================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _____________to _____________
Commission File No. 1-14043
OCWEN ASSET INVESTMENT CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-078313
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(561) 682-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(g) of the Act: Not Applicable.
Indicate by check mark whether the registrant; (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
At March 31, 2000, there were 6,100 shares of common stock of the Registrant
outstanding, all of which are owned indirectly by Ocwen Financial Corporation.
THE REGISTRANT MEETS THE CONDITION SET FORTH IN GENERAL INSTRUCTION (H)(1)(A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
================================================================================
OCWEN ASSET INVESTMENT CORP.
FIRST QUARTER 2000 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (unaudited).......... 3
Consolidated Statements of Financial Condition................ 3
Consolidated Statements of Operations.......................... 4
Consolidated Statements of Comprehensive Income (Loss)......... 5
Consolidated Statements of Cash Flows.......................... 6
Consolidated Statements of Changes in Shareholders' Equity..... 7
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 18
Signatures..................................................... 19
2
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS:
Cash and amounts due from depository institutions ....................... $ 6,965,085 $ 2,085,437
Interest-bearing deposits ............................................... 40,693,093 77,031,043
Securities available for sale, at fair value ............................ 57,738,275 103,444,568
Commercial and multi-family loan portfolio, net ......................... 67,502,317 59,519,840
Residential loan portfolio, net ......................................... 2,149,867 2,417,647
Match funded residential loans and securities, net ...................... 145,963,682 157,793,868
Discount loan portfolio, net ............................................ 13,207,659 --
Investment in real estate partnerships .................................. 11,707,860 --
Investment in real estate, net .......................................... 70,846,333 252,604,156
Real estate held for sale ............................................... 188,808,480 --
Principal and interest receivable ....................................... 2,843,882 2,646,732
Other assets ............................................................ 23,326,937 31,389,621
------------- -------------
Total assets .......................................................... $ 631,753,470 $ 688,932,912
============= =============
LIABILITIES:
Securities sold under agreements to repurchase .......................... $ 3,803,709 $ 28,301,141
Obligations outstanding under lines of credit ........................... 17,997,393 17,997,393
Obligations outstanding under lines of credit - secured by real
estate ............................................................... 141,173,063 141,173,063
11.5% Redeemable Notes due 2005 ........................................ 120,936,630 140,486,483
Bonds - match funded agreements ........................................ 130,429,259 141,515,143
Excess of net assets over purchase price ............................... 54,041,383 56,840,751
Accrued expenses, payables and other liabilities ........................ 19,877,614 23,911,170
------------- -------------
Total liabilities ..................................................... 488,259,051 550,225,144
------------- -------------
Commitments and Contingencies (Note 15)
SHAREHOLDER'S EQUITY:
Common Stock, $.01 par value; 10,000 and 200,000,000 shares
authorized, 6,100 shares issued and outstanding ......................... 61 61
Additional paid-in capital .............................................. 135,857,923 135,857,923
Retained earnings ....................................................... 10,213,464 3,542,683
Accumulated other comprehensive income, net of taxes:
Unrealized losses on securities available for sale .................... (2,568,692) (713,326)
Cumulative translation adjustment ..................................... (8,337) 20,427
------------- -------------
Total other accumulated comprehensive loss .......................... (2,577,029) (692,899)
------------- -------------
Total shareholder's equity .......................................... 143,494,419 138,707,768
------------- -------------
$ 631,753,470 $ 688,932,912
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
Successor Predecessor
----------------------------
For the Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest bearing deposits ................................ $ 469,567 $ 494,604
Securities available for sale ............................ 3,459,159 13,638,517
Commercial and multi-family loans ........................ 1,748,780 1,648,514
Match funded residential loans and securities ............ 3,311,257 3,327,143
Residential loans ........................................ 49,664 145,398
Discount loans ........................................... 558,468 126,318
------------ ------------
9,596,895 19,380,494
------------ ------------
INTEREST EXPENSE:
Securities sold under agreements to repurchase ........... 237,937 2,642,002
Obligations outstanding under lines of credit ............ 283,686 606,684
11.5% Redeemable Notes due 2005 .......................... 4,011,954 4,154,150
Bonds-match funded agreements ............................ 3,356,199 2,523,602
------------ ------------
7,889,776 9,926,438
------------ ------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES ....... 1,707,119 9,454,056
Provision for loan losses ................................ 77,702 257,852
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 1,629,417 9,196,204
------------ ------------
REAL ESTATE-OPERATING INCOME:
Rental income ............................................ 8,518,076 7,982,430
Other .................................................... 31,345 10,382
------------ ------------
8,549,421 7,992,812
------------ ------------
REAL ESTATE-OPERATING EXPENSES:
Rental operation ......................................... 4,336,993 3,962,709
Depreciation ............................................. 486,358 1,193,977
Interest ................................................. 2,712,251 2,657,326
------------ ------------
7,535,602 7,814,012
------------ ------------
REAL ESTATE INCOME ......................................... 1,013,819 178,800
------------ ------------
OTHER EXPENSES (INCOME):
Management fees .......................................... 1,064,905 1,524,429
Servicing fees ........................................... 517,756 248,859
Due diligence expenses ................................... -- 122,745
Amortization of excess of net assets over purchase price.. (2,793,595) --
Other .................................................... 477,520 961,450
------------ ------------
(733,414) 2,857,483
------------ ------------
GAINS (LOSSES) ON SECURITIES AND DERIVATIVES, NET .......... 3,018,237 (7,455,633)
------------ ------------
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST ........... 6,394,887 (938,112)
Income tax expense ......................................... 1,906,313 --
Minority interest in net loss of consolidated
subsidiary ............................................... -- 154,251
------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS ............... 4,488,574 (783,861)
Extraordinary gain on repurchase of debt, net of taxes ... 2,182,207 --
------------ ------------
NET INCOME (LOSS) .......................................... $ 6,670,781 $ (783,861)
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Successor Predecessor
----------------------------
For the Three Months Ended
March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) ................................................ $ 6,670,781 $ (783,861)
Other comprehensive income, net of taxes:
Change in unrealized gain (loss) on securities available for
sale arising during the quarter (net of taxes of $999,043 for
the period January 1, 2000 to March 31, 2000) .................. (1,855,366) 611,755
Unrealized foreign currency translation adjustment arising
during the quarter (net of taxes of $11,472 for the
period January 1, 2000 to March 31, 2000) ..................... (28,764) 130,210
Reclassification adjustment for losses (gains) included in net
income ......................................................... -- (852,109)
----------- -----------
Other comprehensive loss ....................................... (1,884,130) (110,144)
----------- -----------
Comprehensive income (loss) ...................................... $ 4,786,651 $ (894,005)
----------- ===========
Disclosure of reclassification adjustment:
Unrealized holding gains (losses) arising during
the period on securities sold or impaired ............... $ 2,707,237 $(8,306,573)
Add: Adjustment for realized (gains) losses
and impairment charges on securities available for
sale included in net income (loss) .................... (2,707,237) 7,454,464
----------- -----------
Reclassification adjustment for losses (gains)
included in net income .............................. $ -- $ (852,109)
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Predecessor
----------------------------
For the Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................... $ 6,670,781 $ (783,861)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Premium amortization (discount accretion), net .......... (344,572) 8,601,099
Depreciation ............................................ 486,358 1,193,977
Amortization of excess of net assets over purchase price (2,793,595)
Extraordinary gain on extinguishment of debt ............ (2,182,207) --
Provision for loan losses ............................... 77,702 257,852
Net gains on securities, derivatives and real estate .... (3,018,237) 7,455,633
(Increase) decrease in principal and interest receivable (197,150) 3,418,805
Increase (decrease) in other assets ..................... 8,293,719 (22,137)
Decrease in accrued expenses, payables, other liabilities (4,033,556) (7,525,230)
Minority interest in losses ............................. -- (154,251)
------------ ------------
Net cash provided by operating activities ...................... 2,959,243 12,441,887
------------ ------------
Cash flows from investing activities:
Principal payments received on securities available
for sale ................................................... 11,535,335 6,280,742
Principal payments received from loans ....................... 6,635,414 20,136,324
Proceeds from sale of securities ............................. 40,931,432 12,708,996
Purchase of discount loans ................................... (13,207,659) --
Purchase/originations of loans ............................... (7,761,886) (4,962,755)
Investment in real estate partnerships ....................... (11,707,860) --
Investment in real estate .................................... (7,537,015) (1,869,007)
------------ ------------
Net cash provided by investing activities ...................... 18,887,761 32,294,300
------------ ------------
Cash flows from financing activities:
Repurchase of notes .......................................... (20,000,000) --
Principal payments on bonds .................................. (8,779,110) (20,105,569)
Increase in securities sold under agreements to repurchase ... (24,497,432) (24,620,520)
Increase in obligations outstanding under lines of
credit ..................................................... -- 7,741,437
------------ ------------
Net cash (used by) provided by financing activities ............ (53,276,542) (36,984,652)
------------ ------------
Net increase (decrease) in cash and cash equivalents ........... (31,429,538) 7,751,535
Change in cumulative translation adjustment .................... (28,764) 130,210
Cash and cash equivalents at beginning of period ............... 79,116,480 53,365,205
------------ ------------
Cash and cash equivalents at end of period ..................... $ 47,658,178 $ 61,246,950
============ ============
Reconciliation of cash and cash equivalents at end of period:
Cash and amounts due from depository institutions ............ $ 6,965,085 $ 3,641,241
Interest earning deposits .................................... 40,693,093 57,605,709
------------ ------------
Total ..................................................... $ 47,658,178 $ 61,246,950
============ ============
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 12,399,187 $ 13,958,058
============ ============
The accompanying notes are an integral part of these consolidated financial statements
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Accumulated
Common Stock Additional other
-------------------------- paid-in Retained comprehensive
Shares Amount capital earnings loss Total
---------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ...... 6,100 61 135,857,923 3,542,683 (692,899) 138,707,768
Net income ........................ -- -- -- 6,670,781 -- 6,670,781
Change in unrealized loss on
securities available for sale .... -- -- -- -- (1,855,366) (1,855,366)
Change in cumulative translation
adjustment .................... -- -- -- -- (28,764) (28,764)
---------- ------------ ------------ ------------ ------------ ------------
Balance at March 31, 2000 ........ 6,100 61 135,857,923 10,213,464 (2,577,029) 143,494,419
========== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements
7
</TABLE>
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 ACQUISITION OF THE COMPANY
BASIS OF PRESENTATION
On October 7, 1999, the Company was acquired by Ocwen Financial
Corporation ("OCN"). A vertical line has been used to separate the
post-acquisition consolidated financial statements of the Company from the
pre-acquisition consolidated financial statements of the Company prior to the
acquisition (the "Predecessor"). The effects of the acquisition resulted in a
new basis of accounting reflecting fair values of assets and liabilities at that
date. The consolidated financial statements of the Predecessor are presented at
the Predecessor's historical cost.
NOTE 2 ORGANIZATION
The Company's consolidated financial statements include the accounts of
the Company and its subsidiaries. The Company directly owns two subsidiaries,
Ocwen General, Inc. (the "General Partner") and Ocwen Limited, Inc. (the
"Limited Partner"). The General Partner and the Limited Partner own 0.9% and
90.4%, respectively, of Ocwen Partnership, L.P. (the "Operating Partnership").
Additionally, the Company, the General Partner, the Limited Partner and the
Operating Partnership have established a variety of wholly-owned subsidiaries
for operational purposes.
The Company has a management agreement with Ocwen Capital Corporation
("OCC"), a wholly-owned subsidiary of OCN, under which OCC advises the Company
on various facets of its business and manages its day-to-day operations, subject
to the supervision of the Company's Board of Directors. For its services, OCC
receives a quarterly base management fee and, if certain thresholds are met, an
incentive fee. During the three months ended March 31, 2000, OCC earned from the
Company $1.1 million in base management fees and no incentive fees.
The Company also has servicing agreements with Ocwen Federal Bank FSB
(the "Bank"), a wholly-owned subsidiary of OCN, for the servicing of all of the
Company's mortgage loans. In addition, the Bank in its capacity as servicer or
special servicer receives fees from certain mortgage-backed securities in which
the Company owns a subordinate or residual interest. During the three months
ended March 31, 2000, the Bank earned from the Company $0.5 million in servicing
fees.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its
subsidiaries follow U.S. Generally Accepted Accounting Principles ("GAAP"). The
policies which materially affect the determination of the Company's financial
position, results of operations and cash flows are summarized below.
In the opinion of management, the accompanying financial statements
contain all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the Company's financial condition at March 31, 2000 and
December 31, 1999, the results of its operations for the three months ended
March 31, 2000 and 1999, its comprehensive income for the three months ended
March 31, 2000 and 1999, its cash flows for the three months ended March 31,
2000 and 1999, and its changes in stockholders' equity for the three months
ended March 31, 2000. The results of operations and other data for the three
month period ended March 31, 2000 are not necessarily indicative of the results
that may be expected for any other interim periods or the entire year ended
December 31, 2000. The unaudited consolidated financial statements presented
herein should be read in conjunction with the audited consolidated financial
statements and related notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
OAC and its subsidiaries as described in Note 2 above. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
8
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to
significant change in the near or medium term relate to the valuation of
securities available for sale and determination of the allowance for loan losses
on loans and discount loans.
INVESTMENT IN REAL ESTATE PARTNERSHIPS
The Company's investments in real estate partnerships are accounted for
under the equity method of accounting. Under the equity method of accounting, an
investment in the shares or other interests of an investee is recorded at cost
of the shares or interests acquired and thereafter is periodically increased
(decreased) by the investors proportionate share of earnings (losses) of the
investee and decreased by the dividends or distributions received by the
investor from the investee.
