessary or desirable to complete
the exchange, sale, assignment and transfer of the Old Notes tendered pursuant
to the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
Valid Tender. Except as set forth below, in order for Old Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or (in the case of a book-entry transfer) an Agent's
Message in lieu of a Letter of Transmittal, and any other required documents,
must be received by the Exchange Agent at one of its addresses set forth under
"--Exchange Agent," and (i) tendered Old Notes must be received by the Exchange
Agent, (ii) such Old Notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal, must be received by the Exchange Agent, in each case on or prior to
the Expiration Date, or (iii) the guaranteed delivery procedures set forth below
must be complied with.
If less than all of a tendering holder's Old Notes are tendered, the
holder should fill in the aggregate principal amount of Old Notes being tendered
in the appropriate box on the Letter of Transmittal or so indicate in an Agent's
Message in lieu of the Letter of Transmittal. All Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER,
32
<PAGE> 34
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN-RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account
with respect to the Old Notes at DTC for purposes of the Exchange Offer within
two business days after the date of this Prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message in lieu of the Letter
of Transmittal, and any other required documents, must in any case be delivered
to and received by the Exchange Agent at its address set forth under "--Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure
set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Old Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (i) the Old Notes
are registered in a name other than that of the person surrendering the Old
Notes or (ii) such holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (i) or (ii) above, such Old Notes must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Notes pursuant
to the Exchange Offer and the Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent on or prior
to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Old Notes may nevertheless be tendered,
provided that all of the following guaranteed delivery procedures are complied
with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the Expiration
Date; and
(iii) all tendered Old Notes (or a book-entry confirmation), in
proper form for transfer, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), or Agent's Message in lieu
thereof, with any required signature guarantees and any other documents required
by the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail, to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
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<PAGE> 35
Notwithstanding any other provision hereof, the delivery of New Notes
in exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), or Agent's Message in lieu thereof, together with any
required signature guarantees and any other documents required by the Letter of
Transmittal. Accordingly, the delivery of New Notes might not be made to all
tendering holders at the same time and will depend upon when Old Notes,
book-entry confirmations with respect to Old Notes and other required documents
are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant
to any of the procedures described above will constitute a binding agreement
between the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the opinion of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "--Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation by the Company of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. None of the Company, any affiliates or assigns of the
Company, the Exchange Agent or any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer for the New Notes in
reliance on the position of the Staff of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
the Company has not sought its own interpretive letter and there can be no
assurance that the Staff of the Commission would make a similar determination
with respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff of the Commission,
and subject to the two immediately following sentences, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
holder of Old Notes who is an Affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing New Notes, or
any broker-dealer who
34
<PAGE> 36
purchased Old Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (i) will not be able to rely
on the interpretations of the Staff of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be permitted or entitled to
tender such Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes, unless such sale
is made pursuant to an exemption from such requirements. In addition, as
described below, Participating Broker-Dealers must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
Affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
The Letter of Transmittal contains the foregoing representations. In addition,
the Company may require such holder, as a condition to such holder's eligibility
to participate in the Exchange Offer, to furnish to the Company (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old Notes to be exchanged in the Exchange Offer. Each Participating
Broker-Dealer that receives New Notes for its own account pursuant to the
Exchange Offer will be deemed to have acknowledged by execution of the Letter of
Transmittal or delivery of an Agent's Message that it acquired the Old Notes
exchanged therefor for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the Staff of the Commission in the interpretive
letters referred to above, the Company believes that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the New Notes received upon exchange of such Old Notes (other than Old Notes
which represent an unsold allotment from the original sale of the Old Notes)
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such New
Notes. Accordingly, this Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Company has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180-days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such New Notes have been disposed of
by such Participating Broker-Dealer. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "--Exchange Agent." Any person, including any
Participating Broker-Dealer, who is an Affiliate of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each Participating Broker-Dealer who surrenders Old Notes pursuant to
the Exchange Offer will be deemed to have agreed, by execution of the Letter of
Transmittal or delivery of an Agent's Message in lieu thereof, that, upon
receipt of notice from the Company of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading, such Participating
Broker-
35
<PAGE> 37
Dealer will suspend the sale of New Notes pursuant to this Prospectus until the
Company has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such Participating Broker-Dealer or the Company has given notice that the
sale of New Notes may be resumed, as the case may be. If the Company gives such
notice to suspend the sale of New Notes, it shall extend the 180-day period
referred to above during which Participating Broker-Dealers are entitled to use
this Prospectus in connection with the resale of New Notes by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
New Notes or to and including the date on which the Company has given notice
that the sale of New Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the certificate evidencing such Old Notes, if different from that
of the person who tendered such Old Notes. If Old Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Old Notes, the tendering holder must submit the certificate numbers
shown on the particular Old Notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Notes tendered for the account of an Eligible Institution. If
Old Notes have been tendered pursuant to the procedures for book-entry transfer
set forth in "--Procedures for Tendering Old Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be effective
if delivered to the Exchange Agent by written or facsimile transmission.
Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
in its sole discretion, whose determination shall be final and binding on all
parties. None of the Company, any affiliates or assigns of the Company, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
INTEREST ON NEW NOTES
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive interest on such Old Notes and will be deemed to have waived the
right to receive any interest on such Old Notes accumulated from and after July
14, 1998. Accordingly, holders of New Notes as of the record date for the
payment of interest on January 1, 1999 will be entitled to receive interest
accumulated from and after July 14, 1998. Consequently, holders of Old Notes who
exchange their Old Notes for New Notes will receive the same interest payment on
January 1, 1999 that they would have received had they not accepted the Exchange
Offer.
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CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(a) there shall occur a change in the current interpretation by the Staff of the
Commission which permits the New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes to be offered for resale, resold and otherwise
transferred by holders thereof (other than broker-dealers and any such holder
which is an Affiliate of the Company) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes;
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company, would reasonably be expected to
impair its ability to proceed with the Exchange Offer;
(c) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect to the
Exchange Offer which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States,
Florida or New York state authorities which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer;
(e) trading on the NYSE or generally in the United States
over-the-counter market shall have been suspended by order of the Commission or
any other governmental authority which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of the
Company, threatened for that purpose, or any governmental approval which the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby has not been obtained.
If the Company determines in its sole and absolute discretion that
any of the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to the Exchange Offer, the Company will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes and will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
Based upon current provisions of the Code, applicable U.S. Treasury
regulations (including proposed and temporary treasury regulations), judicial
authority and administrative rulings and practice, the exchange of Old Notes for
New Notes pursuant to the Exchange Offer will not constitute a taxable event for
federal income tax purposes. There can be no assurance that the Internal Revenue
Service will continue to take this position, and no ruling from the Internal
Revenue Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be
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<PAGE> 39
issued that could alter or modify this result. EACH HOLDER OF OLD NOTES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING SUCH HOLDER'S OLD NOTES FOR NEW NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as
Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal
and any other required documents, questions, requests for assistance, and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Services
Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company also will pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Notes, and in handling or
tendering for their customers.
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, New Notes are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or other
nominees soliciting acceptances of the Exchange Offer.
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<PAGE> 40
DESCRIPTION OF NEW NOTES
GENERAL
Pursuant to the terms of the indenture (the "Indenture") between the
Company and Norwest Bank Minnesota, National Association (the "Trustee"), the
Company has issued the Old Notes and will issue the New Notes. The Indenture has
been qualified under the Trust Indenture Act and the terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The Notes are subject to all such terms, and Holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference to
the Indenture, including the definitions therein of certain terms used below.
Copies of the Indenture are available as set forth below under the caption
"-- Additional Information." The definitions of certain terms used in the
Indenture and in the following summary are set forth below under "-- Certain
Definitions."
The Notes are limited in aggregate original principal amount to $150
million, including the Old Notes and the New Notes. Upon any exchange of Old
Notes for New Notes pursuant to the Exchange Offer, the Old Notes so exchanged
shall be cancelled and shall no longer be deemed outstanding for any purpose.
The New Notes will rank pari passu with the Old Notes. The Old Notes and the New
Notes constitute one class for all purposes under the Indenture, including
without limitation amendments, waivers, redemptions and Offers to Purchase, and
for purposes of this description of the Notes all references herein to "Notes"
shall be deemed to refer collectively to Old Notes and New Notes, unless the
context otherwise requires.
The Notes rank pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The Notes are effectively subordinated to the claims of any secured
lender to the extent of the value of the collateral securing such indebtedness.
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 (including pursuant to the Operating Partnership Note) to
the extent such claims may be recognized. As of June 30, 1998, the aggregate
amount of Debt and other obligations of the Company's Subsidiaries that would
effectively rank senior in right of payment to the obligations of the Company
under the Notes was approximately $518.4 million.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150 million
and will mature on July 1, 2005. Interest on the Notes accrues at the rate of
11 1/2% per annum and will be payable semi-annually in arrears on each January 1
and July 1 (each, an "Interest Payment Date") to Holders of record on the
immediately preceding December 15 and June 15, respectively (each a "Record
Date"). Interest is payable in cash. Interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest is computed on the basis of a
360-day year consisting of twelve 30-day months. The Notes are issuable in
principal amounts of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to July 1,
2002. The Notes may be redeemed in whole or in part at the option of the Company
on or after July 1, 2002, at the redemption prices specified below (expressed as
percentages of the principal amount thereof), in each case, together with
accrued and unpaid interest, if any, thereon to the date of redemption, upon not
less than 30 nor more than 60 days' notice, if redeemed during the twelve-month
period beginning on July 1 of the years indicated below:
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<PAGE> 41
<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
- ---- ----
<S> <C>
2002............................. 105.750%
2003............................. 102.875
2004 and thereafter 100.000
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the Closing
Date, the Company may, on any one or more occasions, use the net proceeds of one
or more offerings of its Common Stock to redeem up to 25% of the aggregate
principal amount of the Notes at the redemption price of 111.50% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption; provided that, after any such redemption, the aggregate principal
amount of the Notes outstanding must equal at least $112.5 million; and provided
further, that any such redemption shall occur within 90 days of the date of
closing of such offering of Common Stock of the Company.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption generally will be made by the Trustee on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate. Notices of redemption shall be mailed by first class mail at least
30 but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions of them called for
redemption.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the Company to repurchase all or
any part of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase (the "Change of Control Payment"). Within 10
days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the foregoing provisions of the Indenture, the Company
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Indenture by virtue thereof.