REAL ESTATE HELD FOR SALE
Real estate held for sale are reported at the lower of the carrying
amount or fair value less cost to sell. Real estate is classified as held for
sale when the Company has committed to a plan to sell the assets, and
depreciation is discontinued. Gains and losses on the sale of real estate held
for sale are included as a component of income. During the first quarter of 2000
there were no gains or losses recorded on the sale of real estate held for sale.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company encounters primarily two
significant types of economic risk: credit and market. Credit risk is the risk
of default on the Company's loan portfolios that results from a borrower's
inability or unwillingness to make contractually required payments. Market risk
primarily reflects changes in the value of securities available for sale and
investments in real estate due to changes in interest rates or other market
factors, including the rate of prepayments of principal, the value of the
collateral underlying loans and the valuation of real estate held by the
Company.
RECENT ACCOUNTING STANDARDS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which amends FASB Statements No. 52 and
107, and supersedes FASB Statements No. 80, 105 and 119. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Initial application of SFAS No. 133 should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of SFAS No.
133. Earlier application of SFAS No. 133 is encouraged but is permitted only as
of the beginning of any fiscal quarter that begins after issuance of SFAS No.
133. The Company has not yet determined the impact on its results of operations,
financial position or cash flows as a result of implementing SFAS No. 133.
NOTE 4 RISK MANAGEMENT INSTRUMENTS
The following table indicates the interest rate swaps outstanding at
March 31, 2000, pursuant to which the Company receives payments from a
counterparty based on a floating rate of interest equal to LIBOR and agrees to
pay a fixed rate of interest to such party on a specified notional amount:
Notional LIBOR Floating Rate at
Maturity Amount Index Fixed Rate End of Period Fair Value
-------- ---------- ------- ---------- ---------------- ----------
(Dollars In Thousands)
2003 $ 100,000 1-month 5.75% 6.07 $ 3,438
2001 75,000 1-month 6.00 5.92 593
---------- ---------
$ 175,000 $ 4,031
========== =========
At March 31, 2000, the Company had foreign currency futures contracts
to hedge currency exposure in connection with its investment in residual
interests backed by residential mortgage loans originated in the United Kingdom,
9
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
which are held by a wholly-owned foreign subsidiary of the Company. Currency
futures contracts are commitments to either purchase or sell foreign currency at
a future date for a specified price. At March 31, 2000, the fair value of the
British Pounds futures contracts was $(0.1) million. In addition, the Company
entered into foreign currency futures contracts to hedge its exposure in
connection with its investment in the shopping center located in Halifax, Nova
Scotia, which is held by a wholly-owned foreign subsidiary of the Company. At
March 31, 2000, the fair value of the Canadian currency contract was $(0.1)
million. Gains and losses on these foreign currency futures contracts are
recorded in the Consolidated Statement of Financial Condition offsetting the
item being hedged.
NOTE 5 SECURITIES AVAILABLE FOR SALE
The following table sets forth the amortized cost, fair value and gross
unrealized gains and losses of the Company's securities available for sale at
March 31, 2000.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage-related securities:
Single-family residential:
Subprime residuals.................. $ 49,830 $ -- $ (466) $ 49,364
Subordinates........................ 5,210 11 (35) 5,186
------------ ---------- ---------- -----------
55,040 11 (501) 54,550
------------ ---------- ---------- -----------
Multi-family and commercial:
Subordinates........................ 3,188 -- -- 3,188
------------ ---------- ---------- -----------
3,188 -- -- 3,188
------------ ---------- ---------- -----------
Total securities available for sale...... $ 58,228 $ 11 $ (501) $ 57,738
============ ========== ========== ===========
</TABLE>
During the three months ended March 31, 2000, the Company recorded
impairment charges of $0.06 million against its portfolio of securities
available for sale. The charge resulted from increases in projected prepayment
speeds during the period and losses in excess of assumptions, which resulted in
the shortening of the weighted average lives of certain individual securities in
the portfolio. As a result, a determination was made to write down the recorded
investment in those securities where the reduction in fair value was considered
to be other than temporary.
NOTE 6 LOAN PORTFOLIO
The Company's loan portfolio consisted of the following at the dates
indicated.
March 31, December 31,
2000 1999
------------ -------------
(Dollars in Thousands)
Single-family residential...................... $ 2,231 $ 2,541
Multi-family residential....................... 39,618 34,830
Commercial real estate:
Hotel........................................ 27,888 24,809
------------ -------------
Total loans................................ 69,737 62,180
Premium/(discount)............................. 627 488
Allowance for loan losses...................... (712) (731)
------------ -------------
Loans, net................................... $ 69,652 $ 61,937
============ =============
10
<PAGE>
<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
The following table represents a summary of the Company's
non-performing loans (past due 90 days or more) at the dates indicated.
March 31, 2000 December 31, 1999
-------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Single-family residential............................................ $ 446 $ 682
Multi-family......................................................... 3,010 3,005
-------------- --------------
$ 3,456 $ 3,687
============== ==============
At March 31, 2000 and December 31, 1999, the Company had no investment
in impaired loans as defined in accordance with SFAS No. 114, as amended by SFAS
No. 118.
NOTE 7 MATCH FUNDED RESIDENTIAL LOANS AND SECURITIES, NET
Match funded residential loans and securities is comprised of the
following at the dates indicated.
March 31, 2000 December 31, 1999
-------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Single family residential loans...................... $ 99,998 $ 105,596
Allowance for loan losses............................ (526) (495)
-------------- --------------
Match funded residential loans, net.......... 99,472 105,101
Match funded securities............................. 46,492 52,693
-------------- --------------
Balance at end of period............................. $ 145,964 $ 157,794
============== ==============
The following table represents a summary of the Company's
non-performing loans (past due 90 days or more) at the dates indicated in the
match funded loan portfolio.
March 31, 2000 December 31, 1999
-------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Match funded loans.................................................... $ 1,350 $ 1,127
============== ==============
The following table sets forth the amortized cost, fair value and gross
unrealized gains and losses of the Company's match funded securities at March
31, 2000.
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ------------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Match funded securities $ 50,275 $ -- $ (3,783) $ 46,492
========== ========== ============ ==========
Bonds-match funded agreements were comprised of the following at the
dates indicated:
March 31, 2000 December 31, 1999
--------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
OAC Mortgage Residential Securities, Inc............. $ 94,302 $ 100,968
Ocwen NIM Corp....................................... 36,127 40,547
--------------- ---------------
$ 130,429 $ 141,515
=============== ===============
</TABLE>
11
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 8 DISCOUNT LOAN PORTFOLIO
The Company has acquired in the past, through private sales and
auctions, mortgage loans at a discount because either the borrowers are not
current as to principal and interest payments or there is doubt as to the
borrower's ability to pay in full the contractual principal and interest. The
Company estimates the amounts it will realize through foreclosure, collection or
other resolution efforts and the length of time required to complete the
collection process in determining the amounts it will bid to acquire such loans.
The resolution alternatives applied to the discount loan portfolio are:
(i) the borrower brings the loan current in accordance with original or modified
terms; (ii) the borrower repays the loan or a negotiated amount; (iii) the
borrower agrees to a deed-in-lieu of foreclosure, in which case it is classified
as investment in real estate and held for sale by the Company and; (iv) the
Company forecloses on the loan and the property is either acquired at the
foreclosure sale by a third party or by the Company, in which case it is
classified as investment in real estate and held for sale. Upon receipt of title
to the property, the loans are transferred to investment in real estate.
At March 31, 2000, the Company had $13.2 million of Discount loans.
NOTE 9 INVESTMENT IN REAL ESTATE PARTNERSHIPS
During January 2000, the Company invested approximately $11.7 million
in real estate partnerhips. At March 31, 2000, the Company's investment in real
estate partnerships consisted of five limited partnerships interests in real
estate ventures consisting of multi-family type properties.
NOTE 10 REAL ESTATE HELD FOR SALE
During the first quarter of 2000, the Company reclassified $188.8
million from investment in real estate to investment in real estate held for
sale. Real estate held for sale at March 31, 2000, was comprised of four
commercial office properties in San Francisco, California. The following table
sets forth the Company's real estate held for sale:
March 31, 2000
--------------
(Dollars in Thousands)
Office Buildings...................................... $ 163,665
Building Improvements................................. 16,111
Tenant improvements and lease commissions............. 9,032
--------------
$ 188,808
==============
On March 23, 2000, the Company engaged Grubb & Ellis Company to market
and sell these properties. On March 30, 2000, the Company entered into an
agreement to sell its office building located at 690 Market Street in San
Francisco for $28.0 million less commissions and closing costs and as adjusted
for pro rations of certain contractual obligations that survive closing. Closing
is subject to the fulfillment of certain conditions, including but not limited
to delivery of clear title and receipt of required tenant estoppels. The closing
is expected to occur during the second quarter of 2000.
12
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 INVESTMENT IN REAL ESTATE
The investment in real estate at March 31, 2000 was comprised of an
office building in Jacksonville, Florida, and three shopping plazas, one each
located in: Bradenton, Florida; Halifax, Nova Scotia; and Havre, Montana. The
following table sets forth the Company's investment in real estate for the dates
indicated:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
---------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Office buildings................................... $ 32,097 $ 202,607
Retail............................................. 33,305 33,224
Building improvements.............................. 7,443 17,590
Tenant improvements and lease commissions.......... 584 8,150
Furniture and fixtures............................. 58 44
---------------- ---------------
73,487 261,615
Accumulated depreciation and amortization.......... (2,641) (9,011)
---------------- ---------------
Investment in real estate net.................... $ 70,846 $ 252,604
================ ===============
</TABLE>
NOTE 12 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OBLIGATIONS
OUTSTANDING UNDER LINES OF CREDIT
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. Securities sold under
agreements to repurchase were $3.8 million, with a weighted average interest
rate of 6.54%, at March 31, 2000 compared to $28.3 million with a weighted
average interest rate of 8.36% at December 31, 1999. These obligations are
secured by certain of the Company's investments in subordinated interests in
commercial mortgage-backed securities, residual interests in subprime
residential loan securitizations, and U.K. mortgage loan residual securities.
The following table summarizes the maturity dates of OAC's securities sold under
agreements to repurchase and the fair value of the related collateral securities
as of March 31, 2000:
<TABLE>
<CAPTION>
Outstanding Residential Securities
Maturity Date Borrowing Fair Value
-------------- ----------------------
(Dollars in Millions)
<S> <C> <C>
Within 1 month......................... $ 1.1 $ 2.1
More than 1 Year....................... 2.7 24.6
-------------- --------------
Total.................................. $ 3.8 $ 26.7
============== ==============
</TABLE>
Interest expense with respect to these obligations for the three months
ended March 31, 2000 was $0.2 million.
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT. Obligations outstanding
under lines of credit amounted to $18.0 million at March 31, 2000 and December
31, 1999. The borrowing is pursuant to a three year agreement, which is
collateralized by commercial loans. Interest expense was $0.3 million for the
three months ended March 31, 2000.
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT - REAL ESTATE.
Obligations outstanding under lines of credit secured by real estate amounted to
$141.2 million at March 31, 2000 and December 31, 1999. These borrowings have a
three-year agreement. Interest expense during the three months ended March 31,
2000 was $2.7 million. Set forth below is information regarding the Company's
indebtedness relating to its investment in real estate at March 31, 2000:
<TABLE>
<CAPTION>
Property Principal Amount Interest Rate Maturity Date
-------------------------------- ---------------- ---------------- ----------------
(Dollars In Millions)
<S> <C> <C> <C>
Bush Street Property............ $ 75.0 LIBOR plus 1.75% April, 2001
Other........................... $ 66.2 LIBOR plus 1.75% June, 2001 (1)
</TABLE>
(1) Represents the portion of the outstanding balance under a
$200 million loan that is secured by real estate. As of
March 31, 2000, this line of credit was collateralized by
$114.8 million in investments in real estate. Also, an
additional $18.0 million was borrowed and collateralized
by $39.2 million in commercial mortgage loans.
13
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
In addition to payment and, in the case of the Company's secured
indebtedness, collateralization requirements, the Company is subject to various
other covenants in the agreements evidencing its indebtedness, including the
maintenance of specified amounts of equity. At March 31, 2000, the Company was
in compliance with all obligations under the agreements evidencing its
indebtedness with respect to the Company's equity and that of its operating
partnership's equity (see Note 2 to the Consolidated Financial Statements, which
is incorporated herein by reference), as defined in the applicable agreement. In
recent months, various lenders have agreed to decrease the amount of net worth
required to satisfy the financial covenants in the applicable indebtedness
agreements.
NOTE 13 11.5% REDEEMABLE NOTES AND BONDS-MATCH FUNDED AGREEMENTS
In January, 2000, the Company repurchased in the open market $20.0
million of its $143.0 million outstanding 11 1/2% Redeemable Notes due 2005.
This resulted in the Company realizing an extraordinary gain of $2.2 million,
net of taxes, during the first quarter of 2000. At March 31, 2000, the
outstanding par balance of the Redeemable Notes was $123.0 million. Interest
expense on the Redeemable Notes during the three months ended March 31, 2000 was
$4.0 million.
The indenture under which the Redeemable Notes were issued (the
"Indenture") prohibits the Company from incurring or issuing debt, other than
certain permitted indebtedness ("Permitted Indebtedness"), if certain financial
tests are not satisfied. One such test requires that the ratio of adjusted Funds
from Operations ("FFO") to adjusted fixed charges for the previous four fiscal
quarters exceeds 1.25 to 1.00. Given that adjusted FFO to adjusted fixed charges
for the four quarters ended March 31, 2000 was 0.64, the Company does not expect
this financial test to be satisfied for some time to come.
The Indenture also prohibits the Company from making certain restricted
payments, including dividends. As of March 31, 2000, the Company was not
permitted to pay dividends under the Indenture and the Company does not expect
that it will be able to pay dividends in the foreseeable future.
At March 31, 2000 and December 31, 1999 bonds-match funded agreements
amounted to $130.4 million and $141.5 million, respectively, and with a weighted
average interest rate of 9.74% and 6.65%, respectively. Interest expense was
$3.4 million for the three months ended March 31, 2000.