On the date on which such Change of Control Payment Date is required
to be made, the Company will, to the extent lawful, (1) accept for payment all
Notes or portions thereof properly tendered pursuant to the Change of Control
Offer, (2) deposit with the paying agent designated by the Company (the "Paying
Agent") an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes or portions thereof being repurchased by the Company. The
Paying Agent will promptly mail to each holder of Notes so tendered the Change
of Control Payment for such Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the date on which such Change of
Control occurs.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
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<PAGE> 42
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Restricted Subsidiaries. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to another Person or group may be
uncertain.
Any future credit agreements or other agreements relating to Debt to
which the Company becomes a party may prohibit the Company from purchasing any
Note prior to its maturity, and may also provide that certain change of control
events with respect to the Company would constitute a default thereunder. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company would seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture.
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
CERTAIN COVENANTS
Limitation on Restricted Payments. (a) The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, take any of the following actions:
(i) declare or pay any dividend or make any payment or distribution on
account of the Company's Capital Stock or the Capital Stock of Restricted
Subsidiaries (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or make any payment or distribution to or for the benefit of
the direct or indirect holders of the Company's Capital Stock or the
Capital Stock of Restricted Subsidiaries (other than (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock)
and (B) dividends or distributions payable to the Company or a Restricted
Subsidiary of the Company (and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro
rata basis);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or the Capital Stock of Restricted
Subsidiaries (other than any such Capital Stock owned by the Company or any
of its Restricted Subsidiaries and other than the acquisition of Capital
Stock in Restricted Subsidiaries of the Company solely in exchange for
Capital Stock (other than Disqualified Stock) of the Company);
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt; or
(iv) make any Investment in any Person other than a Permitted
Investment;
(each of the foregoing actions described in clauses (i) through (iii) above,
other than any such action that is a Permitted Payment (as defined below), is
referred to herein as a "Restricted Payment"), unless immediately after giving
effect to the proposed Restricted Payment (in the event such Restricted Payment
is made in other than cash, the amount of such
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<PAGE> 43
Restricted Payment shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
by a Board Resolution), (1) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof, (2) the Company
could, at the time of such Restricted Payment and after giving pro forma effect
thereto, incur at least $1.00 of additional Debt (other than Permitted
Indebtedness) pursuant to the "Limitation on Incurrence of Debt" covenant, and
(3) the aggregate amount of all such Restricted Payments by the Company and its
Restricted Subsidiaries declared or made after the Closing Date does not exceed
the sum of:
(A) (i) so long as the Company maintains its status as a REIT under the
Code, 100% of the "real estate investment trust taxable income" of the
Company as determined under Section 857(b)(2) of the Code or any successor
provision computed prior to taking into account any deductions or
exclusions allowed pursuant to Section 857(b)(2) of the Code and computed
after giving effect to any net deficit in "real estate investment trust
taxable income" for prior years, to the extent such deficit is deductible
as a net operating loss carryforward for the year of determination, accrued
on a cumulative basis during the period commencing on July 1, 1998 and
ending on the last day of the Company's most recent fiscal quarter ending
prior to the date of such Restricted Payment or (ii) in the event the
Company no longer qualifies as a REIT under the Code, the sum of (a) 50% of
the aggregate cumulative Adjusted Consolidated FFO (or if such aggregate
cumulative Adjusted Consolidated FFO shall be a loss, minus 100% of such
loss) accrued on a cumulative basis during the period commencing on the
first day of the fiscal quarter following the failure of the Company to
qualify as a REIT under the Code and ending on the last day of the
Company's most recent fiscal quarter ending prior to the date of such
Restricted Payment and (b) 100% of any cumulative amount available under
clause (i) above for the period commencing on July 1, 1998 and ending on
the last day of the Company's most recent fiscal quarter ending prior to
the failure of the Company to qualify as a REIT under the Code (or minus
100% of any such amount if a deficit); plus
(B) the aggregate of the Net Cash Proceeds and the Fair Market Value of
property not constituting Net Cash Proceeds received by the Company or the
Operating Partnership after the Closing Date from the issuance or sale
(other than to the Company or any of its Restricted Subsidiaries) of
Capital Stock (other than Disqualified Stock) of the Company or the
Operating Partnership or other capital contributions subsequent to the
Closing Date (other than the Net Cash Proceeds received from an issuance or
sale of such Capital Stock to an employee stock ownership plan or similar
trust to the extent such sale to an employee stock ownership plan or
similar trust is financed by loans from or guaranteed by the Company or any
Restricted Subsidiary unless such loans have been repaid with cash on or
prior to date of determination); plus
(C) the aggregate of the Net Cash Proceeds and the Fair Market Value of
property not constituting Net Cash Proceeds received by the Company or the
Operating Partnership after the Closing Date from the issuance or sale
(other than to the Company or any of its Restricted Subsidiaries) of
Disqualified Stock or debt securities of the Company or the Operating
Partnership that have been converted into Capital Stock (other than
Disqualified Stock) of the Company or the Operating Partnership, plus or
minus, as applicable, the amount of any cash, or other property (other than
Capital Stock) received or distributed, as applicable, upon such conversion
or exchange; plus
(D) 100% of the net reduction in Restricted Investments, subsequent to
the Closing Date, in any Person, resulting from payments of interest on
Debt, dividends, repayments of loans or advances, or other transfers of
property (but only to the extent such interest, dividends, repayments or
other transfers of property are not included in the calculation of "real
estate investment trust taxable income" or Adjusted Consolidated FFO, as
the case may be), in each case to the Company or any Restricted Subsidiary
from any Person or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition
of "Investments"), not to exceed in the case of any Person the amount of
Restricted Investments in such Person which were made subsequent to the
Closing Date by the Company or any Restricted Subsidiary and which were
treated as a Restricted Payment; plus
(E) $10.0 million.
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<PAGE> 44
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions (each being referred to as a
"Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date such declaration complied with the
provisions of paragraph (a) above and such payment shall be deemed to have
been paid on such date of declaration for purposes of the calculation
required by the foregoing paragraph (a);
(ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company in exchange for, or out of the
Net Cash Proceeds of, a substantially concurrent issuance and sale of other
Capital Stock of the Company (other than any Disqualified Stock);
(iii) any distribution which is necessary to maintain the Company's
status as a REIT under the Code;
(iv) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Debt in exchange
for, or out of the Net Cash Proceeds of, a substantially concurrent
issuance and sale (other than to a Restricted Subsidiary) of shares of
Capital Stock of the Company (other than Disqualified Stock); and
(v) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Debt (referred to
herein as the "Subordinated Debt being refinanced") in exchange for, or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other
than to a Restricted Subsidiary) of, Subordinated Debt of the Company so
long as (A) the principal amount of such new Subordinated Debt does not
exceed the principal amount (or, if such Subordinated Debt being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) of the Subordinated Debt being refinanced,
plus the amount of any stated premium required to be paid in connection
with such refinancing pursuant to the terms of the Subordinated Debt being
refinanced or the amount of any premium actually paid at such time to
refinance the Subordinated Debt as determined in good faith as being
necessary by the Company, or less the amount of any discount from the
principal amount of such Subordinated Notes expected to be deducted from
the amount payable to the holders of such Subordinated Debt in connection
with such refinancing, plus, in either case, the amount of reasonable
legal, accounting, printing and other similar expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Debt is subordinated to the Notes to the same extent as such Subordinated
Debt being refinanced and (C) (1) if the Subordinated Debt being refinanced
has an Average Life shorter than that of the Notes or a final maturity date
earlier than the final maturity date of the Notes, such new Subordinated
Debt shall have an Average Life no shorter than the Average Life of such
refinanced Subordinated Debt and a final maturity date no earlier than the
final maturity date of such refinanced Subordinated Debt or (2) in all
other cases, each maturity of principal (or any required repurchase,
redemption or sinking fund payments) of such new Subordinated Debt shall be
on or after the final maturity date of principal of the Notes.
The actions described in clauses (i) and (iii) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (b) but shall reduce the amount that would otherwise be available for
Restricted Payments under paragraph (a), and the actions described in clauses
(ii), (iv) and (v) of this paragraph (b) shall be Restricted Payments that shall
be permitted to be taken in accordance with this paragraph and shall not reduce
the amount that would otherwise be available for Restricted Payments under
paragraph (a).
Limitation on Incurrence of Debt. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, incur or issue any
Debt (including Acquired Debt) other than Permitted Indebtedness, provided,
however, that the Company and Restricted Subsidiaries may incur or issue Debt if
at the time of such incurrence or issuance each of the following is satisfied:
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(a) the ratio of Adjusted FFO Available for Fixed Charges to Adjusted
Fixed Charges for the period consisting of the four full consecutive fiscal
quarters most recently ended prior to the date on which such additional
Debt is to be incurred or issued (after giving pro forma effect to (i) the
incurrence or issuance of such Debt and (if applicable) the application of
the net proceeds therefrom, including to refinance other Debt, as if such
Debt was incurred or issued, and the application of such proceeds occurred,
on the first day of such four-quarter period, (ii) the incurrence,
issuance, repayment or retirement of any other Debt by the Company and its
Restricted Subsidiaries since the first day of such four-quarter period as
if such Debt was incurred, issued, repaid or retired on the first day of
such four-quarter period (except that, in making such computation, the
amount of Debt under any revolving credit facility shall be computed based
upon the average balance of such Debt during such four-quarter period), and
(iii) the acquisition (whether by purchase, merger or otherwise) or
disposition (whether by sale, merger or otherwise) of any company, entity
or business acquired or disposed of by the Company or its Restricted
Subsidiaries (including the operations thereof), as the case may be, since
the first day of such four-quarter period, as if such acquisition or
disposition occurred on the first day of such four-quarter period) shall be
greater than 1.25 to 1;
(b) the Company's Adjusted Total Debt to Capital Ratio as of the end of
the quarter most recently ended prior to the date of such incurrence or
issuance is less than 4.0 to 1 (after giving pro forma effect to the
incurrence or issuance of such Debt and (if applicable) the application of
the net proceeds therefrom, including to refinance other Debt, as if such
Debt was incurred or issued, and the application of such proceeds occurred,
on the last day of such quarter); and
(c) the Company's Adjusted Senior Debt to Capital Ratio as of the end
of the quarter most recently ended prior to the date of such incurrence or
issuance is less than 3.5 to 1 (after giving pro forma effect to the
incurrence or issuance of such Debt and (if applicable) the application of
the net proceeds therefrom, including to refinance other Debt, as if such
Debt was incurred or issued, and the application of such proceeds occurred,
on the last day of such quarter).