NOTE 14 BUSINESS SEGMENT REPORTING
SFAS No. 131 requires public enterprises to report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise that (a) engages in business
activities from which it may earn revenues and incur expenses, (b) whose
operating results are regularly reviewed by the enterprise's chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance, and (c) for which discrete financial information is
available. An operating segment may engage in business activities for which it
has yet to earn revenues. The Company conducts a variety of business activities
within the following segments:
<TABLE>
<CAPTION>
Other Real Estate
Net Interest Expenses Income, Net (Loss) Total
Income (Income) Net Income Assets
------------- ------------- ------------ ----------- -------------
AT OR FOR THE THREE MONTHS ENDED
MARCH 31, 2000:
<S> <C> <C> <C> <C> <C>
Commercial real estate.............. $ (1,514,066) $ 641,205 $ 1,171,334 $ (610,041) $ 273,235,480
Commercial loans.................... 1,216,809 474,267 (157,515) 2,039,093 97,258,564
Domestic subprime single family
residential lending............... 1,235,939 442,889 -- 646,570 103,590,475
Single family residential
discount loans.................. 849,211 158,393 -- 420,184 102,727,388
Corporate items and other.......... (80,774) (2,450,168) -- 4,174,976 54,941,563
------------- ------------- ------------ ----------- -------------
$ 1,707,119 $ (733,414) $ 1,013,819 $ 6,670,782 $ 631,753,470
============= ============= ============ =========== =============
</TABLE>
14
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
The Company's real estate activities include acquisition of real estate
properties held for investment and sale. The Company's commercial loans includes
the origination of multi-family and commercial real estate loans and subordinate
interests in commercial mortgage-backed securities. Domestic subprime single
family residential lending includes the Company's acquisition and securitization
of subordinate interests in residential mortgage-backed securities. Single
family residential discount loans include asset acquisition and resolution of
single family residential and the related real estate owned and the acquisition
and securitization of single family residential loans to non-conforming
borrowers. Corporate items and other consist primarily of individually
insignificant business activities, amounts not allocated to the operating
segments, transfer pricing mismatches, extraordinary gains, amortization of
excess of net assets over purchase price, and other general corporate expenses.
Interest income and expense have been allocated to each business
segment for the investment of funds raised or funding of investments made taking
into consideration the duration of such liabilities or assets. Allocations of
non-interest expense generated by corporate support services were made to each
business segment based upon management's estimate of time and effort spent in
the respective activity. Income taxes are allocated to each business segment
based on the Company's statutory tax rate. As such, the resulting amounts
represent estimates of the contribution of each business activity to the
Company.
Prior to the acquisition of the Company by OCN, the Company did not
operate in business segments. Accordingly, it is not practicable to present
comparative segment data for the quarter ended March 31, 1999.
NOTE 15 COMMITMENTS AND CONTINGENCIES
At March 31, 2000, the Company had $18.3 million in outstanding
commitments to fund construction loans secured by multi-family and commercial
properties. The following table details the amounts committed at such date.
March 31, 2000
--------------
(Dollars in Thousands)
Multi-family............................ $ 8,218
Hotels.................................. 10,077
----------
Total committed amount................ $ 18,295
==========
On April 20, 1999, a complaint was filed on behalf of a putative class
of public shareholders of the Company in the Circuit Court of the Fifteenth
Judicial Circuit, Palm Beach County, Florida against OCN and the Company. On
April 23, 1999, a complaint was filed on behalf of putative classes of public
shareholders of the Company in the Circuit Court of the Fifteenth Judicial
Circuit, Palm Beach County, Florida against the Company and certain directors of
the Company. The plaintiffs in both complaints sought to enjoin consummation of
the acquisition of the Company by OCN. The cases were consolidated, and on
September 13, 1999 a consolidated amended complaint was filed. The injunction
was denied, and on October 14, 1999, OCN was dismissed as a party. Plaintiffs'
remaining claims are for damages for alleged breaches of common law fiduciary
duties. Discovery is ongoing.
On June 3, 1999, Walton Street Capital, L.L.C. ("Walton") filed suit
against the Company and the Operating Partnership in the Circuit Court of Cook
County, Illinois. Walton has alleged that the Company committed an anticipatory
breach of contract with respect to the proposed sale by the Company of all of
its interest in its commercial mortgage-backed securities portfolio to Walton.
Walton has claimed damages in an amount in excess of $20 million. The Company
believes this suit is without merit and continues to vigorously defend against
the same. Discovery is ongoing.
The Company is subject to various other pending legal proceedings. In
management's opinion the resolution of these claims will not have a material
effect on the consolidated financial statements.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pursuant to General Instruction (H)(2)(a) of Form 10-Q, the following discussion
has been reduced to a narrative analysis of the results of operation, including
the reasons for changes in the amount of revenue and expense items during the
first quarter of 2000 versus the first quarter of 1999.
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS
ENDED MARCH 31, 1999
GENERAL. The Company recorded net income of $6.7 million for the
quarter ended March 31, 2000 as compared to a net loss of $0.8 million for the
quarter ended March 31, 1999. The increase in net income was primarily due to a
decline in the amount of impairment losses on securities of $0.06 million
compared to losses of $8.3 million for the same period a year ago, a gain of
$2.8 million on the sale of certain securities available for sale, and an
extraordinary gain of $2.2 million on the repurchase of the 11 1/2 Redeemable
Notes due 2005. The impairment losses for the three months ended March 31, 2000
were taken against residential subprime bonds, reflecting continuing market
illiquidity for these instruments.
INTEREST INCOME. Interest income decreased $9.8 million to $9.6 million
for the quarter ended March 31, 2000 compared to $19.4 million for the
comparable period in 1999. This decrease was primarily due to a reduction in
interest income on the securities available for sale portfolio of $10.2 million,
which resulted from lower average balances in the residential securities
portfolio which resulted from the sale and securitization of some securities,
offset in part by a $0.4 million increase in interest income from discount
loans, which resulted from the purchase of OAIC Commercial Assets, Inc., a
direct subsidiary of OCN for approximately $22.1 million.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2000
decreased $2.0 million to $7.9 million as compared to $9.9 million for the same
period a year ago. This decrease was primarily due to a reduction of $2.4
million in interest incurred from securities sold under agreements to
repurchase, primarily due to the sale of securities. Interest expense does not
include the expense associated with the borrowings secured by investments in
real estate, which is included in the operations of the Company's real estate.
See " -Real Estate Income (Expense), Net" below.
NET INTEREST INCOME. Net interest income during the quarter ended March
31, 2000 decreased $7.5 million to $1.7 million from $9.2 million in the same
period of 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the
quarter ended March 31, 2000 was $0.08 million, compared to $0.2 million for the
same period 1999. This change reflects the Company's evaluation of current
economic conditions, a credit review of loans, an analysis of specific loan
situations and the size and composition of the commercial and multi-family loan
portfolio.
REAL ESTATE INCOME, NET. Real estate income, net increased $0.8 million
to $1.0 million for the quarter ended March 31 2000, compared to $0.2 million
for the same period in 1999. This increase was primarily due to a $0.7 million
decrease in depreciation expense, which resulted from the reclassification of
real estate properties to real estate held for sale. See Note 9 to the
Consolidated Financial Statements, which is incorporated herein by reference.
OTHER EXPENSES (INCOME). Other expenses (income) decreased $3.6 million
during the quarter ended March 31, 2000 to income of $0.7 million from an
expense of $2.9 million in the same period a year ago. This decrease was
primarily due to the amortization of excess of net assets over purchase price
for $2.8 million, which resulted from the acquisition of the Company by OCN and
a decrease of $0.5 million in management fees due to lower Average Invested
Assets balances. See Notes 1 and 2 to the Consolidated Financial Statements,
which are incorporated herein by reference.
NET GAINS (LOSSES) ON SECURITIES AND DERIVATIVES. Net gains (losses) on
securities and derivatives increased $10.5 million to a gain of $3.0 million for
the quarter ended March 31, 2000 over the same period a year ago. This increase
was primarily due to a decrease of impairment losses on securities of $7.7
million compared to $8.3 million for the quarter ended March 31, 1999 and a gain
of $2.8 million on the sale of certain securities available for sale. The
impairment losses for the three months ended March 31, 2000 were taken against
residential subprime bonds, reflecting continuing market illiquidity for these
instruments.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not, and certain statements
contained in future filings by the Company with the Securities and Exchange
Commission (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
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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," "foresee,"
"intend," "in the event of," "may," "plan," "present," "propose," "prospect,"
"update," "whether," "will," "would," future or conditional verb tenses, similar
terms, variations on such terms or negatives of such terms. Although the Company
believes the anticipated results or other expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that those results or expectations will be attained. Actual results
could differ materially from those indicated in such statements due to risks,
uncertainties and changes with respect to a variety of factors, including, but
not limited to, international, national, regional or local economic environments
(particularly in the market areas where the Company operates), government fiscal
and monetary policies (particularly in the market areas where the Company
operates), prevailing interest or currency exchange rates, effectiveness of
interest rate, currency and other hedging strategies, laws and regulations
affecting investment companies and real estate (including access for disabled
persons and environmental compliance), uncertainty of foreign laws, competitive
products, pricing and conditions (including from competitors that have
significantly greater resources than the Company), credit, prepayment, basis,
default, subordination and asset/liability risks, loan servicing effectiveness,
course of negotiations and ability to reach agreement with respect to material
terms of any particular transaction, satisfaction or fulfillment of agreed upon
terms and conditions of closing or performance, timing of transaction closings,
discontinuation of investment activities, availability of and costs associated
with obtaining adequate and timely sources of liquidity, dependence on existing
sources of funding, ability to repay or refinance indebtedness (at maturity or
upon acceleration), to meet collateral calls by lenders (upon re-valuation of
the underlying assets or otherwise) and to generate revenues sufficient to meet
debt service payments and other operating expenses, size of, nature of and
yields available with respect to the secondary market for mortgage loans and
financial, securities and securitization markets in general, allowances for loan
losses, geographic concentrations of assets (temporary or otherwise), timely
leasing of unoccupied square footage (generally and upon lease expiration),
changes in real estate conditions (including liquidity, valuation, revenues,
rental rates, occupancy levels and competing properties), adequacy of insurance
coverage in the event of a loss, known or unknown environmental conditions,
external management, other factors generally understood to affect the real
estate acquisition, mortgage and leasing markets and securities investments, and
other risks detailed from time to time in the Company's reports and filings with
the Commission, including its periodic reports on Forms 10-Q, 8-K, and 10-K and
Exhibit 99.2, Risk Factors, filed with the Company's 1999 Form 10-K. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company does not undertake, and specifically disclaims any
obligation, to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
4.1 Form of Common Stock certificate (1)
4.2 Form of Indenture between the Company and Norwest Bank
Minnesota, National Association, as Trustee thereunder
for the 11.5% Redeemable Notes due 2005 (2)
10.1 First Amended and Restated Management Agreement (3)
10.2 Third Amended and Restated Agreement of Limited
Partnership of Ocwen Partnership L.P. (3)
10.3 Loan Agreement, dated as of April 7, 1998, between OAIC
Bush Street, LLC and Salomon Brothers Realty Corp. (4)
10.4 Loan Agreement, dated as of April 24, 1998, between OAC
and Greenwich Financial Products Inc. (3)
10.5 Amended and Restated Loan Agreement, dated as of June 10,
1998, by and among, inter alia, OAIC California
Partnership, L.P., OAIC California Partnership II, L.P.,
Salomon Brothers Realty Corp. and LaSalle National Bank
(3)
10.6 Second Extension of Term Agreement (1)
10.7 Compensation and Indemnification Agreement, dated as of
May 6, 1999, between the Company and the independent
committee of the Board of Directors (5)
10.8 First Amendment to Loan Agreement and Guaranty, dated as
of July 9, 1999, made by and among OAIC Bush Street, LLC,
Salomon Brothers Realty Corp, and Ocwen Partnership,
L.P., and La Salle Bank National Association (5)
10.9 Second Amendment to Guarantee of Payment, dated as of
July 9, 1999, made by and between Salomon Brothers Realty
Corp. and Ocwen Partnership, L.P. (5)
10.10 Indemnity agreement, dated August 24, 1999, among OCN,
and the Company's directors (5) 10.11 First Amendment to
Agreement, dated March 30, 2000 between HCT and OAIC
(filed herewith)
27 Financial Data Schedule for the period ended March 31,
2000 (filed herewith)
99.1 Investment Guidelines (2)
99.2 Risk Factors (1)
================================================================================
(1) Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-4 (File No. 333-64047), as amended,
as declared effective by the Commission on February 12,
1999.
(3) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1998.
(4) Incorporated by reference to the Current Report on Form
8-K filed by the Company with the Commission on April 23,
1998.
(5) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1999.
(b) Reports on Form 8-K filed during the quarter ended March 31, 2000:
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
OCWEN ASSET INVESTMENT CORP.
By: /s/ MARK S. ZEIDMAN
------------------------------------------------------
Mark S. Zeidman
Senior Vice President and Chief Financial Officer
(On behalf of the Registrant and as its principal
financial officer)
Date: May 15, 2000
19
690 MARKET STREET
AGREEMENT OF PURCHASE AND SALE
This Agreement, dated as of March 30, 2000 (the "Effective Date"), is
between OAIC California Partnership II, L.P., a California limited partnership
("Seller"), and HCT Investments, Inc., a Colorado corporation ("Buyer").
ARTICLE I
PURCHASE AND SALE OF PROPERTY
SECTION 1.1 SALE.
Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, subject to the terms, covenants and conditions set forth herein, that
certain real property located at 690 Market Street, San Francisco, CA 94103,
together with any and all rights, privileges and easements appurtenant thereto
owned by Seller, which real property will be more particularly described in an
EXHIBIT A which will be delivered by Seller to Buyer within five (5) business
days after the mutual execution and delivery hereof and which at that time will
be attached hereto and made a part hereof, together with Seller's interest in
the improvements located on the Real Property (collectively the "Real
Property"), Seller's interest in any leases relating to the Real Property and
the personal property owned by Seller, if any, located on the Real Property and
used exclusively in the operation or maintenance of the Real Property, as the
same may be further described in any list which is in Seller's possession and is
furnished to Buyer within the Delivery Period as defined in Section 2.1(a) below
but excluding any such personal property in Seller's property management office,
if any, on the Real Property (the "Personal Property"). The Real Property and
Personal Property are collectively referred to herein as the "Property".
SECTION 1.2 PURCHASE PRICE.
(A) The purchase price of the Property is Twenty-Eight
Million Dollars ($28,000,000) (the "Purchase Price").
(B) The Purchase Price shall be paid as follows:
(1) Upon the execution of this Agreement Buyer shall
pay directly to Seller cash or other immediately available funds in the amount
of One Hundred Thousand Dollars ($100,000) and if in the event Buyer has not
terminated this Agreement, then no later than the tenth (10th) day after the
Effective Date, Buyer shall pay directly to Seller, cash or other immediately
available funds, an additional amount of One Hundred Thousand Dollars ($100,000)
(the initial $100,000 payment together, with the $100,000 due upon the Execution
Date are collectively referred to herein as the "Nonrefundable Payment"). The
Nonrefundable Payment shall be fully and completely earned by Seller as
consideration for entering into this Agreement with Buyer and for not marketing
the Property further prior to entering into an agreement with a potential
<PAGE>
purchaser of the Property, and the Nonrefundable Payment shall only be
refundable as specifically provided in Section 1.2(b)(3) below and shall
otherwise not be refundable under any circumstances. No interest shall accrue or
be payable on the Nonrefundable Payment. If the Closing occurs, then the
Nonrefundable Payment (as defined below) shall be credited against the Purchase
Price.
(2) If at the end of the Contingency Period Buyer
elects to proceed with the purchase of the Property Buyer shall deposit in
escrow with Chicago Title Insurance Company (the "Title Company") an all-cash
payment in the amount of One Million Two Hundred Thousand Dollars ($1,200,000)
(the "Deposit").
(3) THE DEPOSIT SHALL BE HELD IN AN INTEREST BEARING
ACCOUNT AND ALL INTEREST THEREON SHALL BE DEEMED A PART OF THE DEPOSIT. IF THE
SALE OF THE PROPERTY AS CONTEMPLATED HEREUNDER IS CONSUMMATED, THEN THE DEPOSIT
SHALL BE PAID TO SELLER AT THE CLOSING AND CREDITED AGAINST THE PURCHASE PRICE.
IF THE SALE OF THE PROPERTY IS NOT CONSUMMATED DUE TO SELLER'S DEFAULT
HEREUNDER, EXCEPT AS PROVIDED IN SECTION 1.2(B)(4) BELOW, THEN, AS BUYER'S SOLE
REMEDY, BUYER MAY TERMINATE THIS AGREEMENT AND RECEIVE A REFUND OF THE DEPOSIT,
INCLUDING, WITHOUT LIMITATION, THE ADDITIONAL DEPOSIT, AND THE NONREFUNDABLE
PAYMENT, IN WHICH EVENT NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR
OBLIGATIONS HEREUNDER EXCEPT AS PROVIDED IN SECTIONS 6.1, 9.3 AND 9.8 BELOW. IF
THE SALE IS NOT CONSUMMATED FOR ANY REASON OTHER THAN DUE TO A DEFAULT BY SELLER
HEREUNDER, THEN SELLER SHALL RETAIN THE NONREFUNDABLE PAYMENT AND THE DEPOSIT,
INCLUDING, WITHOUT LIMITATION, THE ADDITIONAL DEPOSIT, AS LIQUIDATED DAMAGES.
THE PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE
TO CONSUMMATE THIS SALE DUE TO BUYER'S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR
IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT,
CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE
AMOUNT OF THE NONREFUNDABLE PAYMENT AND THE DEPOSIT IS A REASONABLE ESTIMATE OF
THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS
BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE
ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT
THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES
PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER'S OBLIGATIONS UNDER
SECTIONS 6.1, 9.3 AND 9.8.
INITIALS: SELLER ________ BUYER _______
(4) In the event the sale is not consummated because
Seller, prior to the Closing Date, has sold the Property to a third party in
default of Seller's obligations hereunder, the parties have agreed that Buyer's
actual damages, in the event that Seller sells the Property a third party, would
be extremely difficult or impracticable to determine. After negotiation, the
parties have agreed that, considering all the circumstances existing on the date
of this Agreement, the amount of $1,200,000 is a reasonable estimate of the
damages that Buyer would incur in such event. By placing their initials below,
each party specifically confirms the accuracy of the statements made above and
the fact that each party was represented by counsel who explained, at the time
this Agreement was made, the consequences of this liquidated damages provision.
The foregoing is not intended to limit Buyer's obligations under Sections 6.1,
9.3 and 9.8.
2
<PAGE>
INITIALS: SELLER ________ BUYER _______
(5) The balance of the Purchase Price, which is
Twenty-Six Million Six Hundred Thousand Dollars ($26,600,000) shall be paid to
Seller all in cash at the consummation of the purchase and sale contemplated
hereunder (the "Closing").
ARTICLE II
CONDITIONS
SECTION 2.1 CONDITION PRECEDENT.
Buyer's obligation to purchase the Property is conditioned upon the
following:
(A) Buyer's review and approval of updated preliminary
title report, together with copies of the underlying documents, and any survey
of the Property in Seller's possession. Seller shall furnish to Buyer a copy of
such report, together with the underlying documents, a copy of Seller's title
policy for the Property with the amount of title policy deleted, and any survey
in Seller's possession, within five (5) days after the date Seller receives a
fully executed original of this Agreement (the "Delivery Period").
(B) Buyer's review and approval of all tenant leases and
any other occupancy agreements (hereinafter collectively referred to as the
"leases") affecting the Property. Seller shall furnish to Buyer copies of the
leases within the Delivery Period.
(C) Buyer's review and approval of the physical condition
of the Property.
(D) Buyer's review and approval of all zoning, land use,
building, environmental and other statutes, rules, or regulations applicable to
the Property.
(E) Subject to the provisions of the paragraph below,
Buyer's review and approval of operating statements with respect to the Property
for 1999 and for the first two (2) months of 2000, certificates of occupancy,
plans and specifications, soils and other reports, service contracts, property
management files and other contracts or documents which will be binding on Buyer
after Closing. Seller shall make available to Buyer within the Delivery Period
copies of all such items in Seller's possession solely for Buyer's inspection
during reasonable business hours, including Buyer's access to confer with
Seller's contractors. Notwithstanding the foregoing, Buyer's review shall not
include a review of Seller's internal economic memoranda or reports,
attorney-client privileged materials or Seller's appraisals of the Property, if
any.
(F) Buyer's review and approval of any other matters
Buyer deems relevant to the Property.
SECTION 2.2 CONTINGENCY PERIOD.
Buyer shall have until the date which is thirty (30) days after the
date hereof (such period being referred to herein as the "Contingency Period")
to review and approve the matters described in Sections 2.1(a)-(f) above in
Buyer's sole discretion. If Buyer determines to proceed with the purchase of the
3
<PAGE>
Property, then Buyer shall, before the end of the Contingency Period, notify
Seller in writing that Buyer has approved all of the matters described in
Section 2.1(a)-(f) above, including, without limitation, all documents,
agreements, surveys, reports and other items and materials delivered to or made
available to Buyer in connection with this Agreement (the "Due Diligence
Materials"). If before the end of the Contingency Period Buyer fails to give
Seller such written notice, then Buyer shall be deemed to have elected to
proceed with the purchase of the Property and shall place the Deposit in escrow
with the Title Company pursuant to Section 1.2(b)(2) above. If, however, Buyer
notifies Seller in writing prior to the end of the Contingency Period of Buyer's
termination of this Agreement, then this Agreement shall so terminate and the
Nonrefundable Payment shall be retained by Seller and neither party shall have
any further rights or obligations hereunder except as provided in Sections 6.1,
9.3 and 9.8 below.
ARTICLE III
BUYER'S EXAMINATION
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER.
Subject to the provisions of Sections 3.2 and 3.3 below, Seller hereby
makes the following representations and warranties with respect to the Property,
provided that Seller makes no representations or warranties with respect to the
matters (the "Disclosure Items") which are set forth in SCHEDULE 1 attached
hereto and made a part hereof. Notwithstanding anything to the contrary
contained herein or in any document delivered in connection herewith, Seller
shall have no liability with respect to the Disclosure Items; provided, however,
Seller shall reimburse Buyer for any claims against Buyer solely with respect to
the litigation matter set forth as Disclosure Item #2 in SCHEDULE 1 and those
other matters in SCHEDULE 1 specifically assumed by Seller as set forth therein.
(A) Seller has not (i) made a general assignment for the
benefit of creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by Seller's creditors, (iii)
suffered the appointment of a receiver to take possession of all, or
substantially all, of Seller's assets, (iv) suffered the attachment or other
judicial seizure of all, or substantially all, of Seller's assets, (v) admitted
in writing its inability to pay its debts as they come due, or (vi) made an
offer of settlement, extension or composition to its creditors generally.
(B) Seller is not a "foreign person" as defined in
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code") and
any related regulations.
(C) This Agreement (i) has been duly authorized, executed
and delivered by Seller, and (ii) does not violate any provision of any
agreement or judicial order to which Seller is a party or to which Seller or the
Property is subject.
(D) Seller has the power and authority to enter into this
Agreement and to perform its obligations hereunder.
(E) The only tenant leases and amendments thereto in
force for the Property will be set forth in a tenant list which is attached
hereto as EXHIBIT B and made a part hereof. Seller represents that to the best
4
<PAGE>
of Seller's knowledge, the rent roll attached as EXHIBIT B is true and accurate
in all material respects. The only tangible personal property that shall be
delivered to Buyer at Closing is set forth in EXHIBIT G attached hereto. The
only service contracts that affect the Property are set forth in EXHIBIT H
attached hereto. The only Construction Contracts that affect the Property are
set forth in EXHIBIT F attached hereto.
(F) To the best of Seller's knowledge, there is no
litigation pending with respect to the Property other than as set forth in
SCHEDULE 1.
(G) To the best of Seller's knowledge, except as set
forth in SCHEDULE 1 or as may be disclosed in Due Diligence Materials, Seller
has received no written notice from any governmental authority that the present
use and operation of the Property is in violation of any of the applicable law
that has not been cured (including, without limitation), (i) the Americans with
Disabilities Act ("ADA"), Title 24 of the California Administrative Code, and
other similar federal, state and local laws , (ii) building codes and any other
laws relating to the construction or design of the improvements on the Property,
including, without limitation, fire, safety, handicapped access, or seismic
design (collectively, "Building Codes"), and (iii) any laws relating to
environmental matters (the "Environmental Laws").
(H) Gregory Breskin, Vice President, and William
Stolberg, Senior Asset Manager, are the two (2) individuals of Seller who are
the most knowledgeable regarding the operation of the Property.
(I) Seller has provided to Buyer a copy of Seller's title
policy for the Property and except for tax liens for the period prior to Closing
which shall be satisfied prior to Closing by Seller, current taxes and
assessments, current leases affecting the Property to the best of Seller's
knowledge, there are no additional exceptions or survey matters that affect the
Property other than those shown on the title policy.
(J) Seller, without making any representation or warranty
as to the truth or accuracy of the operating statements, has delivered copies of
Seller's operating statements affecting the Property for the periods through
year-end 1998, year-end 1999 and January-February, 2000.
Each of the representations and warranties of Seller contained in this
Section 3.1: (1) is true as of the date of this Agreement; (2) shall be deemed
remade by Seller, and shall be true in all material respects as of the date of
Closing, subject to (A) any Exception Matters (as defined below), (B) the
Disclosure Items, and (C) other matters expressly permitted in this Agreement or
otherwise specifically approved in writing by Buyer including, without
limitation, the Due Diligence Materials; and (3) shall survive the close of
escrow as provided in Section 3.3 below.
SECTION 3.2 NO LIABILITY FOR EXCEPTION MATTERS.
As used herein, the term "Exception Matter" shall refer to a matter
disclosed to Buyer in writing or discovered by Buyer before the Closing, that
would make a representation or warranty of Seller contained in this Agreement
untrue or incorrect, including, without limitation, matters disclosed in writing
to Buyer by Seller or by any other person. If Buyer obtains knowledge of any
Exception Matter after the date hereof, Buyer may terminate this Agreement and
receive a return of the Deposit upon written notice to Seller within five (5)
5
<PAGE>
days after Buyer learns of such Exception Matter if Seller elects not to cure or
remedy any such Exception Matter. Buyer shall promptly notify Seller in writing
of any Exception Matter of which Buyer obtains knowledge before the Closing. If
Buyer obtains knowledge of any Exception Matter before the Closing, but
nonetheless elects to proceed with the acquisition of the Property, Buyer shall
consummate the acquisition of the Property subject to such Exception Matter and
Seller shall have no liability with respect to such Exception Matter,
notwithstanding any contrary provision, covenant, representation or warranty
contained in this Agreement. If Buyer elects to terminate this Agreement on the
basis of any Exception Matter, Buyer shall so notify Seller in writing within
five (5) days following Buyer's discovery of the Exception Matter, and the
Deposit shall be returned to Buyer and the Nonrefundable Payment shall be
retained by Seller. Buyer's failure to give such notice within such five (5) day
period shall be deemed a waiver by Buyer of such Exception Matter. Upon any such
termination of this Agreement, neither party shall have any further rights or
obligations hereunder, except as provided in Sections 6.1, 9.3 and 9.8 below.
Seller shall have no obligation to cure or remedy any Exception Matter, and,
subject to Buyer's right to terminate this Agreement as set forth above, Seller
shall have no liability whatsoever to Buyer with respect to any Exception
Matters.