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, create, assume or otherwise cause
or suffer to exist or to become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to
(a) pay any dividends or make any other distribution on its Capital
Stock to the Company or any of its Restricted Subsidiaries;
(b) make payments in respect of any Debt owed to the Company or any
other Restricted Subsidiary; or
(c) make loans or advances to the Company or any Restricted Subsidiary
or to guarantee Debt of the Company or any other Restricted Subsidiary;
other than, in the case of (a), (b) and (c),
(1) restrictions existing under agreements in effect on the date of the
Indenture;
(2) consensual encumbrances or restrictions binding upon any Person at
the time such Person becomes a Restricted Subsidiary of the Company so long
as such encumbrances or restrictions (i) are not created, incurred or
assumed in contemplation of such Person becoming a Restricted Subsidiary
and (ii) do not encumber or restrict the Company or any other Restricted
Subsidiary of the Company;
(3) restrictions with respect to a Restricted Subsidiary imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all the assets (which term may include
the Capital Stock) of such Restricted Subsidiary;
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(4) restrictions on the transfer of assets which are subject to Liens;
and
(5) restrictions existing under any agreement which refinances or
replaces any of the agreements containing the restrictions in clauses (1)
and (2); provided that the terms and conditions of any such restrictions
are not materially less favorable to the Holders than those under the
agreement evidencing or relating to the Debt or Disqualified Stock
refinanced.
Limitation on Transactions with Affiliates. The Indenture provides
that the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including without limitation, the sale, purchase, exchange
or lease of assets, property or services) with any Affiliate of the Company
(except that the Company and any of its Restricted Subsidiaries may enter into
any transaction or series of related transactions with any Restricted Subsidiary
of the Company without limitation under this covenant) unless: (i) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in an arm's length dealing with a
Person that is not such an Affiliate or, in the absence of such a comparable
transaction, on terms that the Disinterested Directors determine in good faith
(whose determination shall be conclusive) would be offered to a Person that is
not an Affiliate; (ii) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $3.0 million, such
transaction or series of related transactions has been approved by a majority of
the Disinterested Directors of the Board of Directors of the Company; and (iii)
with respect to any transaction or series of related transactions involving
aggregate payments in excess of $10.0 million, (x) in the case of a transaction
involving real property, the aggregate rental or sale price of such real
property shall be the fair market value of such real property as determined in a
written opinion by an independent, nationally recognized expert with experience
in appraising the terms and conditions of the type of transaction or series of
related transactions for which approval is required and (y) in all other cases,
the Company shall have received a written opinion of an independent,
nationally-recognized expert with experience in appraising the terms and
conditions of the type of transaction or series of related transactions for
which approval is required to the effect that the transaction or series of
related transactions are fair to the Company or such Restricted Subsidiary from
a financial point of view. The limitations set forth in this paragraph will not
apply to (i) transactions entered into pursuant to any agreement already in
effect on the date of the Indenture and any renewals or extensions thereof not
involving modifications materially adverse to the Company or any Restricted
Subsidiary, (ii) normal banking relationships with an Affiliate on an arms'
length basis, (iii) any employment agreement, stock option, employee benefit,
indemnification, compensation, business expense reimbursement or other
employment-related agreement, arrangement or plan entered into by the Company or
any of its Restricted Subsidiaries either (a) in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary or (b) which agreement, arrangement or plan was adopted by the Board
of Directors of the Company or such Restricted Subsidiary (including a majority
of the Disinterested Directors), as the case may be, (iv) any payment made in
accordance with the covenant entitled "-- Limitation on Restricted Payments,"
(v) transactions pursuant to the Management Agreement which are in compliance
with the terms of the Management Agreement and the Guidelines as in effect on
the Closing Date and (vi) any transaction or series of related transactions in
which the total amount involved does not exceed $250,000.
Merger, Consolidation or Sale of All or Substantially All Assets. The
Indenture provides 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 Persons 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 deposition 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 Notes; (iii) immediately after such transaction no
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<PAGE> 47
Default or Event of Default 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), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) 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 (B) will, immediately after such transaction after giving pro
forma effect thereto and any related financing transactions as if the same had
occurred as of the end of the applicable quarter, be permitted to incur at least
$1.00 of additional Debt pursuant to the covenant described above under the
caption "-- Limitation on Incurrence of Debt;" 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 (v) above have been complied with.
Maintenance of General Partner Interest. The Indenture provides that
the Company will at all times own, directly or indirectly through one or more
Wholly-Owned Subsidiaries which are Restricted Subsidiaries, all of the
outstanding general partnership interests in the Operating Partnership (and any
successor thereto).
Business Activities. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, engage in any businesses
other than Permitted Businesses, except to the extent as would not be material
to the Company and its Restricted Subsidiaries taken as a whole.
Reports. The Indenture provides 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.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an
Event of Default: (1) default by the Company in the payment of interest on the
Notes when the same becomes due and payable and the default continues for a
period of 30 days; (2) default by the Company in the payment of the principal of
or premium, if any, on the Notes when the same becomes due and payable at
maturity, upon redemption or otherwise; (3) failure by the Company to comply
with the provisions described under the caption "-- Change of Control;" (4)
failure by the Company for 60 days after notice to comply with any of its other
agreements in the Indenture or the Notes; (5) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Debt for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries), whether such Debt or guarantee now exists,
or shall be created hereafter, which default is caused by a failure to pay
principal of or premium, if any, or interest on such Debt prior to the
expiration of the grace period provided in such Debt on the date of such default
(a "Payment Default") and the principal amount of such Debt, together with the
principal amount of any other such Debt under which there has been a Payment
Default, aggregates $10.0 million or more; (6) 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 Restricted Subsidiary and such judgment
or judgments remain unpaid, undischarged or unstayed for a period of 60 days,
provided that the aggregate of all such undischarged judgments exceeds $10.0
million; and (7) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
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<PAGE> 48
foregoing, 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 Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes 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. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "-- Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, any interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the IRS
a ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will
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<PAGE> 49
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company must have delivered to the Trustee an opinion of counsel to the effect
that, as of the date of such opinion, (A) the trust funds will not be subject to
rights of holders of Debt other than the Notes and (B) assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day following
the deposit and assuming no Holder of Notes is an insider of the Company, after
the 91st day following the deposit, the trust funds will not be subject to the
effects of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally under any applicable United States or
state law; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for in the Indenture relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Trustee may require a Holder to pay any taxes and fees required
by law or permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required to
transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Change of Control"), (iii) reduce the rate or change the time for
payment of interest on any Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Notes (except a
recision of acceleration of the Notes by the Holders of a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Note, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes,
(vii) waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "-- Change of
Control") or (viii) make any change in the foregoing amendment and waiver
provisions.
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Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
"Acquired Debt" means with respect to any specified Person, (i) Debt
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Debt incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Debt secured by a Lien encumbering any asset acquired by such specified
Person.
"Adjusted Consolidated FFO" means Consolidated FFO, plus or minus (as
the case may be) (i) gains (losses) from sales of property in the ordinary
course of business, and (ii) minority interests in net income (loss) of the
Operating Partnership, adjusted by excluding, without duplication, (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) the cumulative effect of a change in accounting principles during
such period, (c) the portion of FFO of any Person (other than the Company or a
Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) the FFO of any Person
combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination and
(e) the FFO of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary is
not at the date of determination permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its shareholders. In the case of any calculation of "Adjusted
Consolidated FFO" which includes the first quarter of 1998, Adjusted
Consolidated FFO shall be increased by, without duplication, $16.9 million,
representing the aggregate costs related to the Company's IO Portfolio during
such quarter.
"Adjusted Senior Debt to Capital Ratio" means the ratio of total Debt
(other than Match Funded Debt and Subordinated Debt) of the Company and its
Restricted Subsidiaries on a consolidated basis to the sum of (i) Consolidated
Net Worth and (ii) Subordinated Debt of the Company and its Restricted
Subsidiaries. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Debt or issues or
redeems any Capital Stock subsequent to the end of the quarter for which the
Adjusted Senior Debt to Capital Ratio is being calculated but prior to the event
for which the calculation of Adjusted Senior Debt to Capital Ratio is made, then
the Adjusted Senior Debt to Capital Ratio shall be calculated giving pro forma
effect to such incurrence, assumption, guarantee or redemption of Debt or such
issuance or redemption of Capital Stock, and the application of the net proceeds
therefrom, as if the same had occurred at the end of the applicable quarter
(except that, in making such computation, the amount of Debt incurred or
redeemed under any revolving credit facility shall be deemed to be the
difference
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between (i) the average balance of such Debt during the period commencing on the
last day of such applicable quarter and ending on the date of such computation,
and (ii) the outstanding balance of such Debt on the last day of such applicable
quarter).
"Adjusted Total Debt to Capital Ratio" means the ratio of total Debt
(other than Match Funded Debt) of the Company and its Restricted Subsidiaries on
a consolidated basis to Consolidated Net Worth. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Debt or issues or redeems any Capital Stock subsequent to the end of the quarter
for which the Adjusted Total Debt to Capital Ratio is being calculated but prior
to the event for which the calculation of Adjusted Total Debt to Capital Ratio
is made, then the Adjusted Total Debt to Capital Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Debt or such issuance or redemption of Capital Stock, and the application of
the net proceeds therefrom, as if the same had occurred at the end of the
applicable quarter (except that, in making such computation, the amount of Debt
incurred or redeemed under any revolving credit facility shall be deemed to be
the difference between (i) the average balance of such Debt during the period
commencing on the last day of such applicable quarter and ending on the date of
such computation, and (ii) the outstanding balance of such Debt on the last day
of such applicable quarter).
"Adjusted FFO Available for Fixed Charges" is defined as the sum of,
without duplication, (1) Adjusted Consolidated FFO, plus (2) Consolidated
Interest Expense, plus (3) Consolidated Income Tax Expense.
"Adjusted Fixed Charges" means the amount which is expensed in any
period for Consolidated Interest Expense of the Company and its Restricted
Subsidiaries, dividends of the Company (other than dividends paid in shares of
Capital Stock (other than Disqualified Stock)) declared and paid or payable
during such period on Disqualified Stock and dividends declared and paid or
payable during such period on Preferred Stock of the Company's Restricted
Subsidiaries (other than Preferred Stock held by the Company or another
Restricted Subsidiary).
"Affiliate" means, with respect to any specified Person(s) (a) any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person or (b) any other Person
that owns, directly or indirectly, 10% or more of such specified Person's
Capital Stock or any executive officer or director of any such specified Person
or other Person. For the purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, no Securitization Entity shall be deemed to be an Affiliate of any
Person.
"Average Life" means, as of the date of determination with respect to
any Debt, the quotient obtained by dividing (a) the sum of the products of (i)
the number of years from the date of determination to the date or dates of each
successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Debt multiplied by (ii) the amount of each
such principal payment, by (b) the sum of all principal payments.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated) of such Person's equity, including any
preferred stock, and any rights (other than debt securities convertible into or
exchangeable or exercisable for such equity), warrants or options exchangeable
or exercisable for or convertible into such equity, whether now outstanding or
issued after the Closing Date.
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"Cash Equivalents" means (a) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed or insured by
the United States Government or any agency thereof; (b) certificates of deposit,
bankers acceptances and Eurodollar time deposits with maturities of one year or
less from the date of acquisition and overnight bank deposits of any commercial
bank having capital and surplus in excess of $500,000,000; (c) commercial paper
of a domestic issuer rated at least A-1 by S&P or P-1 by Moody's; (d) securities
with maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivisions or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A2 by Moody's; or
(e) shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (d) of this
definition.
"Change of Control" means an event or series of events by which
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the Permitted Holders, is
or becomes after the Closing Date the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), of more than 40% of
the total voting power of all Voting Stock of the Company then
outstanding;
(b) (1) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation, or
(2) the Company and its Restricted Subsidiaries taken as a whole,
convey, transfer or lease all or substantially all of their assets to
any person or group, in one transaction or a series of transactions,
other than any conveyance, transfer or lease between the Company and
a Wholly-Owned Subsidiary of the Company,
in the case of each of clauses (1) and (2) with the effect that a
person or group, other than the Permitted Holders, is or becomes the
beneficial owner of more than 40% of the total voting power of all
Voting Stock of the surviving or transferee corporation of such
transaction or series of transactions;
(c) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Company's Board of
Directors, or whose nomination for election by the Company's
shareholders was approved by a vote of a majority of the Directors
then still in office who were either directors at the beginning of
such period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority
of the Directors then in office;
(d) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(e) the Management Agreement is terminated and is not replaced by a
similar agreement between the Company and the Manager or another
Subsidiary of Ocwen Financial.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated FFO" for any period means the amount of FFO of the
Company and its Restricted Subsidiaries for such period determined on a
consolidated basis.
"Consolidated Income Tax Expense" for any period means the provisions
for federal, state, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
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"Consolidated Interest Expense" means, for any period, and without
duplication, all interest (including the interest component of rental expenses
reflected in accordance with GAAP as capitalized leases on the consolidated
balance sheet of the Company and its Restricted Subsidiaries, letter of credit
fees, Interest Rate Agreement fees, commitment fees and other like financial
charges) and all amortization of debt discount on all Debt (including, without
limitation, payment in kind, zero coupon and other securities) of the Company
and its Restricted Subsidiaries, determined in accordance with GAAP, less
interest expense attributable to Match Funded Debt, provided that (x) the
Consolidated Interest Expense attributable to interest on any Debt computed on a
pro forma basis and (A) bearing a floating interest rate shall be computed as if
the rate in effect on the date of computation had been the applicable rate for
the entire period and (B) which was not outstanding during the period for which
the computation is being made but which bears, at the option of the Company, a
fixed or floating rate of interest, shall be computed by applying at the option
of the Company, either the fixed or floating rate, and (y) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Debt under a revolving credit facility computed on a pro forma basis shall be
computed based upon the average daily balance of such Debt during the applicable
period.
"Consolidated Net Worth" means, at any date of determination, the sum
of (i) the consolidated shareholders' equity of the Company and any Restricted
Subsidiaries, as determined on a consolidated basis in accordance with GAAP
(excluding for this purpose any Disqualified Stock), and, without duplication,
(ii) any limited partnership interests in the Operating Partnership owned by
Persons other than the Company and its Restricted Subsidiaries which are shown
as minority interests in consolidated subsidiary on a consolidated balance sheet
of the Company and its Restricted Subsidiaries prepared in accordance with GAAP
(and having for this purpose the value as set forth on such consolidated balance
sheet).
"Currency Agreement" means any foreign exchange contract, currency
swap or cap agreement or other similar agreement designed to protect against or
manage exposure to fluctuations in currency exchange rates relating to any asset
of the Company or its Restricted Subsidiaries which is denominated in, or
purchased with, a currency other than U.S. dollars.
"Debt" of any Person means, without duplication, any indebtedness of
such Person, whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness
secured by any mortgage, pledge, lien, charge, encumbrance or any security
interest existing on property owned by such Person, (iii) reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued, bankers acceptances or other similar instruments, or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services except any such balance that constitutes an accrued expense
or trade payable, (iv) net obligations under or in respect of Interest Rate
Agreements and Currency Agreements, if and to the extent such obligations would
appear as a liability on a balance sheet of such Person prepared in accordance
with GAAP, (v) all Debt referred to in the preceding clauses, of other persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holders of such Debt have an existing right, contingent or otherwise,
to be secured by) any Lien upon or with respect to property owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Debt (the amount of such obligation being deemed to be the lesser of the
fair market value of such property or asset (as determined in good faith by the
Person's Board of Directors whose determination shall be conclusive) or the
amount of the obligation so secured), (vi) any lease of property by such Person
as lessee which is reflected in such Person's consolidated balance sheet as a
capitalized lease in accordance with GAAP, (vii) all Disqualified Stock of the
Company and Preferred Stock of any Restricted Subsidiary (other than Preferred
Stock of a Restricted Subsidiary held by the Company or another Restricted
Subsidiary) valued at the greater of its voluntary or involuntary maximum fixed
redemption, repayment or repurchase price plus accrued and unpaid dividends (for
purposes hereof, the "maximum fixed redemption, repayment or repurchase price"
of any Disqualified Stock or Preferred Stock which does not have a fixed
redemption, repayment or repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock or Preferred Stock as if such Disqualified
Stock or Preferred Stock were redeemed, repaid or repurchased on any date on
which Debt shall be required to be determined pursuant to the Indenture, and if
such price is based upon, or measured by, the fair market value of such
Disqualified Stock or Preferred Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Disqualified Stock, whose
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determination shall be conclusive), (viii) all guarantees by such Person of Debt
referred to in this definition of any other Person or (ix) any amendment,
supplement, modification, deferral, renewal, extension, refunding or refinancing
of any Debt of the types referred to in clauses (i) through (viii) above; Debt
of a Restricted Subsidiary of the Person existing prior to the time it became a
Restricted Subsidiary of the Person shall be deemed to be incurred upon such
Restricted Subsidiary's becoming a Restricted Subsidiary of the Person; and Debt
of a person existing prior to a merger or consolidation of such person with the
Person or any Restricted Subsidiary of the Person in which such person is the
successor to the Person or such Restricted Subsidiary shall be deemed to be
incurred upon the consummation of such merger or consolidation; provided,
however that the term Debt shall not include any such indebtedness that has been
the subject of an "in substance" defeasance in accordance with GAAP. The amount
of Debt of any Person at any date will be the outstanding balance as of such
date of all unconditional obligations, as described above and the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligation at such date.
In addition, "Debt" of any Person shall include Debt described in the
foregoing paragraph that would not appear as a liability on the balance sheet of
such Person if (1) such Debt is the obligation of a partnership or joint venture
that is not a Restricted Subsidiary (a "Joint Venture"), (2) such Person or a
Restricted Subsidiary is a general partner of the Joint Venture (a "General
Partner") and (3) there is recourse, by contract or operation of law, with
respect to the payment of such Debt to property or assets of such Person or a
Restricted Subsidiary of such Person; and such Debt shall be included in an
amount not to exceed (x) the greater of (A) the net assets of the General
Partner and (B) the amount of such obligations to the extent that there is
recourse, by contract or operation of law, to the property or assets of such
Person or a Restricted Subsidiary of such Person (other than the General
Partner) or (y) if less than the amount determined pursuant to clause (x)
immediately above, the actual amount of such Debt that is recourse to such
Person, if the Debt is evidenced by a writing and is for a determinable amount.
"Disinterested Director" of any Person means, with respect to any
transaction or series of related transactions, a member of the board of
directors of such Person who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of related
transactions.
"Disqualified Stock" means any Capital Stock of any Person that, by
its terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, in each case at the option of the holder thereof), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require such Person to repurchase such Capital Stock
upon the occurrence of a Change of Control shall not constitute Disqualified
Stock if the terms of such Capital Stock provide that such Person may not
repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant described under "--
Limitations on Restricted Payments."