SECTION 3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Seller and Buyer contained herein
shall survive for a period of six (6) months after the Closing, except that
Buyer's representations and warranties in Sections 3.5(d), (e) and (f) shall
survive indefinitely. Any claim which Buyer or Seller may have at any time
against the other for a breach of any such representation or warranty (other
than those contained in Sections 3.5(d), (e) and (f)), whether known or unknown,
which is not asserted (i) by written notice to Seller or Buyer within such six
(6) month period and (ii) by Seller's or Buyer's filing a legal action with
respect thereto whether such six (6) month period shall not be valid or
effective, and the other party shall have no liability with respect thereto.
SECTION 3.4 SELLER'S KNOWLEDGE.
For purposes of this Agreement and any document delivered at Closing,
whenever the phrase "to the best of Seller's knowledge" or the "knowledge" of
Seller or words of similar import are used, they shall be deemed to refer to the
current actual knowledge of Gregory Breskin, Vice President, and William
Stolberg, Senior Asset Manager, at the times indicated only and not any implied,
imputed or constructive knowledge, without any independent investigation having
been made or any implied duty to investigate.
SECTION 3.5 REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
(A) Buyer represents and warrants to Seller that this
Agreement and all documents executed by Buyer which are to be delivered to
Seller at Closing do not and at the time of Closing will not violate any
provision of any agreement or judicial order to which Buyer is a party or to
which Buyer is subject.
6
<PAGE>
(B) Buyer represents and warrants to Seller that Buyer
has not (i) made a general assignment for the benefit of creditors, (ii) filed
any voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by Buyer's creditors, (iii) suffered the appointment of a receiver to
take possession of all, or substantially all, of Buyer's assets, (iv) suffered
the attachment or other judicial seizure of all, or substantially all, of
Buyer's assets, (v) admitted in writing its inability to pay its debts as they
come due, or (vi) made an offer of settlement, extension or composition to its
creditors generally.
(C) Buyer is duly formed, validly existing and in good
standing under the laws of the State of California. Buyer has duly authorized,
executed and delivered this Agreement.
(D) Buyer is purchasing the Property as investment rental
property, and not for Buyer's own operations or use.
(E) Buyer is not a party in interest with respect to any
employee benefit or other plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or of
Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), which is subject to ERISA or Section 4975 of the Code and which is an
investor in Seller.
(F) Other than Seller's Broker, as defined below, Buyer
has had no contact with any broker or finder with respect to the Property.
Each of the representations and warranties of Buyer contained in this Section
shall be deemed remade by Buyer as of the Closing and shall survive the Closing
as provided in Section 3.3 above.
SECTION 3.6 BUYER'S INDEPENDENT INVESTIGATION.
(A) Buyer acknowledges and agrees that it has been given
or will be given before the end of the Contingency Period, a full opportunity to
inspect and investigate each and every aspect of the Property, either
independently or through agents of Buyer's choosing, including, without
limitation:
(1) All matters relating to title, together with all
governmental and other legal requirements such as taxes, assessments, zoning,
use permit requirements and building codes.
(2) The physical condition and aspects of the
Property, including, without limitation, the interior, the exterior, the square
footage within the improvements on the Real Property and within each tenant
space therein, the structure, seismic aspects of the Property, the paving, the
utilities, and all other physical and functional aspects of the Property. Such
examination of the physical condition of the Property shall include an
examination for the presence or absence of Hazardous Materials, as defined
below, which shall be performed or arranged by Buyer at Buyer's sole expense.
For purposes of this Agreement, "Hazardous Materials" shall mean inflammable
explosives, radioactive materials, asbestos, polychlorinated biphenyls, lead,
lead-based paint, under and/or above ground tanks, hazardous materials,
hazardous wastes, hazardous substances, oil, or related materials, which are
listed or regulated in the Comprehensive Environmental Response, Compensation
7
<PAGE>
and Liability Act of 1980, as amended (42 U.S.C. Sections 6901, et seq.), the
Resources Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et
seq.), the Clean Water Act (33 U.S.C. Section 1251, et seq.), the Safe Drinking
Water Act (14 U.S.C. Section 1401, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801, et seq.), and the Toxic Substance
Control Act (15 U.S.C. Section 2601, et seq.), the California Hazardous Waste
Control Law (California Health and Safety Code Section 25100, et seq.), the
Porter-Cologne Water Quality Control Act (California Water Code Section 13000,
et seq.), and the Safe Drinking Water and Toxic Enforcement Act of 1986
(California Health and Safety Code Section 25249.5, et seq.) and any other
applicable federal, state or local laws.
(3) Any easements and/or access rights affecting the
Property.
(4) The leases and all matters in connection
therewith, including, without limitation, the ability of the tenants to pay the
rent and the economic viability of the tenants.
(5) The service contracts and any other documents or
agreements of significance affecting the Property.
(6) All problems or defects arising out of or in any
way related to whether the Property or the operating systems thereof will
experience any problems or defects as a result of Year 2000 Problems, as defined
below. "Year 2000 Problems" shall mean the failure of computer software and
hardware systems and equipment containing embedded computer chips to correctly
receive, transmit, process, manipulate, store, retrieve, retransmit or utilize
data and information due to the occurrence of the Year 2000 or the inclusion of
dates on or about January 1, 2000.
(7) All other matters of material significance
affecting the Property.
(B) BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT
SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN "AS IS WITH ALL
FAULTS" BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES
OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS
AS TO ANY MATTERS CONCERNING THE PROPERTY EXCEPT AS EXPRESSLY SET FORTH IN
SECTION 3.1 ABOVE, INCLUDING WITHOUT LIMITATION: (i) the quality, nature,
adequacy and physical condition and aspects of the Property, including, but not
limited to, the structural elements, seismic aspects of the Property,
foundation, roof, appurtenances, access, landscaping, parking facilities and the
electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities
and appliances, the square footage within the improvements on the Real Property
and within each tenant space therein, (ii) the quality, nature, adequacy, and
physical condition of soils, geology and any groundwater, (iii) the existence,
quality, nature, adequacy and physical condition of utilities serving the
Property, (iv) the development potential of the Property, and the Property's
use, habitability, merchantability, or fitness, suitability, value or adequacy
of the Property for any particular purpose, (v) the zoning or other legal status
of the Property or any other public or private restrictions on use of the
Property, (vi) the compliance of the Property or its operation with any
applicable codes, laws, regulations, statutes, ordinances, covenants, conditions
and restrictions of any governmental or quasi-governmental entity or of any
8
<PAGE>
other person or entity, (vii) the presence of Hazardous Materials on, under or
about the Property or the adjoining or neighboring property, (viii) the quality
of any labor and materials used in any improvements on the Real Property, (ix)
the condition of title to the Property, (x) the leases, service contracts, or
other agreements affecting the Property (xi) the problems or defects arising out
of or in any way related to the Year 2000 Problems, and (xii) economics of the
operation of the Property.
BUYER INITIALS:
SECTION 3.7 RELEASE.
(A) Without limiting the above, and except for the
representations and warranties of Seller contained in Section 3.1 hereof and
Seller's covenants specifically set forth in this Agreement but subject to the
limitations and qualifications set forth herein as such representations,
warranties and covenants, Buyer on behalf of itself and its successors and
assigns waives its right to recover from, and forever releases and discharges,
Seller, Seller's affiliates, Seller's investment manager, the partners,
trustees, beneficiaries, shareholders, members, directors, officers, employees
and agents of each of them, and their respective heirs, successors, personal
representatives and assigns (collectively, the "Seller Related Parties"), from
any and all demands, claims, legal or administrative proceedings, losses,
liabilities, damages, penalties, fines, liens, judgments, costs or expenses
whatsoever (including, without limitation, attorneys' fees and costs), whether
direct or indirect, known or unknown, foreseen or unforeseen, that may arise on
account of or in any way be connected with the Property, this Agreement, and the
transactions contemplated hereby, including, without limitation, (i) the
physical condition of the Property including, without limitation, all structural
and seismic elements, all mechanical, electrical, plumbing, sewage, heating,
ventilating, air conditioning and other systems, the environmental condition of
the Property and Hazardous Materials on, under or about the Property, (ii) any
law or regulation applicable to the Property, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 6901, et seq.), the Resources Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), the Clean Water Act (33
U.S.C. Section 1251, et seq.), the Safe Drinking Water Act (14 U.S.C. Section
1401, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section
1801, et seq.), and the Toxic Substance Control Act (15 U.S.C. Section 2601, et
seq.), the California Hazardous Waste Control Law (California Health and Safety
Code Section 25100, et seq.), the Porter-Cologne Water Quality Control Act
(California Water Code Section 13000, et seq.), and the Safe Drinking Water and
Toxic Enforcement Act of 1986 (California Health and Safety Code Section
25249.5, et seq.) and any other federal, state or local law and (iii) problems
or defects arising out of or in any way related to Year 2000 Problems.
(B) In connection with Section 3.7(a) above, Buyer
expressly waives the benefits of Section 1542 of the California Civil Code,
which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
9
<PAGE>
BUYER INITIALS:
SECTION 3.8 SURVIVAL.
The provisions of this Article III shall survive the Closing subject to
the limitations and qualifications contained in such provisions.
ARTICLE IV
TITLE
SECTION 4.1 CONDITIONS OF TITLE.
At the Closing, Seller shall convey title to the Property to Buyer by
grant deed (the "Deed") subject to no exceptions other than:
(A) Interests of tenants in possession;
(B) Non-delinquent liens for real estate taxes and
assessments; and
(C) Any exceptions disclosed by the preliminary title
report and any amendments or supplements thereto, the public records or the Due
Diligence Materials, and any other exceptions to title which would be disclosed
by an inspection and/or survey of the Property.
All of the foregoing exceptions shall be referred to collectively as the
"Conditions of Title." By acceptance of the Deed and the Closing of the purchase
and sale of the Property, (i) Buyer agrees it is assuming for the benefit of
Seller all of the obligations of Seller with respect to the Conditions of Title
from and after the Closing, and (ii) Buyer agrees that Seller shall have
conclusively satisfied its obligations with respect to title to the Property.
The provisions of this Section shall survive the Closing.
SECTION 4.2 EVIDENCE OF TITLE.
Delivery of title in accordance with the foregoing shall be evidenced
by the willingness of the Title Company to issue, at Closing, its Owner's ALTA
Policy of Title Insurance in the amount of the Purchase Price showing title to
the Real Property vested in Buyer, subject to the Conditions of Title (the
"Title Policy"). Buyer shall have prepared, at Buyer's cost, the ALTA survey of
the Property necessary to support the issuance of the Title Policy. Buyer shall
provide Seller with a copy of such survey at no cost to Seller.
10
<PAGE>
ARTICLE V
RISK OF LOSS AND INSURANCE PROCEEDS
SECTION 5.1 MINOR LOSS.
Buyer shall be bound to purchase the Property for the full Purchase
Price as required by the terms hereof, without regard to the occurrence or
effect of any damage to the Property or destruction of any improvements thereon
or condemnation of any portion of the Property, provided that: (a) the cost to
repair any such damage or destruction, or the diminution in the value of the
remaining Property as a result of a partial condemnation, does not exceed Five
Hundred Thousand Dollars ($500,000) and (b) upon the Closing, there shall be a
credit against the Purchase Price due hereunder equal to the amount of any
insurance proceeds or condemnation awards collected by Seller as a result of any
such damage or destruction or condemnation, plus the amount of any insurance
deductible, less any sums expended by Seller toward the restoration or repair of
the Property. If the proceeds or awards have not been collected as of the
Closing, then such proceeds or awards shall be assigned to Buyer, except to the
extent needed to reimburse Seller for sums expended to repair or restore the
Property, and Seller shall retain the rights to such proceeds and awards. Prior
to Closing, Seller shall not cancel any existing insurance coverage on the
Property, nor shall it modify any blanket coverage insurance affecting the
Property without giving Buyer prior written notice.
SECTION 5.2 MAJOR LOSS.
If the amount of the damage or destruction or condemnation as specified
above exceeds Five Hundred Thousand Dollars ($500,000), then Buyer may, at its
option to be exercised within five (5) days of Seller's notice of the occurrence
of the damage or destruction or the commencement of condemnation proceedings,
either terminate this Agreement or consummate the purchase for the full Purchase
Price as required by the terms hereof. If Buyer elects to terminate this
Agreement or fails to give Seller notice within such five (5) day period that
Buyer will proceed with the purchase, then the Deposit shall be returned to
Buyer, the Nonrefundable Payment shall be retained by Seller, and neither party
shall have any further rights or obligations hereunder except as provided in
Sections 6.1, 9.3 and 9.8 below. If Buyer elects to proceed with the purchase,
then upon the Closing, there shall be a credit against the Purchase Price due
hereunder equal to the amount of any insurance proceeds or condemnation awards
collected by Seller as a result of any such damage or destruction or
condemnation, plus the amount of any insurance deductible, less any sums
expended by Seller toward the restoration or repair of the Property. If the
proceeds or awards have not been collected as of the Closing, then such proceeds
or awards shall be assigned to Buyer, except to the extent needed to reimburse
Seller for sums expended to repair or restore the Property, and Seller shall
retain the rights to such proceeds and awards.
ARTICLE VI
BROKERS AND EXPENSES
SECTION 6.1 BROKERS.
The parties represent and warrant to each other that no broker or
finder was instrumental in arranging or bringing about this transaction except
for Grubb & Ellis Company ("Seller's Broker"). At Closing, Seller shall pay the
commission due, if any, to Seller's Broker, which shall be paid pursuant to a
separate agreement between Seller and Seller's Broker. If any other person
11
<PAGE>
brings a claim for a commission or finder's fee based upon any contact, dealings
or communication with Buyer or Seller, then the party through whom such person
makes his claim shall defend the other party (the "Indemnified Party") from such
claim, and shall indemnify the Indemnified Party and hold the Indemnified Party
harmless from any and all costs, damages, claims, liabilities or expenses
(including without limitation, reasonable attorneys' fees and disbursements)
incurred by the Indemnified Party in defending against the claim. The provisions
of this Section 6.1 shall survive the Closing or, if the purchase and sale is
not consummated, any termination of this Agreement.