"Fair Market Value" means, with respect to any asset, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
compulsion to complete the transaction as determined by the Board of Directors
of the Company, acting in good faith, and shall be evidenced by a resolution of
such Board of Directors delivered to the Trustee (which determination by the
Board of Directors shall be conclusive and binding).
"FFO" of any Person means funds from operations of such Person (as
such term is defined in the guidelines issued by the National Association of
Real Estate Investment Trusts as in effect on the Closing Date).
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of the Indenture.
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"Guidelines" means the general guidelines for the Company's
investments, borrowings and operations established by the Company's Board of
Directors, including a majority of the Independent Directors.
"Independent Director" means a director of the Company who within the
last two years has not, directly or indirectly, (i) owned an interest in the
Manager or any of its affiliates, (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) held any material
business or professional relationship with the Manager or any of its affiliates;
provided that if the definition of "Independent Director" set forth in the
Company's Articles of Incorporation shall be changed or amended after the
Closing Date in accordance with Virginia law and such Articles, the definition
of "Independent Director" as used herein shall be deemed to be correspondingly
changed or amended.
"Interest Rate Agreements" means interest rate protection agreements
in the form of a swap, cap, collar, floor, rate lock or similar agreement
designed to protect against or manage exposure to fluctuations in interest rates
for the purpose of risk management and not for speculation.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
(by means of a transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Debt issued or owned by, any
other Person and all other items that would be classified as investments on a
balance sheet prepared in accordance with GAAP. For purposes of the "Limitation
on Restricted Payments" covenant described above, any property transferred to or
from any Person shall be valued at its fair market value at the time of such
transfer, in each case as determined by the Board of Directors of the Company in
good faith, whose determination shall be conclusive.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance (whether or not filed, recorded or
otherwise perfected under applicable law) upon or with respect to any property
owned on the Closing Date or thereafter acquired.
"Management Agreement" means the management agreement between the
Manager and the Company.
"Manager" means Ocwen Capital Corporation.
"Match Funded Debt" means Debt of a special purpose, bankruptcy
remote Subsidiary as to which no recourse exists either to the Company or any
other Restricted Subsidiary, on which (i) the aggregate principal amortization
and maturity of such Debt are based upon the principal amortization and maturity
of a like or greater amount of the funded assets, and (ii) the interest rate of
such Debt is at a fixed rate; provided however, that the interest rate of such
Debt may be at a floating rate if (x) the funded assets include adjustable rate
assets or (y) the funded assets have been effectively swapped under an Interest
Rate Agreement.
"Mortgage" means a mortgage or deed of trust on real property which
has been improved by a completed single or multifamily dwelling unit or
commercial real estate property.
"Mortgage Warehouse Debt" means Debt of any Person under any
warehouse line of credit, mortgage loan repurchase agreement or similar facility
or under any commercial paper program (a) that is incurred for the purpose of
funding the origination or purchase of mortgage loans or mortgage notes that are
intended to be sold to investors, (b) that in the case of any warehouse line of
credit or similar facility is, or, in the case of any commercial paper program,
the letters of credit or revolving credit facility providing credit enhancement
or liquidity backup for such commercial paper program are, secured by mortgage
loans, mortgage notes, residential or commercial mortgage-backed securities or
any combination thereof owned by such Person, (c) the outstanding amount of
which shall not exceed 100% of the principal amount of the mortgage notes
securing such Debt and (d) the underlying mortgage loans, mortgage notes and
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residential or commercial mortgage-backed securities are subject to binding
take-out commitments by investors or are being accumulated by the Company with
the intention of securitizing and disposing thereof within a reasonable period
of time.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock or debt securities, the proceeds of such issuance or sale in the
form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents, net
of attorney's fees, accountant's fees and brokerage, consulting, underwriting
and other fees and expenses actually incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Permitted Business" means acquiring, developing, selling, owning,
managing, operating and leasing real estate; acquiring, originating, owning,
servicing and collecting real estate mortgages and related loans; investing in
real estate and mortgage related securities and securities of companies engaged
primarily in real estate related activities; and other activities related to or
arising out of any of those activities.
"Permitted Holders" means Ocwen Financial and its Affiliates.
"Permitted Indebtedness" means:
(a) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date;
(b) Debt of a Restricted Subsidiary owing to the Company or to
another Restricted Subsidiary of the Company; provided that any such
Debt is made pursuant to an unsubordinated intercompany obligation;
provided, further, that (i) any disposition, pledge or transfer of
any such Debt to a Person (other than a disposition, pledge or
transfer to the Company or another Restricted Subsidiary) shall be
deemed to be an incurrence of such Debt by such Restricted Subsidiary
not permitted by this clause (b) and (ii) any transaction pursuant to
which any Restricted Subsidiary, which is owed Debt by any other
Restricted Subsidiary, ceases to be a Restricted Subsidiary shall be
deemed to be an incurrence of such Debt not permitted by this clause
(b);
(c) the endorsement of negotiable instruments by the Company or any
Restricted Subsidiary for deposit or collection or similar
transactions in the ordinary course of business;
(d) Debt under Interest Rate Agreements or Currency Agreements
incurred in the ordinary course of business for the purpose of risk
management and not for the purpose of speculation;
(e) Match Funded Debt;
(f) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $10.0
million at any time outstanding;
(g) Mortgage Warehouse Debt not to exceed $150.0 million at any time
outstanding;
(h) additional Debt not to exceed $50.0 million at any time
outstanding;
(i) the Notes and Debt issued in exchange for or the Net Cash
Proceeds from the issuance of which are used to fund the
substantially concurrent redemption or repayment of Notes; and
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(j) any renewals, extensions, substitutions, refinancings or
replacements (each, for purpose of this clause, a "refinancing") of
any Debt described in clause (a) of this definition, including any
successive refinancings, so long as (i) any such new Debt shall be in
a principal amount that does not exceed the principal amount (or, if
such Debt being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of
determination) so refinanced, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Debt refinanced or the amount of any premium actually paid at
such time to refinance the Debt as determined by the Company in good
faith (whose determination shall be conclusive), plus, in either
case, the amount of reasonable expenses incurred in connection with
such refinancing, (ii) such new Debt has a final maturity date which
is the same or later than the final maturity date of, and has an
Average Life equal to or greater than the Average Life of, the Debt
being extended, refinanced, renewed, replaced, defeased or refunded
and (iii) such new Debt is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Debt being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Investment" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments by the Company in real estate or real estate related
assets or in any Restricted Subsidiary engaged in Permitted
Businesses;
(c) intercompany Debt to the extent permitted under clause (b) of the
definition of Permitted Indebtedness;
(d) negotiable instruments held for deposit or collection in the
ordinary course of business, except to the extent that they would
constitute Investments in Affiliates;
(e) Investments in stock, obligations or securities received in
settlement of debts owing to the Company or a Restricted Subsidiary
as a result of foreclosure, perfection or enforcement of any Lien, in
each case in the ordinary course of business;
(f) travel, moving and other advances made to officers, employees and
consultants in the ordinary course of business;
(g) Investments by the Company or any Restricted Subsidiary in
another Person, if as a result of such Investment (i) such other
Person becomes a Restricted Subsidiary or (ii) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted
Subsidiary;
(h) Investments in any Person other than a Subsidiary (i) which was
formed for the purpose of engaging in a Permitted Business, and (ii)
the assets of which are managed by the Company (or by the Manager on
behalf of the Company) under a management agreement that gives the
Company or the Manager (as the case may be) control over the use,
condition, operation, improvement and disposition of all real
properties and other real-estate related assets acquired or to be
acquired by such Person, provided that, in the event the Company or
the Manager no longer has control over such assets, any Investment in
such Person shall no longer be a Permitted Investment and shall be
deemed to have been a Restricted Payment solely for purposes of
determining the amount of Restricted Payments that the Company may
thereafter make pursuant to the covenant described under
"-- Limitations on Restricted Payments."
(i) Investments in any one or more interests in real property or
mortgages on real property (including obligations secured by or
representing pass-through interests in real property or mortgages on
real property), or such other assets or instruments (other than
Capital Stock) in which the Company may at such time invest
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without impairing its qualification as a REIT under the Code, in each
case made in the ordinary course of business; and
(j) Investments, when taken together with all other Investments made
pursuant to this clause (j), in an amount not to exceed 2.0% of Total
Assets in any Person engaged in real estate related activities.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means Capital Stock of any class or classes
(however designated) that has a preference or priority as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of the issuer of such Capital Stock, over shares of
Capital Stock of any other class or classes of such corporation.
"REIT" means a real estate investment trust qualified as such under
Sections 856 through 860 of the Code (or any successor provisions).
"Restricted Investment" shall mean any Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Securitization Entity" means any pooling arrangement or entity
formed or originated for the purpose of holding, and/or issuing securities
representing interests in, one or more pools of mortgages, leases, credit card
receivables, home equity loan receivables, automobile loans, leases or
installment sales contracts, other consumer receivables or other financial
assets of the Company or any Subsidiary, and shall include, without limitation,
any partnership, limited liability company, liquidating trust, grantor trust,
owner trust or real estate mortgage investment conduit.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subordinated Debt" means Debt of the Company that is expressly
subordinated by its terms in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Subsidiary of such Person is a controlling general
partner or otherwise controls such entity.
"Total Assets" means the total assets of the Company and its
Restricted Subsidiaries on a consolidated basis determined in accordance with
GAAP, as shown on the most recently available consolidated balance sheet of the
Company and its Restricted Subsidiaries.