SECTION 6.2 EXPENSES.
Except as provided in Sections 4.2 above and 8.5(b) below, each party
hereto shall pay its own expenses incurred in connection with this Agreement and
the transactions contemplated hereby.
ARTICLE VII
LEASES AND OTHER AGREEMENTS
SECTION 7.1 BUYER'S APPROVAL OF NEW LEASES AND AGREEMENTS
AFFECTING THE PROPERTY.
Between the date of this Agreement and the Closing, Seller shall not
enter into any new lease or other agreement affecting the Property, or modify or
terminate any existing lease or other agreement affecting the Property, without
first obtaining Buyer's approval, which will not be unreasonably withheld or
delayed. If Buyer fails to give Seller notice of its approval or disapproval of
any such proposed action within three (3) business days after Seller notifies
Buyer of Seller's desire to take such action, then Buyer shall be deemed to have
given its approval.
SECTION 7.2 TENANT IMPROVEMENT COSTS, LEASING COMMISSIONS AND
FREE RENT.
With respect to any new lease or lease modification entered into by
Seller between the date of this Agreement and the Closing Date, and with respect
to any renewal or extension of any lease occurring between the date of this
Agreement and the Closing Date, if Seller performs or pays or contracts for any
tenant improvement work, pays or contracts for any leasing commissions before
the Closing, incurs any legal fees or costs or grants any free rent period, then
at Closing, Buyer shall reimburse Seller for all such expenses and for any free
rent period occurring prior to Closing, and shall assume pursuant to the
Assignment of Leases acceptable to Seller any and all obligations outstanding
with respect to tenant improvements and leasing commissions. To the extent there
are any construction contracts for base building improvements or tenant
improvement work for the current term of any Leases in effect as of the date of
this Agreement ("Construction Contracts") then Buyer shall assume, pursuant to
an assignment and assumption agreement acceptable to Seller, all such contracts
and Buyer shall received a credit against the Purchase Price for all such unpaid
costs related thereto. A schedule of the Construction Contracts is attached
hereto as EXHIBIT F. On and after the Closing, Seller shall have no further
obligations with respect to any leases or other agreements affecting the
Property, including, without limitation, the Construction Contracts, tenant
improvement work, leasing commissions and free rent. The provisions of this
Section shall survive the Closing.
12
<PAGE>
SECTION 7.3 TENANT NOTICES.
Buyer hereby expressly agrees, confirms and acknowledges that Buyer
shall immediately after Closing deliver to each tenant of the Property, a signed
statement acknowledging that Buyer is the new owner of the Property and that
Buyer has received and is responsible for all such tenants' security deposits
providing an exact dollar amount of each security deposit. Buyer also hereby
expressly agrees, confirms and acknowledges that Buyer shall be liable for (and
Buyer hereby expressly assumes all liability for) all such security deposits
that are transferred from Seller to Buyer regardless of whether notice is given
to the tenant of the Property in accordance with the provisions of this Section
7.3. The provisions of this Section 7.3 shall survive the Closing.
ARTICLE VIII
CLOSING AND ESCROW
SECTION 8.1 ESCROW INSTRUCTIONS.
Upon execution of this Agreement, the parties hereto shall deposit an
executed counterpart of this Agreement with the Title Company, and this
instrument shall serve as the instructions to the Title Company as the escrow
holder for consummation of the purchase and sale contemplated hereby. Seller and
Buyer agree to execute such reasonable additional and supplementary escrow
instructions as may be appropriate to enable the Title Company to comply with
the terms of this Agreement; provided, however, that in the event of any
conflict between the provisions of this Agreement and any supplementary escrow
instructions, the terms of this Agreement shall control.
SECTION 8.2 CLOSING.
The Closing hereunder shall be held and delivery of all items to be
made at the Closing under the terms of this Agreement shall be made at the
offices of the Title Company on the date which is thirty (30) days after the end
of the Contingency Period and before 1:00 p.m. local time, or such other date
and time as Buyer and Seller may mutually agree upon in writing (the "Closing
Date"). Such date and time may not be extended without the prior written
approval of both Seller and Buyer. Buyer shall have the one (1) time option to
extend the Closing Date for an additional thirty (30) days, provided that within
five (5) days prior to the original Closing Date, Buyer (a) pays directly to
Seller, cash or other immediately available funds in the amount of Five Hundred
Thousand Dollars ($500,000) (the "Additional Deposit") and (b) gives Seller
written notice of its option to extend for an additional thirty (30) days. Such
Additional Deposit shall be deemed as part of the Deposit, as such term is
defined in Section 1.2(b)(3). No interest shall be paid on the Additional
Deposit. The Additional Deposit shall be fully and completely earned by the
Seller for granting such 30 day extension and the Additional Deposit shall only
be refundable as specifically provided in Section 1.2(b)(3) herein and shall
otherwise not be refundable under any circumstances.
13
<PAGE>
SECTION 8.3 DEPOSIT OF DOCUMENTS.
(A) At or before the Closing, Seller shall deposit into
escrow the following items:
(1) the duly executed and acknowledged Deed
conveying the Real Property to Buyer subject to the Conditions of Title;
(2) four (4) duly executed counterparts of the Bill
of Sale in the form attached hereto as EXHIBIT C (the "Bill of Sale");
(3) four (4) duly executed counterparts of an
Assignment and Assumption of Leases, Service Contracts and Warranties in the
form attached hereto as EXHIBIT D pursuant to the terms of which Buyer shall
assume all of Seller's obligations under the leases, equipment leases, service
contracts, leasing commission agreements and tenant improvement agreements
affecting the Property (the "Assignment of Leases");
(4) an affidavit pursuant to Section 1445(b)(2) of
the Federal Code, and on which Buyer is entitled to rely, that Seller is not a
"foreign person" within the meaning of Section 1445(f)(3) of the Federal Code;
and
(5) California 590 Certificate.
(B) At or before Closing, Buyer shall deposit into escrow
the following items:
(1) funds necessary to close this transaction;
(2) four (4) duly executed counterparts of the Bill
of Sale; and
(3) four (4) duly executed counterparts of the
Assignment of Leases.
(C) Seller and Buyer shall each deposit such other
instruments as are reasonably required by the Title Company or otherwise
required to close the escrow and consummate the acquisition of the Property in
accordance with the terms hereof. Seller and Purchaser hereby designate Title
Company as the "Reporting Person" for the transaction pursuant to Section
6045(e) of the Internal Revenue Code and the regulations promulgated thereunder
and agree to execute such documentation as is reasonably necessary to effectuate
such designation.
(D) Seller shall deliver to Buyer originals of the
leases, copies of the tenant correspondence files and originals of any other
items which Seller was required to furnish Buyer copies of or make available at
the Property pursuant to Section 2.1(e) above, except for Seller's general
ledger and other internal books or records which shall be retained by Seller,
within five (5) business days after the Closing Date. Seller shall deliver to
Buyer a set of keys to the Property on the Closing Date.
14
<PAGE>
SECTION 8.4 ESTOPPEL CERTIFICATES.
(A) If in accordance with Article II of this Agreement
Buyer elects to proceed with the purchase of the Property, then Seller shall use
its reasonable efforts to obtain estoppel certificates from each tenant of the
Property in the form attached hereto as EXHIBIT E or, if a tenant's lease
requires a different form, in the form required by the tenant's lease. It shall
be a condition to Buyer's obligation to close the sale and purchase of the
Property that on or before the Closing, Buyer is able to obtain an estoppel
certificate in the form described above from each of Washington Mutual and Menke
Associates and the other tenants occupying seventy percent (70%) (the "Required
Percentage") of the remaining area of the Property actually rented to tenants.
(B) If in accordance with Article II of this Agreement,
Buyer elects to proceed with the purchase of the Property, Seller shall use its
reasonable efforts to obtain a subordination non-disturbance and attornment
agreements from the tenants; provided however, Seller's failure to obtain
subordination non-disturbance and attornment agreements from the tenants shall
not be a condition to Closing.
(C) If the condition contained in Section 8.4(a) above is
not satisfied, then Buyer may, by written notice given to Seller before the
Closing, elect to terminate this Agreement and receive a refund of the Deposit
or waive said condition. If Buyer so elects to terminate this Agreement, the
Nonrefundable Payment shall be retained by Seller and neither party shall have
any further rights or obligations hereunder except as provided in Section 6.1
above and Sections 9.3 and 9.8 below.
SECTION 8.5 PRORATIONS.
(A) Rents, including, without limitation, percentage
rents, if any, and any additional charges and expenses payable under tenant
leases, all as and when actually collected (whether such collection occurs prior
to, on or after the Closing Date); real property taxes and assessments; water,
sewer and utility charges; amounts payable under any service contracts; annual
permits and/or inspection fees (calculated on the basis of the period covered);
and any other expenses of the operation and maintenance of the Property
(including, without limitation, expenses already paid by Seller but which are
being amortized over time by Seller and with respect to which Seller shall
receive a credit at Closing in the amount of the unamortized portion thereof),
shall all be prorated as of 12:01 a.m. on the date the Deed is recorded, on the
basis of a 365-day year. Buyer shall reimburse Seller for the tenant improvement
costs, leasing commissions, legal fees and costs and free rent, as provided in
Section 7.2. Any sums collected by Buyer from tenants after the Closing shall be
deemed to apply to rents and other sums that were delinquent at Closing and
shall be promptly paid to Seller, and the remainder shall be retained by Buyer
to apply to current obligations. Buyer shall use reasonable efforts to collect
such delinquent rents and Buyer shall be entitled to reimbursement for all
reasonable actual costs incurred by Buyer in collecting such delinquent rents
from the amounts collected therefor by Buyer. Seller retains the rights to
collect any such delinquent rents from tenants after Closing. The amount of any
security deposits under tenant leases shall be credited against the Purchase
Price. Security deposits in the form of letters of credit shall either be
reissued in the name of Buyer at Closing, or Seller shall assign its rights
therein to Buyer at Closing, and will reasonably cooperate with Buyer post
Closing, at no expense to Seller, to facilitate the transfer to Buyer. Seller
15
<PAGE>
shall use reasonable efforts to cause all security deposits in the form of
letters of credit to be amended or reissued in the name of Buyer as soon as
possible after the Closing, and Buyer shall cooperate with Seller in such
efforts. Upon delivery to Buyer of the reissued or amended letter of credit,
Seller's obligations with respect to such letter of credit shall immediately
terminate, and, from and after such delivery of the reissued or amended letter
of credit, Buyer shall indemnify Seller and hold harmless and defend Seller from
and against any and all claims, damages, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees) arising out of the
letter of credit. Seller shall receive credits at Closing for the amount of any
utility or other deposits with respect to the Property. Seller shall use
reasonable efforts to cause all security deposits in the forms of letters of
credit or certificates of deposit to be amended or reissued in the name of Buyer
as soon as possible after the Closing, and Buyer shall cooperate with Seller in
such efforts. It shall be Buyer's responsibility to transfer utility service for
the Property as of the Closing Date. Buyer agrees to release, indemnify and hold
Seller harmless from all claims, liability, costs or expenses arising out of or
relating to the utility service for the Property after the Closing Date. Seller
shall be entitled to credit for all deposits made by it with any company
providing utility service. The indemnification obligation herein shall survive
Closing. Seller reserves all right, title and interest in any refund obtained
from any taxing authority as a result of a pending tax appeal made by Seller
prior to the date of Closing; provided, however, Seller shall remit to Buyer,
the proportionate share owed to tenants for amounts in excess of amounts
previously paid by such tenants attributable to the period of Seller's ownership
of the Property. Seller and Buyer hereby agree that if any of the aforesaid
prorations and credits cannot be calculated accurately on the Closing Date, then
the same shall be calculated as soon as reasonably practicable after the Closing
Date, but no later than March 31, 2001, and either party owing the other party a
sum of money based on such subsequent proration(s) or credits shall promptly pay
said sum to the other party.
(B) Seller shall pay one-half (1/2) of the escrow fee,
any county transfer taxes applicable to the sale, and one-half (1/2) of any
other transfer taxes applicable to the sale. Buyer shall pay the costs of
obtaining the ALTA title insurance policy, the cost of any endorsements,
one-half (1/2) of any transfer taxes applicable to the sale other than county
transfer taxes and one-half (1/2) of the escrow fee. Recording charges and any
other expenses of the escrow for the sale shall be paid by Buyer and Seller in
accordance with customary practice as determined by the Title Company.
(C) The provisions of this Section 8.5 shall survive the
Closing.
SECTION 8.6 COMPLIANCE WITH COMMERCIAL WATER CONSERVATION ORDINANCE.
The City and County of San Francisco has adopted a Commercial Water Conservation
Ordinance ("CWCO") pursuant to which commercial buildings in San Francisco are
subject to certain water conservation requirements. In the event that Buyer
approves the Property at the conclusion of the Contingency Period, Buyer, at its
sole cost and expense, agrees to be responsible for compliance with CWCO in
accordance with Chapter 13A of the San Francisco Building Code.
16
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NOTICES.
Any notices required or permitted to be given hereunder shall be given
in writing and shall be delivered (a) in person, (b) by certified mail, postage
prepaid, return receipt requested, (c) by facsimile with confirmation of
receipt, or (d) by a commercial overnight courier that guarantees next day
delivery and provides a receipt, and such notices shall be addressed as follows:
To Buyer: HCT Investments, Inc.
1411 Harbor Bay Parkway, #1000
Alameda, CA 94502
Attention: James I. Hunter
Telephone: (510) 337-7999, ext. 103
Fax No.: (510) 337-7998
with a copy to: LeBoeuf, Lamb, Greene & MacRae
633 17th Street, Suite 200
Denver, CO 80202
Attention: Keith M. Pockross, Esq.
Telephone: (303) 291-2600
Fax No.: (303) 297-0422
To Seller: Ocwen Financial Corporation
1675 W. Palm Beach Lakes Blvd., Suite 900
West Palm Beach, FL 33401
Attention: Secretary
Telephone: (561) 882-8559
Fax No. (561) 681-8174
with a copy to: Ocwen Capital Corporation
1675 W. Palm Beach Lakes Blvd.
The Forum, Suite 400
West Palm Beach, FL 33401
Attention: William H. Stolberg and Todd Reed, Esq.
Telephone: (561) 682-8000
Fax No. (561) 682-8163
with a copy to: Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, CA 94111
Attention: Michael H. Liever, Esq.
Telephone: (415) 773-5808
Fax No.: (415) 773-4285
To Title Company: Chicago Title Company
388 Market Street, Suite 1300
San Francisco, CA 94111
Attention: Nikki Carr
Fax No. (415) 434-2176
17
<PAGE>
or to such other address as either party may from time to time specify in
writing to the other party. Any notice shall be effective only upon delivery.
SECTION 9.2 ENTIRE AGREEMENT.
This Agreement, together with the Exhibits hereto, contains all
representations, warranties and covenants made by Buyer and Seller and
constitutes the entire understanding between the parties hereto with respect to
the subject matter hereof. Any prior correspondence, memoranda or agreements are
replaced in total by this Agreement together with the Exhibits hereto.
SECTION 9.3 ENTRY AND INDEMNITY.
In connection with any entry by Buyer, or its agents, employees or
contractors onto the Property, Buyer shall give Seller reasonable advance notice
of such entry and shall conduct such entry and any inspections in connection
therewith so as to minimize, to the greatest extent possible, interference with
Seller's business and the business of Seller's tenants and otherwise in a manner
reasonably acceptable to Seller. Without limiting the foregoing, prior to any
entry to perform any on-site testing, Buyer shall give Seller written notice
thereof, including the identity of the company or persons who will perform such
testing and the proposed scope of the testing. Seller shall approve or
disapprove, in Seller's sole discretion, the proposed testing within three (3)
business days after receipt of such notice. If Seller fails to respond within
such three (3) business day period, Seller shall be deemed to have disapproved
the proposed testing. If Buyer or its agents, employees or contractors take any
sample from the Property in connection with any such approved testing, Buyer
shall provide to Seller a portion of such sample being tested to allow Seller,
if it so chooses, to perform its own testing. Seller or its representative may
be present to observe any testing or other inspection performed on the Property.
Upon the request of Seller, Buyer shall promptly deliver to Seller copies of any
reports relating to any testing or other inspection of the Property performed by
Buyer or its agents, employees or contractors. Buyer shall not contact any
governmental authority without first obtaining the prior written consent of
Seller thereto, and Seller, at Seller's election, shall be entitled to have a
representative on any phone or other contact made by Buyer to a governmental
authority and present at any meeting by Buyer with a governmental authority.
Buyer shall maintain, and shall assure that its contractors maintain, public
liability and property damage insurance in amounts and in form and substance
adequate to insure against all liability of Buyer and its agents, employees or
contractors, arising out of any entry or inspections of the Property pursuant to
the provisions hereof, and Buyer shall provide Seller with evidence of such
insurance coverage upon request by Seller. Buyer shall indemnify and hold Seller
harmless from and against any costs, damages, liabilities, losses, expenses,
liens or claims (including, without limitation, reasonable attorney's fees)
arising out of or relating to any entry on the Property by Buyer, its agents,
employees or contractors in the course of performing the inspections, testings
or inquiries provided for in this Agreement. The foregoing indemnity shall
survive beyond the Closing, or, if the sale is not consummated, beyond the
termination of this Agreement.
18
<PAGE>
SECTION 9.4 TIME.
Time is of the essence in the performance of each of the parties'
respective obligations contained herein.
SECTION 9.5 ASSIGNMENT.
Buyer's rights and obligations hereunder shall not be assignable
without the prior written consent of Seller except to an entity in which Buyer
has at least a fifty percent (50%) interest. Buyer shall in no event be released
from any of its obligations or liabilities hereunder in connection with any
assignment. Without limiting the above, in no event shall Buyer have the right
to assign its rights or obligations hereunder to any party which could not make
the representation and warranty contained in subsection 3.5(e) above, and in
connection with any assignment pursuant to the terms hereof, the assignee shall
reconfirm in a written instrument acceptable to Seller and delivered to Seller
prior to the assignment said representation and warranty as applied to the
assignee. Subject to the provisions of this Section, this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns.
SECTION 9.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
SECTION 9.7 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
SECTION 9.8 CONFIDENTIALITY AND RETURN OF DOCUMENTS.
Buyer and Seller reconfirm their respective obligations to abide by the
terms of that certain Confidentiality Agreement dated February 14, 2000 by and
between Buyer and Seller and shall each maintain as confidential any and all
material obtained about the other or, in the case of Buyer, about the Property,
this Agreement or the transactions contemplated hereby, and shall not disclose
such information to any third party. This provision shall survive the Closing or
any termination of this Agreement.
SECTION 9.9 INTERPRETATION OF AGREEMENT.
The article, section and other headings of this Agreement are for
convenience of reference only and shall not be construed to affect the meaning
of any provision contained herein. Where the context so requires, the use of the
singular shall include the plural and vice versa and the use of the masculine
shall include the feminine and the neuter. The term "person" shall include any
individual, partnership, joint venture, corporation, trust, unincorporated
association, any other entity and any government or any department or agency
thereof, whether acting in an individual, fiduciary or other capacity.
19
<PAGE>
SECTION 9.10 LIMITED LIABILITY.
The obligations of Seller are intended to be binding only on the
property of Seller and shall not be personally binding upon, nor shall any
resort be had to, the private properties of any of its trustees, officers,
beneficiaries, directors, members, or shareholders, or of its investment
manager, the general partners, officers, directors, members, or shareholders
thereof, or any employees or agents of Seller or its investment manager.
SECTION 9.11 AMENDMENTS.
This Agreement may be amended or modified only by a written instrument
signed by Buyer and Seller.
SECTION 9.12 NO RECORDING.
Neither this Agreement or any memorandum or short form thereof may be
recorded by Buyer.
SECTION 9.13 DRAFTS NOT AN OFFER TO ENTER INTO A LEGALLY BINDING
CONTRACT.
The parties hereto agree that the submission of a draft of this
Agreement by one party to another is not intended by either party to be an offer
to enter into a legally binding contract with respect to the purchase and sale
of the Property. The parties shall be legally bound with respect to the purchase
and sale of the Property pursuant to the terms of this Agreement only if and
when the parties have been able to negotiate all of the terms and provisions of
this Agreement in a manner acceptable to each of the parties in their respective
sole discretion, including, without limitation, all of the Exhibits and
Schedules hereto, and both Seller and Buyer have fully executed and delivered to
each other a counterpart of this Agreement, including, without limitation, all
Exhibits and Schedules hereto.
SECTION 9.14 ERISA.
Without limiting Buyer's representation and warranty in Section 3.5(e)
above, prior to Seller's execution of this Agreement, Buyer shall furnish to
Seller all information regarding Buyer, its affiliates and the shareholders,
members, investors or partners of each of them (collectively, the "Buyer Related
Parties") as Seller requests in order to enable Seller to determine to Seller's
sole satisfaction that Buyer's representation and warranty contained in Section
3.5(e) of this Agreement is true and correct. Buyer represents and warrants to
Seller that there will not be any change in any such information regarding Buyer
or the Buyer Related Parties prior to or on the Closing.
SECTION 9.15 NO PARTNERSHIP.
The relationship of the parties hereto is solely that of Seller and
Buyer with respect to the Property and no joint venture or other partnership
exists between the parties hereto. Neither party has any fiduciary relationship
hereunder to the other.
20
<PAGE>
SECTION 9.16 NO THIRD PARTY BENEFICIARY.
The provisions of this Agreement are not intended to benefit any third
parties.
SECTION 9.17 LIMITATION ON LIABILITY.
Notwithstanding anything to the contrary contained herein, after the
Closing the maximum aggregate liability of Seller, and the maximum aggregate
amount which may be awarded to and collected by Buyer under this Agreement
(including, without limitation, for any breach of representation and warranty
contained herein), and any and all documents executed pursuant hereto or in
connection herewith (collectively the "Other Documents") including, without
limitation, the Deed, the Bill of Sale and the Assignment of Leases, shall under
no circumstances whatsoever exceed three percent (3%) of the Purchase Price.
SECTION 9.18 SURVIVAL.
Except as expressly set forth to the contrary herein, no
representations, warranties, covenants or agreements of the Seller contained
herein shall survive the Closing.
SECTION 9.19 SURVIVAL OF ARTICLE IX.
The provisions of this Article IX shall survive the Closing.
21
<PAGE>
The parties hereto have executed this Agreement as of the respective
dates written below.
SELLER: OAIC California Partnership II, L.P.,
a California limited partnership
By: Ocwen Capital Corporation
Its: Investment Manager
By:
Its:
BUYER: HCT Investments, Inc.,
a Colorado corporation
By:
Its:
By:
Its:
22
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Real Property Description
Exhibit B List of Tenant Leases and Rent Roll
Exhibit C Bill of Sale
Exhibit D Assignment of Leases, Service Contracts and Warranties
Exhibit E Estoppel Certificate
Exhibit F List of Construction Contracts
Exhibit G List of Tangible Personal Property
Exhibit H List of Contracts
SCHEDULES
Schedule 1 Disclosure Items
<PAGE>
EXHIBIT A
REAL PROPERTY DESCRIPTION
A-1
<PAGE>
EXHIBIT B
LIST OF TENANT LEASES AND RENT ROLL
B-1
<PAGE>
EXHIBIT C
BILL OF SALE
----------------------------------------
This Bill of Sale (the "Bill of Sale") is made and entered into
____________, 2000, by and between OAIC California Partnership II, L.P., a
California limited partnership ("Assignor"), and HCT Investments, Inc., a
Colorado corporation ("Assignee").
In consideration of the sum of Ten Dollars ($10) and other good and
valuable consideration paid by Assignee to Assignor, the receipt and sufficiency
of which are hereby acknowledged by Assignor, Assignor does hereby assign,
transfer, convey and deliver to Assignee, its successors and assigns, free and
clear of any liens or encumbrances created by, through or under Assignor, all
items of tangible personal property, if any, owned by Assignor and situated upon
and used exclusively in connection with the land described on the attached
EXHIBIT A (the "Land") and the improvements located thereon (the
"Improvements"), and described on the attached EXHIBIT B, but specifically
excluding any and all personal property owned by tenants or otherwise considered
the property of tenants under any leases affecting the Land or Improvements (the
"Personal Property").
This Bill of Sale is made subject, subordinate and inferior to the
easements, covenants and other matters and exceptions set forth on EXHIBIT C,
attached hereto and made a part hereof for all purposes.
ASSIGNEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN
THAT CERTAIN AGREEMENT OF PURCHASE AND SALE DATED _______________, 2000, BY AND
BETWEEN ASSIGNOR AND ASSIGNEE (THE "AGREEMENT"), ASSIGNOR HAS NOT MADE, DOES NOT
MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES,
COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER
EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITIONS OF THE
PERSONAL PROPERTY, (B) THE INCOME TO BE DERIVED FROM THE PERSONAL PROPERTY, (C)
THE SUITABILITY OF THE PERSONAL PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH ASSIGNEE MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PERSONAL
PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PERSONAL PROPERTY, OR (F) ANY OTHER
MATTER WITH RESPECT TO THE PERSONAL PROPERTY. ASSIGNEE FURTHER ACKNOWLEDGES AND
AGREES THAT, HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PERSONAL PROPERTY,
ASSIGNEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PERSONAL PROPERTY AND
NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY ASSIGNOR, EXCEPT AS
SPECIFICALLY PROVIDED IN THE AGREEMENT. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES
THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PERSONAL
PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT ASSIGNOR HAS NOT MADE
ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION. ASSIGNEE
FURTHER ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PERSONAL PROPERTY AS
PROVIDED FOR HEREIN IS MADE ON AN "AS IS, WHERE IS" CONDITION AND BASIS "WITH
ALL FAULTS," EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT.
C-1
<PAGE>
The obligations of Assignor are intended to be binding only on the
property of Assignor and shall not be personally binding upon, nor shall any
resort be had to, the private properties of any of its trustees, officers,
beneficiaries, directors, members, or shareholders, or of its investment
manager, the general partners, officers, directors, members, or shareholders
thereof, or any employees or agents of Assignor or its investment manager.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Bill of Sale
to be executed on the date and year first above written.
ASSIGNOR: OAIC California Partnership II, L.P.,
a California limited partnership
By: Ocwen Capital Corporation
Its Investment Manager
By:
Its:
ASSIGNEE: HCT Investments, Inc.,
a Colorado corporation
By:
Its:
By:
Its:
C-2
<PAGE>
EXHIBIT D
ASSIGNMENT OF LEASES, SERVICE CONTRACTS
AND WARRANTIES
-------------------------------
This Assignment of Lease, Service Contracts and Warranties (this
"Assignment") is made and entered into _______________, 2000, by and between
OAIC California Partnership II, L.P., a California limited partnership
("Assignor"), and HCT Investments, Inc., a Colorado corporation ("Assignee").
For good and valuable consideration paid by Assignee to Assignor, the
receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor
does hereby assign, transfer, set over and deliver unto Assignee all of
Assignor's right, title, and interest in (i) those certain leases (the "Leases")
listed on EXHIBIT A, attached hereto and made a part hereof for all purposes and
the security deposits related thereto, including without limitation, any letters
of credit, except for Seller's right to collect delinquent rent and other
delinquent sums owing under such Leases for the period prior to the date hereof,
(ii) those certain service contracts, equipment leases, tenant improvement
agreements, Construction Contracts (as defined in the Agreement), and leasing
agreements (the "Contracts") listed on EXHIBIT B, if any, attached hereto and
made a part hereof for all purposes, and (iii) those certain warranties held by
Assignor (the "Warranties") listed on EXHIBIT C, attached hereto and made a part
hereof for all purposes.