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"Unrestricted Subsidiary" means (i) any Subsidiary (other than the
Operating Partnership or any successor thereto) that is designated by the Board
of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but
only to the extent that such Subsidiary: (a) has no Debt other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any obligation (x) to subscribe for additional Capital Stock or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise provided credit support for any Debt of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Debt of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Debt is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Certain Covenants -- Limitation on Incurrence of Debt," the Company
shall be in default of such covenant). The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of Debt by a
Restricted Subsidiary of the Company of any outstanding Debt of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Debt is permitted under the covenant described under the caption "-- Certain
Covenants -- Limitation on Incurrence of Debt," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period or end of the relevant quarter, as the case may be, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
trustees or other voting members of the governing body of any Person
(irrespective of whether or not, at the time, stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Wholly-Owned Subsidiary" means a Subsidiary all of the Capital Stock
of which (other than directors' qualifying shares) is owned by the Company or
another Wholly-Owned Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were offered and sold to QIBs in reliance on Rule 144A
("Rule 144A Securities") and in offshore transactions in reliance on Regulation
S ("Regulation S Securities").
Rule 144A Securities initially were represented by one Note in
registered, global form (the "Old Restricted Global Securities") and the
Regulation S Securities initially were represented by one Note in registered,
global form (the "Old Regulation S Global Securities" and, together with the Old
Restricted Global Securities, the "Old Global Securities"). The Old Global
Securities were deposited upon issuance with the Trustee as custodian for DTC,
in New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
The Old Global Securities, to the extent directed by holders thereof
in their Letters of Transmittal, will be exchanged through book-entry electronic
transfer for one or more certificates in registered, global form representing
the New Notes (collectively, the "New Global Securities," and together with the
Old Global Securities, the "Global
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Securities"). Except as set forth below, the Global Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Securities
may not be exchanged for Notes in certificated form except in the limited
circumstances described below. See "-- Exchange of Book-Entry Securities for
Certificated Securities."
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures
established by it, DTC will credit the accounts of Participants with portions of
the principal amount of the Global Securities and ownership of such interests in
the Global Securities will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Securities).
The laws of some states require that certain persons take physical
delivery in certificated form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Security to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in Global Security to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "-- Exchange of Book-Entry
Securities for Certificated Securities."
Except as described below, owners of interests in the Global
Securities will not have Notes registered in their name, will not receive
physical delivery of Notes in certificated form and will not be considered the
registered owners or holders thereof for any purpose.
Payments in respect of the Global Security registered in the name of
DTC or its nominee will be payable by the Trustee to DTC in its capacity as the
registered holder. The Trustee will treat the persons in whose names the Notes,
including the Global Securities, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Trustee nor any agent thereof has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Securities, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Notes, is to credit the accounts of the
relevant Participants with the payment on the payment date unless DTC has reason
to believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of Notes and the Company
59
<PAGE> 61
and the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the Global Securities will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes only at the direction of one or more Participants
to whose account with DTC interests in the Global Securities are credited.
However, if there is an Event of Default with respect to the Notes, DTC reserves
the right to exchange the Global Securities for legended Notes in certificated
form and to distribute such Notes to its Participants.
The information in this section concerning DTC and its book-entry
system has been obtained from sources that the Company believes to be reliable,
but the Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Securities among participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A Global Security is exchangeable for securities in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Security and the Company
thereupon fails to appoint a successor Depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Notes in certificate form, or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. In all
cases, certificated securities delivered in exchange for any Global Security or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the Depositary (in
accordance with its customary procedures).
DESCRIPTION OF OLD NOTES
The terms of the Old Notes are identical in all materials respects to
the terms of the New Notes, except that (i) the Old Notes have not been
registered under the Securities Act or applicable state securities laws and
therefore are subject to restrictions on transfer under federal and state
securities laws and (ii) the holders of Old Notes are entitled to certain rights
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer, except under limited circumstances, as
discussed under "Registration Rights Agreement." The Old Notes provide that, in
the event that a registration statement relating to the Exchange Offer has not
been filed by October 12, 1998 and declared effective by January 10, 1999 or the
New Notes are not issued on or prior to 30 business days after the Registration
Statement is declared effective, or, in certain circumstances, in the event a
shelf registration statement with respect to the resale of the Old Notes is not
filed within 90 days after such filing obligation arises and the shelf
registration statement is not declared effective by the Commission on or prior
to 180 days after such obligation arises, then interest will accrue (in addition
to the stated interest rate on the Old Notes) with respect to the first 90-day
period immediately following the occurrence of the first registration default in
an amount equal to $.05 per week per $1,000 principal amount of Old Notes held
by such Holder. The amount of the additional interest will increase by an
additional $.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all registration defaults have been
cured, up to a maximum amount of Liquidated Damages for all registration
defaults of $.50 per week per $1,000 principal amount of Old Notes. The New
Notes are not entitled to any such prospective
60
<PAGE> 62
additional interest. Accordingly, holders of Old Notes should review the
information set forth under "Risk Factors -- Consequences of a Failure to
Exchange Old Notes" and "Description of New Notes."
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, the Company agreed to
file the Exchange Offer Registration Statement and conduct the Exchange Offer
within specified periods.
Pursuant to the Registration Rights Agreement, the Company will offer
to the Holders of Transfer Restricted Securities (as defined below) pursuant to
the Exchange Offer who are able to make certain representations the opportunity
to exchange their Transfer Restricted Securities for New Notes. If (i) the
Company is not permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer, (B) that it may not
resell the New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resale or (C)
that it is a broker-dealer and owns Notes acquired directly from the Company or
an affiliate of the Company, the Company will be required to file with the
Commission a shelf registration statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its reasonable best efforts to cause the shelf registration statement
to be declared effective as promptly as possible by the Commission. For purposes
of the foregoing, "Transfer Restricted Securities" means all Old Notes until (i)
the date on which any such security has been exchanged by a person other than a
broker-dealer for New Notes in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of Old Notes for New Notes, the date on
which such new security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Registration Statement, (iii) the date on which such Old Notes
have been effectively registered under the Securities Act and disposed of in
accordance with the shelf registration statement or (iv) the date on which such
Old Notes are distributed to the public pursuant to Rule 144 under the
Securities Act or may be sold to the public without compliance with the
requirements of such rule.
Pursuant to the Registration Rights Agreement, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will use its reasonable best efforts to issue on or prior to 30
business days after the date on which the Registration Statement was declared
effective by the Commission the New Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer and (ii) if obligated to file the shelf
registration statement, the Company will use its reasonable best efforts to file
the shelf registration statement with the Commission on or prior to 90 days
after such filing obligation arises and to cause the shelf registration to be
declared effective by the Commission on or prior to 180 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such registration statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Registration Statement or (d) the shelf
registration statement or the Registration Statement is declared effective but
thereafter ceases to be so effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company will pay Liquidated Damages to each
Holder of Old Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Old Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of Old Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages for all Registration Defaults of $.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid by
the Company to the holders of Global
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<PAGE> 63
Securities in the manner set forth under "Description of Notes -- Depositary
Procedures." Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. The Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 180 days after the Expiration Date (subject
to extension under certain limited circumstances described herein) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Notes received in exchange for
Old Notes pursuant to the Exchange Offer must notify the Company, or cause the
Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange
Offer--Exchange Agent." See "The Exchange Offer--Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of
the New Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for
its own account in connection with the Exchange Offer and any broker or dealer
that participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
VALIDITY OF NEW NOTES
The validity of the New Notes 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, 1996; 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.
62
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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
<PAGE> 65
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of
this Registration Statement are as follows:
(a) List of Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Location
----------- ------- --------
<S> <C> <C>
4.1 Form of Indenture between the Company and Norwest (1)
Bank Minnesota, National Association, as Trustee
thereunder
4.2 Form of Old Note (attached as Exhibit A to the (1)
Indenture included as Exhibit 4.1)
4.3 Form of New Note
4.4 Registration Rights Agreement, dated July 14, 1998, (1)
among the Company and the Initial Purchasers
of the Notes
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P.
regarding legality of securities being registered
12 Computation of ratio of earnings to fixed charges
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. --
(contained in the opinion included as Exhibit 5)
23.2 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney (included in the signature page --
to this Registration Statement)
25 Form T-1, Statement of Eligibility of Norwest
Bank Minnesota, National Association to act
as trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- -------------------
(1) Incorporated by reference to the Company's Current Report on Form
8-K, filed with the Commission on July 16, 1998.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
II-2
<PAGE> 66
ITEM 22. 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
the 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 registration statement is on Form S-3 or
Form S-8, and 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 the 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.
(4) 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.
(5) 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 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.
II-3
<PAGE> 67
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b) 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant 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-4, 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-5
<PAGE> 69
/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-6
<PAGE> 1
EXHIBIT 4.3
(Face of Note)
11 1/2% Senior Notes due 2005
Each Note shall contain legends substantially to the following effect unless the
Company determines otherwise:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE
HEREOF.
<PAGE> 2
CUSIP:
No.
$
Ocwen Asset Investment Corp. promises to pay to Cede & Co. or
registered assigns, the principal sum of ______________ Dollars on July 1, 2005.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
2
<PAGE> 3
Dated:
OCWEN ASSET INVESTMENT CORP.
By:
----------------------------
Name:
Title:
This is one of the
Notes referred to in the
within-mentioned Indenture:
Norwest Bank Minnesota, National Association,
as Trustee
By:
-----------------------------
Authorized Officer
3
<PAGE> 4
(Back of Note)
11 1/2% Senior Notes due 2005
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated. The terms of
the Notes set forth below are not complete and are qualified in their entirety
by reference to the Indenture.
1. Interest. Owen Asset Investment Corp., a Virginia corporation (the
"Company") promises to pay interest on the principal amount of this Note at
11 1/2% per annum from the date hereof until maturity. The Company will pay
interest semi-annually on January 1 and July 1 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest will be payable in cash. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. In the event that the Company is obligated to pay
Liquidated Damages to Holders, the interest rate otherwise applicable to the
Notes shall be increased for the period during which the Company is obligated to
pay Liquidated Damages by the amount of such Liquidated Damages and all
references herein to interest shall include such Liquidated Damages, if any.