This Assignment is made subject, subordinate and inferior to the
easements, covenants and other matters and exceptions set forth on EXHIBIT D,
attached hereto and made a part hereof for all purposes.
ASSIGNEE ACKNOWLEDGES AND AGREES, BY ITS ACCEPTANCE HEREOF, THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THAT CERTAIN AGREEMENT OF PURCHASE AND SALE,
DATED AS OF _______________, 2000, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE
"AGREEMENT"), THE LEASES, THE CONTRACTS AND THE WARRANTIES ARE CONVEYED "AS IS,
WHERE IS" AND IN THEIR PRESENT CONDITION WITH ALL FAULTS, AND THAT ASSIGNOR HAS
NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS,
WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR
CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT
OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO THE NATURE, QUALITY OR
CONDITION OF THE LEASES, THE CONTRACTS OR THE WARRANTIES, THE INCOME TO BE
DERIVED THEREFROM, OR THE ENFORCEABILITY, MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OF THE LEASES, THE CONTRACTS OR THE WARRANTIES.
Except as otherwise expressly provided in the Agreement, by accepting
this Assignment and by its execution hereof, Assignee assumes the payment and
performance of, and agrees to pay, perform and discharge, all the debts, duties
and obligations to be paid, performed or discharged from and after the date
hereof, by (a) the "landlord" or the "lessor" under the terms, covenants and
conditions of the Leases, including, without limitation, brokerage commissions
and compliance with the terms of the Leases relating to tenant improvements and
security deposits (including without limitation, any letters of credit), and (b)
the owner under the Contracts and/or the Warranties. Assignee agrees to
indemnify, hold harmless and defend Assignor from and against any and all
D-1
<PAGE>
claims, losses, liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees) resulting by reason of the failure of
Assignee to pay, perform or discharge any of the debts, duties or obligations
assumed or agreed to by Assignee hereunder. Assignor agrees to indemnify
Assignee and hold harmless and defend Assignee from and against any and all
claims, damages, liabilities, losses, costs and expenses (including, without
limitation, reasonable attorney's fees) resulting from any default by Assignor
with respect to Assignor's obligations accruing for the period prior to the date
hereof, (a) as the landlord under the Leases or (b) as owner under the
Contracts, excluding with respect to clauses (a) and (b) any such debts, duties
or obligations arising out of or in any way related to the physical,
environmental or structural condition of the Property, as such term is defined
in the Agreement.
The obligations of Assignor are intended to be binding only on the
property of Assignor and shall not be personally binding upon, nor shall any
resort be had to, the private properties of any of its trustees, officers,
beneficiaries, directors, members, or shareholders, or of its investment
manager, the general partners, officers, directors, members, or shareholders
thereof, or any employees or agents of Assignor or its investment manager.
All of the covenants, terms and conditions set forth herein shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
to be executed on the day and year first above written.
ASSIGNOR: OAIC California Partnership II, L.P.,
a California limited partnership
By: Ocwen Capital Corporation
Its Investment Manager
By:
Its:
ASSIGNEE: HCT Investments, Inc.,
a Colorado corporation
By:
Its:
By:
Its:
D-2
<PAGE>
EXHIBIT E
FORM OF ESTOPPEL
TENANT ESTOPPEL CERTIFICATE
TO:
Attn:
Re: Lease, dated as of , 19 , between , a , as tenant
("Tenant"), and , a , as landlord ("Landlord"),
covering certain premises known by the street address
___________Street, Suite , in the City and County of
San Francisco, State of California (the "Leased
Premises"), as amended as noted on attached SCHEDULE
A (collectively, the "Lease")
Gentlemen:
The undersigned Tenant hereby represents, warrants and certifies to
("[Landlord/Buyer/Lender]") that:
1. The Lease has not been modified, changed, altered or amended
in any respect, either orally or in writing, except as may be indicated on
Schedule A annexed hereto, and constitutes the entire agreement between Tenant
and Landlord affecting Tenant leasing of the Leased Premises. A true and correct
copy of the Lease is attached as Schedule B. The Lease is in full force and
effect and is not subject to any contingencies or conditions not set forth in
the Lease.
2. The term of the Lease commenced on __________________ and will
expire on __________________; the Tenant has ___ successive options to renew the
Lease term, each for an additional period of ___ years.
3. The monthly base rent payable by Tenant under the Lease is
$_______________. Tenant has paid all fixed and additional rent and other sums
which are due and payable under the Lease through the date hereof, and Tenant
has not made and will not make any prepayments of fixed rent for more than one
month in advance. There are no presently unexpired rental concessions or
abatements due under the Lease except as set forth on Schedule A annexed hereto.
Tenant has no credits, offsets, abatements, defenses, counterclaims or
deductions against any rental or other payments due under the Lease or with
respect to its performance of the other terms and conditions of the Lease, and
has asserted no claims against Landlord.
4. Tenant has paid to Landlord as a security deposit in the
amount of $___________. Tenant has not made any other the payments to Landlord
as a security deposit, advance or prepaid rent.
E-1
<PAGE>
5. Landlord has completed, and, if required under the Lease, paid
for, any and all tenant work required under the Lease and Tenant has accepted
the Leased Premises. Tenant is not entitled to any further payment or credit for
tenant work.
6. To Tenant's best knowledge, Landlord is not in default in the
performance of any of the terms of the Lease, nor is there now any fact or
condition which, with notice or lapse of time or both, will become such a
default. Tenant has not delivered to Landlord any notice of default with respect
to the Landlord's obligations under the Lease.
7. Tenant is in actual possession of the entire Leased Premises
and, to Tenant best knowledge, is not in any respect in default under any of the
terms and conditions of the Lease, nor is there now any fact or condition which,
with notice or lapse of time or both, will become such a default. Tenant has not
received from Landlord any notice of default with respect to the Tenant
obligations under the Lease.
8. Tenant has not assigned, transferred, mortgaged or otherwise
encumbered its interest under the Lease, nor subleased any of the Leased
Premises, nor permitted any person or entity to use the Leased Premises, except
as otherwise indicated on Schedule A annexed hereto.
9. Except as expressly provided in the Lease, Tenant
(i) does not have any right to renew or extend the term of the
Lease,
(ii) does not have any right to cancel or surrender the Lease prior
to the expiration of the term of the Lease,
(iii) does not have any option or rights of first refusal or first
offer to purchase or lease all or any part of the Leased Premises or
the real property of which the Leased Premises are a part,
(iv) does not have any right, title or interest with respect to the
Leased Premises other than as lessee under the Lease, and
(v) does not have any right to relocate into other property owned
by Landlord or any of Landlord's affiliates.
10. There has not been filed by or against Tenant a petition in
bankruptcy, voluntary or otherwise, any assignment for the benefit of creditors,
any petition seeking reorganization or arrangement under the bankruptcy laws of
the United States, or any state thereof, or any other action brought under said
bankruptcy laws with respect to Tenant.
11. If Tenant is required to provide insurance coverage under the
Lease, Tenant has not given or received written notice that Tenant insurance
coverage will be canceled or will not be renewed.
12. To Tenant's best knowledge, all systems, elements and
components of the Leased Premises are in good working order and repair and sound
operating condition. To Tenant's best knowledge, Tenant's use and occupancy of
the Leased Premises complies with all applicable building, zoning, land use,
E-2
<PAGE>
environmental, anti-pollution, health, fire, safety, access accommodations for
the physically handicapped, subdivision, energy and resource conservation and
similar laws, statutes, rules, regulations and ordinances, and all covenants,
conditions and restrictions applicable to the Leased Premises. Tenant has not
received any notice, citation or other claim alleging any violation of any such
law, statute, rule, regulation, ordinance, covenant, condition or restriction.
13. To the best knowledge of Tenant, any and all brokerage and
leasing commissions relating to and/or resulting from Tenant's execution and
delivery of the Lease and occupancy of the Leased Premises have been paid in
full.
14. The individual executing this Tenant Estoppel Certificate on
behalf of Tenant represents and warrants that he has the power and the authority
to execute this Tenant Estoppel Certificate on behalf of Tenant.
15. [LANDLORD/BUYER/LENDER] has advised Tenant that
[LANDLORD/BUYER/LENDER] will rely upon the truth of this certification in
acquiring the Leased Premises. This Tenant Estoppel Certificate shall inure to
the benefit of [LANDLORD/BUYER/LENDER] and its respective nominees, successors,
assigns, participants and designees and shall be binding upon Tenant and its
successors and assigns.
Dated this day of , 2000 .
TENANT:
,
a corporation
By:
Name:
Its:
By:
Name:
Its:
E-3
<PAGE>
EXHIBIT F
LIST OF CONSTRUCTION CONTRACTS
F-1
<PAGE>
EXHIBIT G
LIST OF TANGIBLE PERSONAL PROPERTY
G-1
<PAGE>
EXHIBIT H
LIST OF CONTRACTS
H-1
<PAGE>
SCHEDULE 1
DISCLOSURE ITEMS
1. Natural hazards described in the following California code
sections (the "Natural Hazard Laws") may affect the Property: (A) Govt. Code
Section 8589.3 (Special Flood Hazard Area); (B) Govt. Code Section 8589.4
(Inundation Area); (C) Govt. Code Section 51183.5 (Fire Hazard Severity Zone);
(D) Public Resource Code Section 2621.9 (Earthquake Fault Zone); (E) Public
Resource Code Section 2694 (Seismic Hazard Zone); and (F) Public Resource Code
Section 4136 (Wildland Area). Seller's Broker shall execute and deliver to Buyer
a Natural Hazards Disclosure Statement with respect to the foregoing matters
(the "Natural Hazards Disclosure Statement"). Buyer acknowledges and agrees that
Buyer will independently evaluate and investigate whether any or all of such
Natural Hazards affect the Property, and Seller shall have no liabilities or
obligations with respect thereto. Prior to the expiration of the Contingency
Period, Buyer shall execute and deliver to Seller the Natural Hazards Disclosure
Statement. BUYER ACKNOWLEDGES AND REPRESENTS THAT BUYER HAS EXTENSIVE EXPERIENCE
ACQUIRING AND CONDUCTING DUE DILIGENCE REGARDING COMMERCIAL PROPERTIES. THIS
PROVISION IS AN ESSENTIAL ASPECT OF THE BARGAIN BETWEEN THE PARTIES.
2. A former tenant, Da Tung Commercial Trading Company ("Da
Tung") filed a complaint on January 13, 2000 with the Superior Court of
California County of San Francisco against Compass Management, LaSalle Partners
Management Services, and OAIC California Partnership II, L.P. alleging
intentional or negligent misrepresentation regarding operating expenses charged
to Da Tung and Da Tung has requested damages in the amount of $25,000 with
interest, attorney fees and punitive damages.
3. Seller is completing roof repair work which work is contracted
for as set forth on EXHIBIT F attached hereto.
4. Any matters disclosed or referred to in those reports listed
below which shall be delivered to Buyer within five (5) days after the Effective
Date:
(a) Sears Brown seismic assessment report prepared for MKRA, Inc.
dated April 30, 1992;
(b) Building assessment report prepared by Ottolini and Booth for
Huang Huat Associates dated August 13, 1997;
(c) Seismic report for Ocwen Financial Corporation prepared by
Eckland Consultants dated November 24, 1997;
(d) Structural investigation of 690 Market Street prepared by
Robert Crosby for Lasalle Partners, Inc. dated February, 1999; and
(e) Seismic Review Letter by Myers Houghton & Partners, Inc. dated
August 27, 1998 to Compass Management and Leasing.
5. The Property is known to contain limited asbestos containing
materials and some lead paint. Within eight (8) days after the Effective Date,
Seller shall provide a draft or final Phase 1 environmental report to Buyer
which shall provide information as to the location of asbestos and lead paint on
the Property, as determined by the consultant.
S1-1
<PAGE>
6. In July, 1999, an elevator violation was issued by the State
of California Elevator Ride and Tramway Unit for the basement space occupied by
the tenant Washington Mutual Bank for a ramp to provide access to one elevator
that is raised approximately 16" from the floor. Washington Mutual Bank has been
notified of the violation and the work is approximately seventy-five percent
(75%) complete.
7. The Department of Public Works, Bureau of Building Inspection
for the City of San Francisco sent a letter dated February 22, 1994 to the owner
of the Property at the time. This letter describes implementation deadlines for
the retrofit installation of automatic sprinklers. Seller is in the process of
completing the water supply (base system) for the automatic sprinkler system(s)
which was to be completed by February 15, 1999.
8. The Department of Building Inspection for the City of San
Francisco sent a letter dated November 26, 1997 to the owner of the Property at
the time. An accessibility violation was created by Washington Mutual Bank for
the relocation of an ATM machine from the Market Street side to the Kearney
Street side of the building. The tenant has been notified of its responsibility
and has remedied the violations. It is unclear if the Department of Building
Inspection has conducted a final inspection of the work.
S1-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 2000 and the
Consolidated Statement of Operations for the Three Months Ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001033643
<NAME> OCWEN ASSET INVESTMENT CORP.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 47,658
<SECURITIES> 57,738
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 631,753
<CURRENT-LIABILITIES> 19,878
<BONDS> 251,366
0
0
<COMMON> 0
<OTHER-SE> 143,494
<TOTAL-LIABILITY-AND-EQUITY> 741,362
<SALES> 0
<TOTAL-REVENUES> 23,958
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,884
<LOSS-PROVISION> 78
<INTEREST-EXPENSE> 10,601
<INCOME-PRETAX> 6,395
<INCOME-TAX> 1,906
<INCOME-CONTINUING> 6,395
<DISCONTINUED> 0
<EXTRAORDINARY> 2,182
<CHANGES> 0
<NET-INCOME> 6,671
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