2. Method Of Payment. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the December 15 or June 15 next preceding the
Interest Payment Date, even if such Notes are cancelled after such record date
and on or before such Interest Payment Date, except as provided in Section 2.12
of the Indenture with respect to defaulted interest. Any such interest
installment not punctually paid or duly provided for shall forthwith cease to be
payable to the registered Holders on such Interest Payment Date, and may be paid
to the registered Holders at the close of business on a special interest payment
date to be fixed by the Company for the payment of such defaulted interest,
notice whereof shall be given to the registered Holders not less than 15 days
prior to such special interest payment date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture. The
Notes will be payable as to principal, premium, interest, if any, at the office
or agency of the Company maintained for such purpose within or without the City
and State of New York, or, at the option of the Company, payment of interest, if
any, may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest and premium, if any, on, all global Notes and all other Notes the
Holders of which shall have provided wire transfer instructions to the Company
or the Paying Agent. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. Paying Agent And Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company may act in any such capacity.
4. Issuance and Ranking. The Company issued the Notes under an
Indenture dated as of July 14, 1998 (the "Indenture") between the Company and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are
subject to all such terms, and Holders are referred to the
4
<PAGE> 5
Indenture and the TIA for a statement of such terms. The Notes are general,
unsecured obligations of the Company limited to $150,000,000 in aggregate
principal amount, on outstanding Notes as set forth in Paragraph 2 hereof.
5. Redemption.
The Notes are not redeemable at the Company's option prior to July 1,
2002. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Rate
- ---- ---------------
<S> <C>
2002 ........................................................................ 105.750%
2003 ........................................................................ 102.875%
2004 and thereafter.......................................................... 100.000%
</TABLE>
(a) Notwithstanding the foregoing, during the first 36 months after
the Closing Date, the Company may, on any one or more occasions, use the net
proceeds of one or more offerings of its Common Stock to redeem up to 25% of the
aggregate principal amount of the Notes (whether in lieu of cash interest
payments) at the redemption price of 111.50% of the principal amount thereof,
plus accrued and unpaid interest to the date of redemption; provided that, after
any such redemption, the aggregate principal amount of the Notes outstanding
must equal at least $112.5 million; and provided further, that any such
redemption shall occur within 90 days of the date of closing of such offering of
Common Stock of the Company.
6. Mandatory Redemption. Except as set forth in Paragraph 7 below,
the Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
7. Repurchase At Option Of Holder. Upon the occurrence of a Change of
Control, each Holder of Notes shall have the right to require the Company to
repurchase all or any part (but not, in the case of any Holder requiring the
Company to purchase less than all of the Notes held by such Holder, any Note in
principal amount less than $1,000) of such Holder's Notes pursuant to an offer
(the "Change of Control Offer") at an offer price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of purchase (the "Change of Control Payment"). Within 10 days following
any Change of Control, the Company shall mail a notice to each Holder setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
8. Notice Of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in all appropriate denominations. The transfer of Notes may
be registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not transfer or exchange any Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, it
need not transfer or exchange any Note for a period of 15 Business Days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
5
<PAGE> 6
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement And Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and, subject to Sections 6.4 and 6.7 of the Indenture, any existing
default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes. Without the consent of any Holder of a Note, the
Indenture or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
obligations to Holders of the Notes in case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with the requirements of the SEC
in order to effect or maintain the qualification of the Indenture under the TIA.
12. Defaults And Remedies. Events of Default include: (i) a default
by the Company in the payment of interest on the Notes when the same becomes due
and payable and the Default continues for a period of 30 days; (ii) default by
the Company in the payment of the principal of or premium, if any, on the Notes
when the same becomes due and payable at maturity, upon redemption or otherwise;
(iii) failure by the Company to comply with the provisions described under
Section 4.10 of the Indenture; (iv) failure by the Company for 60 days after
notice to comply with any of its other agreements in the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Debt for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Debt or guarantee now exists, or shall be created hereafter, which default is
caused by a failure to pay principal of or premium, if any, or interest on such
Debt prior to the expiration of the grace period provided in such Indebtedness
on the date of such default (a "Payment Default") the principal amount of such
Debt together with the principal amount of any other such Debt under which there
has been a Payment Default which has been so accelerated, aggregates $10.0
million or more; (vi) 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 Restricted Subsidiary that would be a Significant Subsidiary and
such judgment or judgments remain unpaid, undischarged or unstayed for a period
of 60 days; provided that the aggregate of all such undischarged judgments
exceeds $10.0 million; (vii) certain events of bankruptcy or insolvency with
respect to the Company, any Restricted Subsidiary that would constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest and premium, if any, on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings With The Company. Subject to Section 7.3 of the
Indenture, the Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee.
6
<PAGE> 7
14. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Notes, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Investor
Relations at the executive offices of the Company.
7
<PAGE> 8
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- ------------------------------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- ------------------------------------------------------------------------------
Date:
-----------------------------
Your Signature:
-----------------------------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee:
---------------------------------
8
<PAGE> 9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 of the Indenture, check the box: [ ]
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 of the Indenture, state the amount you elect to
have purchased:
$
------------
Date:
-----------------------
Your Signature:
--------------------------------------
(Sign exactly as your name appears on
the Note)
Tax Identification No.:
--------------------------------------
Signature Guarantee:
--------------------------------------
9
<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 22, 1998
Board of Directors
Ocwen Asset Investment Corp.
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Ladies and Gentlemen:
We have acted as counsel to Ocwen Asset Investment Corp. (the
"Company") in connection with the registration by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), of $150 million
aggregate principal amount of 11 1/2% Senior Notes due 2005 (the "Notes") to be
issued by the Company pursuant to an Indenture, dated July 14, 1998, between the
Company and Norwest Bank Minnesota, National Association, as trustee thereunder
(the "Indenture"), and a Registration Rights Agreement, dated July 14, 1998,
between the Company and the Initial Purchasers named therein. The Notes are
being registered pursuant to a Registration Statement on Form S-4 (the
"Registration Statement") being filed with the Securities and Exchange
Commission on the date hereof.
We have examined such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Based on the foregoing, and assuming that the Registration Statement
has been declared effective under the Securities Act, we are of the opinion that
when the Notes have been duly executed and authenticated in accordance with the
Indenture and issued and delivered as contemplated in the Registration
Statement, the Notes will constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms and the Indenture,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
<PAGE> 2
Board of Directors
September 22, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Validity of New Notes" in the Prospectus included therein. In giving such
consent, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
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 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
included in this Registration Statement on Form S-4 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
Prudential 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
headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
September 22, 1998
<PAGE> 1
Exhibit 25
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------
_____ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
</TABLE>
<TABLE>
<S> <C>
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
</TABLE>
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------
OCWEN ASSET INVESTMENT CORP.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
VIRGINIA 65-0736120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1675 PALM BEACH LAKES BLVD.
SUITE 1000
WEST PALM BEACH, FLORIDA 33401
(Address of principal executive offices) (Zip code)
</TABLE>
-----------------------------
11 1/2% SENIOR NOTES DUE 2005
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor
is not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1
the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to
The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis and
The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
<PAGE> 3
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January
2, 1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 33-62999.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 26th day of August 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
---------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 5
EXHIBIT 6
August 26, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
-------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OCWEN ASSET INVESTMENT CORP.
OFFER TO EXCHANGE ITS
11 1/2% SENIOR NOTES DUE 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SENIOR NOTES DUE 2005
PURSUANT TO THE PROSPECTUS
DATED _______ ___, 1998
----------------
-----------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON __________ ___, 1998, UNLESS
THE OFFER IS EXTENDED.
-----------------------------------------------------------------
---------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Services
Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if (i) Old Notes are to be forwarded herewith or (ii)
tenders of Old Notes are to be made by book-entry transfer to an account
maintained by Norwest Bank Minnesota, National Association (the "Exchange
Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
(See Instruction 4)
- ------------------------------------------------------------------------------------------------------------------------------------
If blank, please print name and address of registered holder. Old Notes tendered
(Attach additional list if necessary)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Principal Amount of Old
Notes Tendered
Certificate Aggregate Principal (if less than all are
Number(s)* Amount of Old Notes tendered)**
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Total
Amount
Tendered:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in integral multiples of $1,000
principal amount. All Old Notes held shall be deemed tendered unless a
lesser number is specified in this column.
2
<PAGE> 3
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution____________________________________
DTC Account Number______________________________________________
Transaction Code Number__________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s)_____________________________________
Window Ticket Number (if any)_____________________________________
Date of Execution of Notice of Guaranteed Delivery__________________
Name of Institution which Guaranteed Delivery______________________
If Guaranteed Delivered is to be made by Book-Entry Transfer:
Name of Tendering Institution________________________________
DTC Account Number___________________________________________
Transaction Code Number______________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NONEXCHANGED OR
NONTENDERED OLD NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT
NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:____________________________________________________________
Address:__________________________________________________________
__________________________________________________________
Area Code and Telephone Number:______________________________________
Contact Person:____________________________________________________
3
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to Ocwen Asset Investment Corp. (the
"Company"), a Virginia corporation, the above-described aggregate principal
amount of its 11 1/2% Senior Notes due 2005 (the "Old Notes") in exchange for a
like aggregate principal amount of its 11 1/2% Senior Notes due 2005 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms and subject to the conditions set forth
in the Prospectus, dated _____________ ___, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent also is acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT (AS DEFINED IN THE PROSPECTUS). THE UNDERSIGNED HAS READ AND
AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) of the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the Instructions herein will, upon the Company's
acceptance for exchange of such tendered Old Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer
4
<PAGE> 5
of Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Old Notes
not exchanged or not accepted for exchange will be issued to the undersigned or,
in the case of a book-entry transfer of Old Notes, will be credited to the
account indicated above maintained at DTC. Similarly, unless otherwise indicated
under "Special Delivery Instructions," please deliver New Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES
ACT, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN
THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER
AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE
EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES
WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN
INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE
OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD
NOTES HELD BY THE BROKER- DEALER ARE HELD ONLY AS A NOMINEE OR (B) SUCH OLD
NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (AND DO NOT REPRESENT AN
UNSOLD ALLOTMENT FROM THE ORIGINAL SALE OF THE OLD NOTES) AND IT WILL DELIVER A
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER- DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE
SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (AND
WHICH DO NOT REPRESENT AN UNSOLD ALLOTMENT FROM THE ORIGINAL SALE OF THE OLD
NOTES), FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO
EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR,
IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING
BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS
OWN ACCOUNT AND AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS
LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF
THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL
EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE
OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE
OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND INCLUDING THE
DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE
RESUMED, AS THE CASE MAY BE.
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of New Notes received in exchange for Old
Notes pursuant to the Exchange Offer must notify the Company, or cause the
Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
above or may be delivered to the Exchange Agent at the address set forth in the
Prospectus under "The Exchange Offer--Exchange Agent."
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive interest on such Old Notes and the undersigned waives the right to
receive any interest on such Old Notes accumulated from and after July 14,
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<PAGE> 6
1998. Holders of New Notes as of the record date for the payment of interest on
January 1, 1999 will be entitled to interest accumulated from and after July 14,
1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
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<PAGE> 7
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(See Instructions 2, 5 and 6)
(Please Complete Substitute Form W-9 Below)
(Note: Signature(s) must be guaranteed if required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificates(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certificates and other information as may be required by the Company
or the Exchange Agent to comply with the restrictions on transfer applicable to
the Old Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date , 1998
----------------
Name(s)
-------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
Area Code(s) and Telephone Number
-----------------------------------------------
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(See Instructions 2 and 5)
Authorized Signature
------------------------------------------------------------
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Date , 1998
----------------
Capacity or Title
---------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------
Address
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE> 8
<TABLE>
- ------------------------------------------------------ -----------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6) (See Instructions 1, 5 and 6)
To be completed ONLY if New Notes and/or any To be completed ONLY if New Notes and/or any Old
Old Notes that are not tendered are to be issued Notes that are not tendered are to be sent to someone other
in the name of someone other than the registered holder than the registered holder of the Old Notes whose
of the Old Notes whose name(s) appear(s) above. name(s) appear(s) above, or to the registered holder(s) at
an address other than that shown above.
Issue:
Mail:
[ ] New Notes to: [ ] New Notes to:
[ ] Old Notes not tendered to: [ ] Old Notes not tendered to:
Name
---------------------------------------------- Name
(PLEASE PRINT) ---------------------------------------------
(PLEASE PRINT)
Address Address
------------------------------------------- ------------------------------------------
- -------------------------------------------------- -------------------------------------------------
- -------------------------------------------------- -------------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
- -------------------------------------------------- -------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
- ------------------------------------------------------ ---------------------------------------------------
</TABLE>
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a) tenders
are to be made pursuant to the procedures for tender by book-entry transfer set
forth under "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus and an Agent's Message is not delivered or (b) Certificates are to be
forwarded herewith. Timely confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC, or Certificates as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its addresses set forth herein on or prior to the Expiration Date. Tenders by
book-entry transfer also may be made by delivering an Agent's Message in lieu of
this Letter of Transmittal. The term "book-entry confirmation" means a
confirmation of book-entry transfer of Old Notes into the Exchange Agent's
account at DTC. The term "Agent's Message" means a message transmitted by DTC to
and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgement from
the tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the Letter of Transmittal (including the
representations contained herein) and that the Company may enforce the Letter of
Transmittal against such participant. Old Notes may be tendered in whole or in
part in integral multiples of $1,000 principal amount.
Holders who wish to tender their Old Notes and (i) who cannot complete the
procedures for delivery by book-entry transfer on or prior to the Expiration
Date, (ii) who cannot deliver their Old Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent on or prior to the Expiration
Date or (iii) whose Old Notes are not immediately available, may tender their
Old Notes by properly completing and duly executing a Notice of Guaranteed
Delivery pursuant to the guaranteed delivery procedures set forth under "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. Pursuant
to such procedures: (a) such tender must be made by or through an Eligible
Institution (as defined below); (b) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Company, must be received by the Exchange Agent on or prior to the Expiration
Date; and (c) the Certificates (or a book-entry confirmation (as defined above
and in the Prospectus)) representing all tendered Old Notes, in proper form for
transfer, together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three New York Stock Exchange, Inc. trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
9
<PAGE> 10
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC whose
name appears on a security position listing as the owner of the Old Notes) of
Old Notes tendered herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in integral multiples of $1,000 principal amount. If less than all
the Old Notes evidenced by any Certificate submitted are to be tendered, fill in
the principal amount of Old Notes which are to be tendered in the box entitled
"Principal Amount of Old Notes Tendered (if less than all are tendered)." In
such case, a new Certificate(s) for the remainder of the Old Notes that were
evidenced by your Old Certificate(s) will be sent to the holder of the Old
Notes, promptly after the Expiration Date, unless the appropriate boxes on this
Letter of Transmittal are completed. All Old Notes represented by Certificates
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written or facsimile transmission of such
notice of withdrawal must be received by the Exchange Agent at one of its
addresses set forth above or in the Prospectus on or prior to the Expiration
Date. Any such notice of withdrawal must specify the name of the person who
tendered the Old Notes to be withdrawn, the aggregate principal amount of Old
Notes to be withdrawn, and (if Certificates for Old Notes have been tendered)
the name of the registered holder of the Old Notes as set forth on the
Certificate for the Old Notes, if different from that of the person who tendered
such Old Notes. If Certificates for the Old Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Certificates for the Old Notes, the tendering holder must submit the
serial numbers shown on the particular Certificates for the Old Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Old Notes tendered for the account
of an Eligible Institution. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer set forth under "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus, the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written or facsimile
transmission on or prior to the Expiration Date. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company in its
sole discretion, whose determination shall be final and binding on all parties.
None of the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
10
<PAGE> 11
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company in its sole discretion, of such persons'
authority to so act.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Exchange Agent may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Company be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer--Certain Conditions to the Exchange Offer" or any conditions
or irregularity in any tender of Old Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Old Notes will be deemed to have
been validly made until all irregularities with respect to such tender have been
cured or waived. None of the Company, any affiliates or assigns of the Company,
the Exchange Agent, or any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, this Letter of Transmittal and the Notice
of Guaranteed Delivery may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided
11
<PAGE> 12
to the Exchange Agent. The Exchange Agent will retain such amounts withheld
during the 60 day period following the date of the Substitute Form W-9. If the
holder furnishes the Exchange Agent with its TIN within 60 days after the date
of the Substitute Form W-9, the amounts retained during the 60 day period will
be remitted to the holder and no further amounts shall be retained or withheld
from payments made to the holder thereafter. If, however, the holder has not
provided the Exchange Agent with its TIN within such 60 day period, amounts
withheld will be remitted to the IRS as backup withholding. In addition, 31% of
all payments made thereafter will be withheld and remitted to the IRS until a
correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
12
<PAGE> 13
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: OCWEN ASSET INVESTMENT CORP.
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SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN__________________________
Form W-9 TIN IN THE BOX AT RIGHT AND Social Security Number or
CERTIFY BY SIGNING AND Employer Identification Number
DATING BELOW
----------------------------------------------------------------------
Department of the Treasury Part 2
Internal Revenue Service Awaiting TIN [ ]
-------------------------------
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), (2) I am not
subject to backup withholding either because (i) I am exempt from
backup withholding, (ii) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the
IRS has notified me that I am no longer subject to backup withholding,
and (3) any other information provided on this form is true and
correct.
Payer's Request for Taxpayer SIGNATURE
Identification Number (TIN) -----------------------------------------------------------
and Certification DATE
-----------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been
notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return and you have
not been notified by the IRS that you are no longer subject to backup
withholding.
- -------------------------------------------------------------------------------------------------------------
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NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the time of
payment, 31% of all payments made to me on account of the New Notes shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter
will be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature Date
----------------------------------- ------------------------------
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13
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11 1/2% SENIOR NOTES DUE 2005
OF
OCWEN ASSET INVESTMENT CORP.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
the procedures for delivery by book-entry transfer cannot be completed on or
prior to the Expiration Date (as defined in the Prospectus referred to below),
(ii) certificates for the Company's (as defined below) 11 1/2% Senior Notes due
2005 (the "Old Notes") are not immediately available or (iii) Old Notes, the
Letter of Transmittal and all other required documents cannot be delivered to
Norwest Bank Minnesota, National Association (the "Exchange Agent") on or prior
to the Expiration Date. This Notice of Guaranteed Delivery may be delivered by
hand, overnight courier or mail, or transmitted by facsimile transmission, to
the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
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By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Services
Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
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DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Ocwen Asset Investment Corp. (the
"Company"), a Virginia corporation, upon the terms and subject to the conditions
set forth in the Prospectus, dated __________ ___, 1998 (as the same may be
amended or supplemented from time to time, the "Prospectus"), and the related
Letter of Transmittal (which together constitute the "Exchange Offer"), receipt
of which is hereby acknowledged, the aggregate principal amount of Old Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
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Aggregate Principal Amount Name(s) of Registered Holder(s):
Tendered:
---------------------------------------------------- -------------------------------------------------------------
Address(es):
Certificate No(s). (if available):
--------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
Area Code and Telephone Number(s):
If Old Notes will be tendered by book-entry transfer, provide ---------------------------
the following information:
-------------------------------------------------------------
DTC Account Number: Signature(s):
------------------------------------------ ------------------------------------------------
Date:
-------------------------------------------------------- -------------------------------------------------------------
-------------------------------------------------------------
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THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 2
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (a) bank; (b) (i)
a broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (c)(i) a credit
union; (d)(i) a national securities exchange, registered securities association
or clearing agency; or (ii)(e) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within three business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
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Name of Firm:
-------------------------------------- -----------------------------------------------
(Authorized Signature)
Address:
------------------------------------------- Title:
------------------------------------------
- --------------------------------------------------- Name:
(Zip Code) -------------------------------------------
(Please type or print)
Area Code and
Telephone Number: Date:
---------------------------------- -------------------------------------------
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NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
2
